Home > Our Publications > New Zealand Outlook > 2005 > April

Shortage of skills to push wages

WAGES are going up fast enough to increase the chances of another interest rate rise, but not fast enough for workers.

The labour cost index showed wages up 2.5 per cent in the past year, less than inflation at 2.7 per cent, but greater than expected. The index measures labour costs, adjusting for pay rises for greater productivity.

The annual increase in wages was the biggest in seven years and showed wage pressure was "simmering", National Bank economists said.

"Skill shortages will ensure that wage pressures persist," they said.

Wage increases were expected to be a key driver of domestic inflation in coming years, with unions' plans to push up wages with "industrial action if needed", according to ASB.

Council of Trade Unions president Ross Wilson said industries were not doing enough to boost pay rates to hold on to skilled workers. Wages were still on average 25 per cent lower than in Australia, and increases lagged behind inflation, while house prices were up strongly.

Present business profits and productivity justified better pay, and unions would be making a case for "reasonable pay rises". The CTU wanted industry groups to get together with unions to look at skills shortages, productivity and "how to provide decent pay to attract workers".

Deutsche Bank chief economist Ulf Schoefisch said labour cost inflation was "relatively modest" and would not significantly lift general prices.

"We expect rising labour costs to be absorbed through a contraction in profit margins, leaving inflation around 2.5 per cent going forward."