1.1% drop in unemployment - are salaries set to improve?

Posted on 6 May 2010

Only two days ago we showed how average wages have flat-lined over the last few months. But today there was a surprise drop in the unemployment rate from 7.1% to 6.0%, possibly indicating that salaries will again start to increase.

The Household Labour Force Survey released by Statistics New Zealand today showed that unemployment dropped by 25,000 over the March 2010 quarter while employment grew by 22,000 people, giving a net seasonally adjusted drop in the unemployment rate of 1.1%.

NZ unemployment rate 2007 to 2010

Will salaries increase?

Indications so far are that Consumer Price Inflation remains subdued, and although the unemployment rate has improved, at 6% it is still high compared with rates of recent years (prior to 2009). Therefore there may still be a little slack to pick up in the labour market before strong wage competition starts to kick in.

It's also too soon to tell whether the March unemployment rate is an anomaly, but the large drop does give weight to the idea that the market has reached its turning point. Further support for rising wages comes with the Reserve Bank's recent indication that OCR increases are on the cards, perhaps as soon as next month.

The time may be near to ask your boss for a long overdue pay-rise.