Results from the June 2020 Labour Cost Index (LCI)[1] show that salary and wage (including overtime) rates increased by 0.2% in the public sector in the June 2020 quarter (down from 0.5% in the March quarter), and also by 0.2% in the private sector (down from 0.3% in the March quarter). Within the public sector, the increase in the Public Service was 0.1% (down from 0.3% in the March quarter). The increase for all sectors combined was also 0.2%. Stats NZ notes this is the lowest quarterly increase since December 1994. It is not clear yet how much of this result is due to the one-off impact of the lock-down, against the ongoing economic impact of COVID-19.

In the year to June 2020, the annual wage rate increase was 3.0% for the public sector and 1.7% for the private sector. The overall rate was 2.1% for all sectors. Inflation, as measured by the CPI, increased by 1.5% for the year to June 2020. In the public sector, we have now seen an annual increase at, or above, 3.0% for four consecutive quarters, sustained by high quarterly wage growth in the September 2019 quarter, which resulted from pay increases for teachers, nurses, and police constabulary that quarter. Within the public sector, annual wage movement in sub-sectors varied: Public Service (up 3.0%), health sector (up 4.2%), education sector (up 3.5%) and local government (up 2.1%).

On 28 April 2020, the then State Services Commissioner sent a letter to chief executives in the State sector to outline expectations for pay restraint in their agencies. The impact of this should be felt in the September and December quarters, as most individual remuneration increases have historically, been applied yearly from 1 July.

With the recent decrease in wage growth, it is useful to look back at the last slowdown in the years after the Global Financial Crisis (GFC) in 2008/09. In the short-term, wage rate increases in the private sector declined more (-0.5 percentage points between the September and December 2008 quarters) than the public sector (-0.1 percentage points). This is similar to what occurred between the March and June 2020 quarters, with the decline in in annual wage growth greater in the private sector (-0.7 percentage points) than in the public sector (-0.2 percentage points).

In the longer term, there was a sustained decline in wage growth rates in the public sector following the GFC, and a shorter, steeper, decline followed by a period of more moderate rises in the private sector. Over the period, March 2010 to June 2020 public sector wage growth tracked below the private sector in most quarters. Public sector wage rates grew at an average pace of 1.7% per year over this period, and within it the Public Service at 1.5% per year, compared to a faster pace in the private sector of 1.9% per year.

The chart on the second tab of the visualisation above, shows the LCI trend in salary and wage movements of selected sectors since March 2010, on a quarterly cumulative basis. Successive quarters in which wage movements in the private sector have exceeded those in the public sector have led to the gap in their cumulative wage movements becoming wider over time. This trend has been reversing since late 2018. The health sector had a significant increase from its latest round of wage settlements in 2018-2019.

By 30 June 2020 (ten years and a quarter later), public sector wages had increased by 18.4% compared with 21.0% in the private sector. The CPI increased by 14.8% over the same period (excluding the effect of the GST increase on 1 October 2010 from 12.5% to 15%). Within the public sector, Public Service wages increased by 16.9%, compared with 16.7% in the education sector, 20.7% in the health sector and 21.6% in local government.

[1] Stats NZ’s LCI is an official measure of wage inflation. It measures changes in salary and wage rates that employers pay for the same job done at the same standard. The LCI does not reflect compositional change in the workforce, service increments, merit promotions and increases relating to performance.

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