ASB is expecting the hikes to the minimum wage, wide fair pay agreements and collective bargaining will see the end of years of sluggish wage growth

The raising of the minimum wage to $20 an hour in three years’ time could mark the end of years of sluggish wage increases for Kiwi workers, says ASB.

The proposed imposition of industry-wide fair pay agreements by the Government, as well as moves towards collective bargaining, could also help workers bring home more pay, the bank says.

But businesses remain cautious as to the impact of these policies on firms overall costs.

One of ASB's senior economists, Mark Smith, is forecasting that the combination of these things could add up to 1% to wage inflation per year.

The Government has promised to raise the minimum wage, currently at $16.50 an hour, to $20 by 2021. This is an increase of 25% since 2017 levels.

Coupled with the $2 billion pay equity settlement for 55,000 care and support workers, announced last year, and the $104 million settlement for midwives announced in the 2018 Budget, Smith is expecting employees in all sectors to benefit.

“It’s tilting the balance from more towards the employer, to more towards the employee.”

This will come as good news to Kiwi workers who have experienced years of low wage growth, despite a resilient economy.

Statistics New Zealand data reveal almost 50% of salary and wages showed no annual increases over the last year, with 17% showing annual increases of 2% or less.

There are a number of reasons for this, Smith says.

These include a slowdown in labour productivity growth, a more digitally integrated economy and low consumer price index (CPI) inflation.

“What you’re getting now is an increasingly grumpy Labour force, we have had pretty strong economic growth over the last few years and workers really want to know ‘where is my pay off?’”

He says the wage increases for people at the bottom of the labour market will filter through to the rest of the market.

Last week’s NZIER Quarterly Survey of Business Opinion (QSBO) revealed that businesses remain worried about the impact of the minimum wage hike on their profitability levels.

ANZ’s business confidence figures tell a similar story.

An overall increase in wages would also see CPI inflation tick up as well.

Smith says the Government’s moves on wages would see between 0.3% and 0.7% added to consumer price inflation (CPI) through to the middle of 2022.

New Zealand’s headline inflation has been below its 2% target for every quarter, bar one, since 2011.

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23 Comments

Business are worried that consumers are going to have more to spend?

"One of ASB's senior economists, Mark Smith, is forecasting that the combination of these things could add up to 1% to wage inflation per year."

So still less than inflation..

"could ADD up to 1%" that is on top of the current rate of wage inflation.

Higher wage,beauty,high rents able to be asked for.

It all seems likely to me. We will still have wages below most of the countries we natuarally compare ourselves with (UK, Germany, USA, Australia, etc) and the clamour from NZ businesses will get all the louder to employ more immigrants for jobs that are reputedly vital to the economy: Chef, Baker, Tourist Guide, Fruit-picker, Care-giver, Bus Driver, etc - expect to see more foreign nurses and teachers and their family members at the checkout or as Uber drivers.

Many of those countries have lower starting tax bands and higher top tax bands than New Zealand which means even on the same money ordinary people pay less tax.

and the clamour from NZ businesses will get all the louder to employ more immigrants for jobs that are reputedly vital to the economy: Chef, Baker, Tourist Guide, Fruit-picker, Care-giver, Bus Driver, etc - expect to see more foreign nurses and teachers and their family members at the checkout or as Uber drivers.

Businesses clamouring to avoid paying the wages that would attract people to these jobs, basically. Much more than any actual shortages.

Will this result in a change in disposable income however? It seems to me that there are also substantial new taxes being levied that may mitigate any change to disposable incomes. Let's see what materialises.

do they also foresee higher unemployment ? the impact of the home and community settlement has been an effective freeze in all recruitment - as the settlement did not fully compensate employers - Staff are worked harder less downtime - only essential training - regular staff meetings moved from fortnightly to monthly - no additional supervisions -

In other places - they are reworking rosters and services to go with 5 junior clinicians at 50- 55K a pop as opposed to seven Level 4 health assistants at $50,900 each !

Higher pay means higher goods cost - and for a huge number of these staff it came in one hand and out the other as they lost parts of their WFF and accomodation top ups!

Net result - slightly higher pay but large increase in costs - not to mention the fuel tax sorry levy

Not seeing much coming back in terms of higher outputs and productivity - in fact we have seen the scrapping of all the main health targets and a removal of national standards - so in fact we are taking away the key measurements of success - with no replacements as a reward for higher wages ???

You can bet your life taht if the government does want to instigate new targets and standards it will cost them down teh road - they should have been part of these negotiations - increased pay for better outcomes all done together!

Higher inflation means interest rates go up. What you gain in your pay packet, you can give to the bank or your landlord.

We could give more to the landlord.. but why would we? rentals are a competitive market.

Only if you are renting or have a mortgage. If you have paid off the mortgage, then the increase is usually spent in the economy. However, I have decided to stash half my salary away for a stormy day. No more spending for me for a while.

And some. A 2 percent increase on a 300k mortgage increases the interest dollars per week much higher than a 2 percent increase in a salary @ $75k pre-tax. $80 vs $30.

Well I just received a 5.3% pay increase last week, so perhaps wages are starting to increase. My employer has a policy that no employee shall receive less than the living wage and yearly increases is also written into our contracts as long as there are no performance issues. I consider myself very lucky.

Mine average 3 to 4% annually but this year I received 8%.

That is good news for you and your family. Lets hope that salary increases start to reduce the debt over time.

"three years’ time could mark the end of years of sluggish wage increases for Kiwi workers"

As I have said in a previous comment.. The country has X amount of dollars for wage and salaries. For stable economic growth ( not to rely on immigration population growth) The center 50% of wage and salary earners on a bell graph, need to earn 50% of the total wage bill. The middle 50% was moved well to the lower end , the 50% wage/ salary have moved well up into the to top 25%.
This is the most basic of economics, proven over centuries with long term stable growth economies, and with those economies that have failed to do so. The only exceptions in a capitalist system is where slavery and serfdom have existed over the last several 1000s of yr.
If the middle 50% of the bell graph are increased willy nilly or wage/ price freezes etc we end up with situations of the muldoon yrs, the 1930s 1870s/ 90s.. Runaway inflation, interest rates etc.
To correct the situation a redistribution of the total countries wage salary bill needs to take place. And NOT by taxation, low income subsidies (to the lower middle 50% and bottom 25%)
This boils down to those on fat salaries who should be in the middle of the 50%, the top 25% not taking further income increases.
Such practises have been taken in the past (ford would be the classic example) with interesting production results.
Right now we dont have 'Fords' nor politicians with the balls to do so..
Therefore all the grizzling, finger pointing at governments patch economic growth with population growth, piling populist income subisties to 'so called redistribute income, working wage/ min wage increases will do nothing.
So hang tight for the ride of the middle 50% demanding a bigger share (rightly so) of the national wage bill.

How many in the same breath complain of the rise of the middle 50% then in the next breath, complain of the excessive salaries in many of our councils government depts?
Now put the 2 together

You do realise you are talking nonsense, right?
The middle 50% of the bell graph

The country does not have X amount of dollars for wages. The country (in a stable state) has a given amount of labor, capital, and technology for output. From that we derive wages.

Don't misunderstand the Ford example.
That wasn't about redistribution of wealth from the rich to the poor(er), at all. That was firmly about increasing the wealth of those at the right hand tail of the wealth distribution through many channels.

"The country (in a stable state) has a given amount of labor, capital, and technology for output. From that we derive wages." And total wage bill can be anything they choose.. yeah right...
All products all companies (and countries ) have X amount they can afford to pay in salaries and wages, just like all their other expenses like rent, tax, office equipment....its all part of their budget...
It is how each of there expenses are allocated that determiners if they operate well or simply go bust.
Its not rocket science..
Even Winny the other day said "there is no more in the coffers..."
Or put another way , the total wage salary bill is at its max and any increases will need to be from redistricting that total bill... or print more money.

Think about this .. A company is going into some serious wage negotiations.. what is the 1st thing asked internally? "what can we afford?"
That question would not be asked if there was not a limit on the wage salary budget.
The same question is of concern to other posters... can we afford this what will be the consequences

As to Ford.. good economic growth not reliant on immigration to increase internal spending relies on a large proportion of the population being able to afford to buy homes, goods services...basic economics.
Our problem is not unaffordable rents , unaffordable homes by that the middle 50% no longer EARN enough to buy these things...
Back that up with stats over the last 30+ years of the middle 50% of the population nett income .. spending power has been reducing back.

Output is a function of productivity. And wages a function of that.
There is a constraint on total wages, yes. But, labor isn't of a fixed productive capacity (except in some simplified models). So, what you need to be arguing is that the distribution of productivity of human capital needs to be flatter. Not that wages need to be redistributed.

People like you fail to comprehend that executives in private companies get high salaries because they are highly productive people. As soon as you start punishing productivity, that's when things turn to shit. What you are advocating is the removal of incentive for increasing human capital/productivity. It's a fundamentally stupid idea that can only manifest in the mind of a person who tries to correlate history with their lack of economic intuition.

"Back that up with stats over the last 30+ years of the middle 50% of the population nett income .. spending power has been reducing back."
That's just fundamentally untrue.

"Output is a function of productivity. And wages a function of that."

yep and productivity is a function of purchasing that production.
If the wage salaries are too low then we can output/ produce all we like... stock pile then go bust and dump it...
Rather a short sight not thought thru statement
What comes 1st demand from wages or production ?
"build it and they will come " is something made of movies.
The cart goes behind the horse.

Since NZ is a cartel of cartels any rise is wages is eaten by rents, supermarkets, petrol stations, council rates, banks, fletchers etc. Prices here are based on gouging not what the goods or services actually cost to deliver.
This is all good for the big boys capturing that productivity, but it does very little to improve peoples' purchasing power.

Given that any "lift all boats" increases will be captured by the 'opolies the only way to get ahead in NZ is to get paid more than other people - it's a zero sum game as long as we don't have competition.

If Labour are serious they would give the ComCom a whip and get rid of the red tape that is hindering developments of quality housing and big shops.

But the shareholders want dividends.