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Wage growth remains weak

WAGE growth for most workers remains weak, despite record low unemployment and the most sustained economic growth in 40 years.

Economists and an increasingly agitated union movement say the spoils are going into profits and taxes rather than wages.

Research published by Westpac confirms wage growth in most occupations has been unusually low just as many employers struggle to find workers.

The research emerged as New Zealand's biggest union, the Engineering, Printing and Manufacturing Union, began a campaign to raise wages that could include industrial action.

The Council of Trade Unions backed the campaign, its economist, Peter Conway, saying: "It is the right time to be talking about this.

"The main reason is because there are high levels of profitability, so employers in general can afford a decent pay increase," he said.

The Westpac research showed pay rises for most people remained less than the inflation rate, which was 2.7 per cent in the December quarter.

Westpac economist Brendan O'Donovan said: "The spoils have gone through to employers in the form of higher profits, to the Government in higher tax receipts, and also to new employees."

The deregulation of the labour market in the mid-1990s and the opening of the economy to foreign competition had kept a lid on wage growth, he said.

"Wage growth has been quite modest when you consider the strength of the growth in the economy, the difficulty employers are having finding workers and the productivity gains being delivered."

Only a few pockets had seen strong wage growth, he said. Sectors that were sheltered from foreign competition and where labour shortages were severe - such as construction, hairdressing and gardening - had had the biggest increases.

But in most areas, including communications, forestry, retail, restaurants, cafes, energy and transport, wage increases were 2.5 per cent or less, the Westpac research showed. New Zealand's wage growth is low in international terms, particularly given that its unemployment rate of 3.8 percent is the second lowest in the OECD.

A survey by employment consultants Mercer last month showed the real wage growth expected this year would be 0.2 percent, the lowest in the industrialised world.

Mr O'Donovan said employees appeared not to have been adequately compensated for exceptional economic growth since late 1999.

Real unit labour costs - a truer measure of the cost of labour, which adjusts for how much each worker produces and inflation - had fallen 0.8 per cent on average every year for the past four years.

This measure of wage costs was only now starting to rise, Mr O'Donovan said.

"We would have expected there was far more catching up for wages to do, particularly given the tight labour market."