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Article: Trends in the next two years, are there pay pressure points?

Written by John McGill on July 21st, 2015.      0 comments

Written by John McGill, 21st July 2015
 
We may be near the Goldilocks spot with exchange rates in New Zealand (ie just right) but what about pay levels?  Expectations are relatively muted. John McGill questions what could cause this to change.
                                                                                                   

The past two years: Stable wage and salary levels combined with real growth

 
There have long been a number of key factors that cause pay levels to increase. What we have seen in the years since the GFC is an unusual mix of minimal pressures in the workplace. Price inflation has been very low so this traditional issue has not arisen. Interest rates are also at moderate levels and hence mortgage repayments have also been lower than previously. The exchange rate has been high and combined with high milk prices we have been shielded from overseas inflation. There has been some further debate that perhaps there was a trade-off between jobs and pay in recent years as a result of the GFC. Hard to say really, sounds more like a good theory, correlation without causation.
 
Overall real wage and salary levels have increased in the past two years; a positive and actual benefit for many employees (notwithstanding Auckland house prices of course).
 
Real pressure for greater pay movements has yet to be seen. Our surveys continue to show relatively moderate movements (1% to 2.5%) with only a few isolated areas and roles commanding premiums above that, noticeably Canterbury and Engineering/Construction. Official stats are similar overall and show the Labour Cost Index moving by 1.7% and the Quarterly Employment Survey by 2.1%.
 
Expectations among employees are always optimistic on higher levels of pay but within organisations we see levels of turnover relatively subdued, we see also little increase in salary budgets planned for the next year, and our regular surveys of potential pay movements remain low.
 

What can change?

 
But how quickly circumstances can change: steadily decreasing milk payouts, a falling dollar, serious concerns with growth in China not to mention the Greece crisis, have all changed the outlook somewhat. Reflecting the massive fall, 40% at last count, in iron ore prices in Australia has seen the rise of unemployment across the Tasman now at levels above that of New Zealand. This has not been the case since 2009. In turn it generates a reverse in migration patterns which also puts pressure on our labour market.
 
The impact of a falling dollar is usually felt first with fuel pump prices, typically  a noticeable pressure point for many households. We may see this in the coming months if the dollar stays at current levels and crude oil prices start rising. However, with large supplies of oil worldwide and now the potential for Iran to re-enter the market this may be less of a concern.
 
The OCR is going backwards at the moment, good news generally for home buyers.
 
As at the time of writing changes have been slow to affect movements in pay above those current levels. Our economy has proved resilient in recent years and current economic forecasts expect this to continue. There has been some paring back of the rosiness of the near future but the outlook remains positive. For those in employment this is good news. Remember that high wage movements do not occur spontaneously but usually reflect rapidly increasing prices caused by a multitude of collateral issues: be careful what you wish for.
 
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