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New Zealand – Wage growth set to outstrip Australia

07 July 2015

New Zealanders could be in for a pay rise with wage growth in the country expected to outpace Australia's wage growth over the next few years, according to Nick Tuffley, chief economic at ASB Bank, reports stuff.co.nz.

A Fairfax Media survey of 25 Australian economic forecasters found that the majority believe Australian wages will struggle to grow at the same pace as inflation over the next three-to-four years resulting in a "prolonged period" of subdued or zero real income growth.

Mr Tuffley said wage growth in New Zealand has been tracking slightly faster than in Australia recently, but not by much: "We do have a tighter labour market and that's one reason for that.”

Wages in New Zealand are expected to grow by 2.5% this year and 3.4% next year, while Australian wages are expected to grow by 2.5% this year and 2.9% in 2016, he said.

The country’s unemployment rate is expected to continue to trend downward, which will put upward pressure on wages, he said.

A reasonable wages gap still exists between Australia and New Zealand and that is not going to close significantly in the near future.

"We're not going to close the gap up markedly in a short space of time," Mr Tuffley said.

The Australian forecasters were asked if they thought Australia was entering a period of sustained flat or falling real wages and what the implications might be. Of the 25 forecasters, 21 believe that Australia is entering, or had already entered, a period of low or zero real wage growth.

Just one forecaster believes wage growth had actually bottomed and that wages would start to pick up again soon.

Tony Pownall, general manager of recruitment firm Hudson in Auckland said that while New Zealand employers' hiring sentiment had slipped from record highs, it is still robust: "The harder it is to find talent the more that there is a price war to secure it. But we're only seeing that in aspects of the market in particular role types and in particular niches."

Mr Pownall does not believe overall New Zealand wage growth will outstrip inflation in the near future expect within a select few sectors: "When it all averages out I would expect wages increases this year to be no more than the inflation rate or little more than the inflation rate."

New Zealand businesses could keep a lid on wages because they were used to being frugal following the global financial crisis, whereas Australian businesses had a mining and infrastructure boom which helped keep its wages elevated, he said.

"New Zealand businesses have been frugal for longer and have got that habit well and truly ingrained now to think very carefully about cost," Mr Pownall added, saying that it was a mentality that would last a while yet.