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Source: MIL-OSI Submissions

COVID-19 slows wage growth despite minimum wage increase – Media release

5 August 2020

The labour cost index (LCI) salary and wage rates (including overtime) rose 0.2 percent in the June 2020 quarter, the lowest quarterly increase since December 1994, Stats NZ said today.

“The government raised the minimum wage from $17.70 to $18.90 an hour on 1 April, but the overall LCI rose only 0.2 percent over the June 2020 quarter, as efforts to slow the spread of COVID-19 saw a drop in revenue for many businesses,” prices senior manager Aaron Beck said.

The LCI was up 2.1 percent for the year to the June 2020 quarter.

“Without an increase in the minimum wage in the June 2020 quarter, the headline LCI all salary and wage rates would’ve been flat over the quarter, and 1.8 percent over the year,” Mr Beck said.

Text alternative for diagram Labour cost index (all salary and wage rates) excluding minimum wage effect and collective agreements effect

The main industries driving the increase in the LCI in the June quarter were among those typically impacted by the increase in minimum wage – retail trade (up 1.0 percent) and accommodation and food services (up 1.7 percent). This was partly offset by falling wages in the information, media, and telecommunications (down 2.3 percent), and construction (down 0.5 percent) industries. Firms in these industries reported reduced pay to employees by the LCI reference date of 15 May 2020.

Two percent of salary and wage rates (excluding overtime) decreased compared with this time last year, the highest proportion of decreases annually since March 1993.

“Around two thirds of the pay drops recorded this quarter were between 10-20 percent, as some employers faced difficulties providing full pay,” Mr Beck said.

Annual labour cost index

Annually, the LCI increased 2.1 percent, down from 2.5 percent last quarter. Wage inflation in the public sector increased 3.0 percent to the year to the June 2020 quarter, down from 3.2 percent in the previous quarter, on the back of several quarters driven by collective employment agreements in the healthcare and social assistance, and education and training industries. Private sector wage inflation increased by 1.7 percent over the year to the June 2020 quarter, slowing down from 2.4 percent last quarter.  

The LCI salary and wage rates measures movements in wages for a fixed quantity and quality of labour. This means that changes in pay rates due to the performance of employees or promotions are not shown in the index. COVID-19 impacts on salary and wage rates in the June 2020 quarter were more often reported as a quantity changes (for example, changes in hours or responsibilities), which is not shown in the index. Changes in pay rates for employees were shown in the LCI only if the same job was completed to the same standard – both quality and quantity of labour was unchanged.

The unadjusted LCI on the other hand, takes into account quality (but not quantity) factors that make it more comparable with the earnings measures in the quarterly employment survey (QES). In the year to the June 2020 quarter, the unadjusted LCI increased 3.1 percent, and the QES average ordinary time hourly earnings increased to $33.33, up 3.0 percent.

The annual increase in average ordinary time hourly earnings was in part a result of the minimum wage and collective pay agreement increases that also impacted the LCI.

In addition, lower paid industries such as retail trade and accommodation and food services experienced a drop in paid hours during lockdown, while higher paid industries like public administration and safety, and healthcare and social assistance were less impacted. This drove up average ordinary time hourly earnings at the national level.

Weekly earnings drop sharply

In the June 2020 quarter, average weekly hours paid per full-time equivalent employee (FTE) (seasonally adjusted) fell 3.1 percent to 37.4 hours. This fall in weekly hours paid led to a 2.4 percent drop in seasonally adjusted weekly earnings per FTE over the quarter to $1,250 – the largest quarterly drop since the current series began in 1989.

COVID-19 wage subsidy scheme

In March 2020 the Government announced a COVID-19 wage subsidy scheme to support businesses affected by the crisis. For the June 2020 quarter, both the LCI and QES included the wage subsidy as part of reported wages.

Stats NZ combined administrative data from the Ministry of Social Development with survey data to estimate the impact of the wage subsidy. However, we strongly advise caution when making decisions based on these figures as they are only indicative estimates.

Around 30 percent of gross pay in the June 2020 quarter, as measured by the QES, came from the Government’s COVID-19 wage subsidy. If funds received from the wage subsidy were removed, and no other changes occurred, average weekly pay per FTE (unadjusted) would have been $853 instead of $1,249.

Approximately 77 percent of the QES sample of businesses were identified as having had applied for and received the wage subsidy by 20 May 2020. Small businesses were most likely to be represented. Approximately:

  • 85 percent of small businesses (1-19 employees, all locations) received the wage subsidy
  • 78 percent of medium-sized businesses (20-99 employees) received the wage subsidy
  • 58 percent of large businesses (100+ employees) received the wage subsidy.

In the LCI, we identified approximately 70 percent of employers who received the wage subsidy by 15 May 2020.

COVID-19 and labour market statistics in the June 2020 quarter has more information on how COVID-19 impacted Stats NZ labour market statistics this quarter.

COVID-19 data portal has more information on NZ’s economy since the COVID-19 outbreak.

Text alternative for diagram Labour cost index (all salary and wage rates) excluding minimum wage effect and collective agreements effect

Diagram shows the published labour cost index figures for the June 2020 quarter. For all sectors combined, the published quarterly rate was 0.2%, annual was 2.1%. For the private sector, the quarterly rate was 0.2%, annual was 1.8%. For the public sector, the quarterly rate was 0.3%, annual was 3.0%.  

Excluding minimum wage impact, for all sectors combined, the quarterly rate was 0.0%, annual was 1.8%. Private sector quarterly rate was 0.0%, annual was 1.5%. Public sector quarterly rate was 0.3%, annual was 3.0%.

Excluding selected occupations that saw major collective employment agreements in the last year – such as nurses, teachers, principals and police, for all sectors combined, the quarterly rate was 0.2%, annual was 1.8%. Private sector quarterly rate was 0.2%, annual was 1.7%. Public sector quarterly rate was 0.2%, annual was 2.1%.

Excluding minimum wage and selected occupations, for all sectors combined, the quarterly rate was 0.0%, annual was 1.6%. Private sector quarterly rate was 0.0%, annual was 1.4%. Public sector quarterly rate was 0.2%, annual was 2.1%.

Note:

  1. This is an analytical measure and not an official Stats NZ output.
  2. Selected occupations refer to occupations affected by major pay settlements over the past year.
  3. Due to rounding, some figures may be different than the published tables.

MIL OSI