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Labour Cost Index (Salary and Wage Rates): December 2011 quarter
Embargoed until 10:45am  –  07 February 2012
Data quality

Period-specific information
This section contains data information that has changed since the last release.

General information
This section contains information that does not change between releases.

Period-specific information

Reference period

For the December 2011 quarter, salary and wage rates were surveyed for what employers paid as at 15 November 2011. 

Data influencers

Factors that affected the Labour Cost Index (LCI) in the current quarter are outlined below.

The Christchurch earthquakes had no material impact on the December 2011 quarter collection of the Labour Cost Survey. The response rate for Christchurch respondents was 97 percent, up from 93 percent in both the September 2011 and June 2011 quarters. The average response rate for Christchurch in the four quarters of 2010 was 96 percent.

Index numbers are rounded to the nearest index point and this affected some percentage increases for the December 2011 quarter. If percentage changes were calculated on unrounded index numbers, then the private sector LCI salary and wage rates (including overtime) would have risen 2.1 percent in the year to the December 2011 quarter instead of 2.0 percent. It was the same case for the salary and ordinary time wage rates, which would have risen 2.1 percent in the year to December 2011 quarter instead of 2.0 percent.

The public sector and all sectors combined salary and wage rates were unaffected by rounding in the December 2011 quarter.

General information

Data source

Salary and ordinary time and overtime wage rates for a fixed set of job descriptions are obtained using a quarterly postal survey of employers. Each quarter, salary and wage rates are surveyed for what employers pay as at the 15th of the middle month of the quarter.

Coverage

The LCI covers jobs filled by paid employees in all occupations and in all industries except private households employing staff. Coverage was extended to include jobs filled by paid employees under 15 years of age when the index was reweighted and re-expressed on a base of the June 2001 quarter (=1000).

Sample size

There are about 6,000 job descriptions for which salary and ordinary time wage rates are collected each quarter.

Nearly 1,000 overtime descriptions designed to survey changes in overtime wage rates, are attached to ordinary time wage descriptions in the survey.

Approximately 2,100 respondents provide information.

Implementation of new classifications

The September 2009 quarter release was the first that used the updated 2006 version of the Australian and New Zealand Standard Industrial Classification (ANZSIC06) and the Australian and New Zealand Standard Classification of Occupations (ANZSCO).

ANZSIC06 and ANZSCO have been jointly developed by Statistics NZ and the Australian Bureau of Statistics to ensure that the classifications remain current and relevant, reflecting the changes that have occurred in the structure and composition of industry and occupation.

LCI distributional series on Infoshare

Historical LCI distributional information included in the commentary and tables of this release will be available on Infoshare on 20 February 2012 at 10:45am. Below is the guide for constructing the series references for the following tables.

Distribution of annual movements (tables 6.1 and 6.2) – all sectors combined

LCIQ.SX51$ – salary and ordinary time wage rates
Where $ =
            1A – decreasing for the year
            2A – not changing for the year
            3A – increasing not more than 2 percent for the year
            4A – increasing more than 2 but not more than 3 percent for the year
            5A – increasing more than 3 but not more than 5 percent for the year
            6A – increasing more than 5 percent for the year
            9A – total increasing for the year
            9Q – total increasing for quarter

LCIQ.SX52$ – overtime wage rates
Where $ =
            1A – decreasing for the year
            2A – not changing for the year
            9A – total increasing for the year

Series began at the periods shown in the following table.

Series

Quarter
LCIQ.SX511A - LCIQ.SX516A June 1989 quarter
LCIQ.SX519Q March 1993 quarter
LCIQ.SX519A, LCIQ.SX521A, LCIQ.SX522A, LCIQ.SX529A

December 1993 quarter

Note: The series in the table above use the Prevailing Weekly Wage Rates Survey before the September 1993 quarter and the Labour Cost Survey from the December 1993 quarter onwards. Therefore, no annual movements are available for the September 1993 quarter. The last Prevailing Weekly Wage Rates Survey was conducted in the June 1993 quarter, and the first Labour Cost Survey was conducted in the December 1992 quarter.

Distribution of annual increases by reason (table 6.3 and supplementary tables) – all sectors combined, salary and ordinary time wage rates

LCIQ.SR51$*
Where $ =
            3A – increasing not more than 2 percent for the year
            4A – increasing more than 2 but not more than 3 percent for the year
            5A – increasing more than 3 but not more than 5 percent for the year
            6A – increasing more than 5 percent for the year
            9A – total increasing for the year
            9Q – total increasing for quarter

And * =
            1 – cost of living
            2 – match market rates
            3 – retain staff
            4 – attract staff
            5 – match market rates and/or retain/attract staff
            6 – collective employment agreements

Series began in the June 2001 quarter.

Note: Respondents are asked to give one or more reason for each increase.

Median and mean increase (table 7) – salary and ordinary time wage rates

LCIQ.SW@1%
Where @ =
            1 – local government sector
            2 – central government sector
            3 – public sector
            4 – private sector 
            5 – all sectors combined

And % =
            1A – median increase for the year
            1Q – median increase for the quarter
            2A – mean increase for the year
            2Q – mean increase for the quarter

Note: This does not include decreases or rates that remained unchanged.

Quarterly series began in the March 1993 quarter, while the annual series began in the December 1993 quarter.

How skill levels are determined

ANZSCO assigns each occupation to one of five skill levels. A skill level is based on the range and complexity of tasks performed in a particular occupation. The greater the range and complexity of the tasks, the higher the skill level of an occupation.

In general, a skill level is measured by:

  • the level or amount of formal education and training
  • the amount of previous experience in a related occupation
  • the amount of on-the-job training.

Under ANZSCO, skill level is not a measure of an individual working in a particular job. Rather, it is seen as a measure of those skills that are typically required to competently perform the tasks of a particular occupation. It is irrelevant whether a particular individual working in a job has a certain amount of training or a particular level of competence or not.

The definitions of the five skill levels are:

Skill level 1

A bachelor's degree or higher qualification is required for this skill level. It may be possible to replace the formal qualification with at least five years of relevant work experience. In some instances, relevant work experience and/or on-the-job training may be needed in addition to the formal qualification. These occupations are typically drawn from major groups 1 – managers, and 2 – professionals.

Skill level 2

For this skill level, either a New Zealand Register diploma or at least three years of relevant work experience is required. In some instances, relevant experience and/or on-the-job training may be required in addition to the formal qualification. These occupations are typically drawn from major groups 1 – managers, 3 – technicians and trade workers, 4 – community and personal service workers, 5 – clerical and administrative workers, and 6 – sales workers.

Skill level 3

The requirement for skill level 3 is a New Zealand Register level 4 qualification, or at least three years of relevant experience. For some occupations relevant experience and/or on-the-job training may be required in addition to the formal qualification. These occupations are typically drawn from major groups 3 – technicians and trade workers, 4 – community and personal service workers, 5 – clerical and administrative workers, and 6 – sales workers.

Skill level 4

For this skill level, a New Zealand Register level 2 or 3 qualification is required to perform the work. It may also be possible to replace the formal qualification with at least one year of relevant work experience and, in some instances, relevant experience and/or on-the-job training may be required in addition to the formal qualification. These occupations are typically drawn from major groups 4 – community and personal service workers, 5 – clerical and administrative workers, 6 – sales workers, 7– Machinery operators and drivers, and 8 – labourers.

Skill level 5

The requirement for skill level 5 is a New Zealand Register level 1 qualification. In some instances these occupations may require a short period of on-the-job training in addition to or instead of the formal qualification. Other occupations require no formal qualification or on-the-job training. These occupations are typically drawn from major groups 4 – community and personal service workers, 5 – clerical and administrative workers, 6 – sales workers, and 8 – labourers.

Index calculation formula and reference period

The LCI is calculated using the price-relatives form of the base-weighted Laspeyres formula, and is expressed on a price reference period of the June 2009 quarter (=1000). The index’s price reference period is periodically updated to reflect changes in the sector of ownership of organisations.

Index number rounding

Index number rounding uses standard Statistics NZ rounding procedures. It can occasionally result in movements for a particular cost being slightly higher or lower than would be expected, given movements recorded for component costs.

For example, the all sectors combined increase for salary and ordinary wage rates of 0.4 percent from the September 2009 quarter to the December 2009 quarter is larger than the 0.3 percent increases for both the public sector and the private sector. The lower figure for the private sector was mainly caused by the index number for the September 2009 quarter being rounded up to the nearest index point and the index number for the December 2009 quarter being rounded down to the nearest index point.

Weights

Each job description used in calculating the index was assigned a weight that reflected the relative importance of the job description within its sector of ownership, industry, and occupation group.

Weights were calculated using 2006 Census of Population and Dwellings information on the relative importance of occupations within each sector by industry group, Business Frame information on the relative importance of industry groups within each sector, and pay rates surveyed in the June 2009 quarter.

The following tables show the occupation group weights at the June 2009 quarter for all salary and wage rates and for the skill levels under ANZSCO.

Occupation group

Weight
(Percent)

Managers    21.7
Professionals    25.9
Technicians and trades workers    12.4
Managers, professionals, technicians, and trades workers    60.0
Community and personal service workers      6.1
Clerical and administrative workers    13.2
Sales workers      6.5
Service, clerical, and sales workers    25.8
Machinery operators and drivers      5.8
Labourers      8.3
Machinery operators, drivers, and labourers    14.1
All occupations combined  100.0
Note: Percentages may not sum to totals due to rounding.
 
Skill level   Weight
(Percent)
 1    45.1
 2      8.6
 3    12.8
 4    21.2
 5    12.3
All skill levels combined  100.0

Quality control

The LCI is a quality-controlled measure. Only changes in salary and wage rates for the same quality and quantity of work are reflected in the index. This is achieved in practice by asking respondents to provide reasons for movements in salary and wage rates. If a movement is due to more than one reason, the respondent is also asked to indicate how much of the movement is due to each reason. To further assist the measurement of movements in pay rates for a fixed level of labour input, job descriptions are specified in detail. Surveyed job descriptions typically specify the duties involved, qualifications required, years of service, and number of hours worked.

In theory, these job descriptions should remain fixed between index revisions. In practice, many descriptions change over time, usually as a result of changes to contractual arrangements or because specific employees are being tracked through time. If a newly negotiated contract involves an increase in the number of ordinary time hours worked per week, then the description is amended and an adjustment is made to ensure that the pay rate movement used in the index relates to the same quantity of work as specified in the new contract.

Similarly, rates being paid for job descriptions in the survey may change partly or wholly because employees undertaking these jobs have become more experienced, more (or less) proficient or productive, better qualified, have taken on additional responsibilities, or have been promoted. Components of salary and wage rate movements that are due to changes of this type in the quality of work are not reflected in index movements. The policy of excluding increases due to service increments and merit promotions is consistent with this approach.

One-off payments in lieu of pay rises are also excluded, as they do not result in changes to pay rates, as such. 

Regular fixed allowances and regular fixed bonuses are included in surveyed pay rates. Where included, these are specified in job descriptions. Payments such as commissions and irregular bonuses are excluded, however, as these payments are usually performance related.

In instances where allowances, penal rates, and other payments (eg commissions), which have not previously been included in surveyed rates, are incorporated into base rates, only the overall effect of such changes is reflected in the index.

Contract indexation

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses (also known as contract escalation clauses). An indexation clause provides both parties to a contract with an agreed procedure for adjusting an originally contracted price, to reflect changes in costs or prices during the life of the contract.

Contract indexation: A Guide for Businesses provides information on the price indexes produced by Statistics NZ and issues relating to their use in indexation clauses. The guide also outlines some points to consider when preparing an indexation clause, and includes an example of the mechanics of a simple indexation formula.

Mean and median increases

The latest quarterly and annual results for the median and mean increases are discussed in the 'Commentary' section of this release. The mean tends to be higher than the median because the distribution of changes in pay rates is skewed to the right, with a bulge at the low end and a tail at the high end. The relatively few large increases boost the mean increase but have little effect on the median increase.

The median and mean increases are calculated using the percentage change in recorded salary and ordinary time wage rates. This differs from the quarterly and annual index movements, which measure the percentage change between calculated index numbers.

Analytical unadjusted series

An analytical unadjusted index series, based on ordinary time pay rates collected in the LCI sample, is available in the tables of this release. These tables are available on the Statistics NZ website (www.stats.govt.nz).

The analytical unadjusted series is an additional measure that is intended to complement the official LCI and Quarterly Employment Survey (QES) indicators and provide users with a fuller picture on the wages front. The analytical unadjusted series is not affected by relative employment shifts between industries and between occupations, but, in addition to price change, it does reflect quality change within occupations.

In simple terms, the approaches taken in compiling the published and analytical unadjusted series could be summarised as follows:

Published index:

  • often tracks employees, but does not show performance-related increases or service increments
  • commonly links in new employees (without showing change).

Analytical unadjusted index:

  • often tracks employees, and shows performance-related increases and service increments
  • shows any change when new employees replace incumbents.

The LCI is a price index that measures change in pay rates for a fixed quality and quantity of labour input. Price-related change in rates reported by respondents, such as those to reflect the cost of living, to match market rates, to retain staff, and to attract staff, are shown in the index. Changes in reported rates that are the result of service increments, merit promotions, increases (and decreases) relating to the performance of individual employees, and change in hours worked are not shown in the index, as they are considered to represent quality or quantity change.

The analytical unadjusted index retains fixed weights for occupations within industries within sectors of ownership, but is based on a matched sample of reported rates for the previous and current quarters before quality control. In addition to price change, it reflects quality change within occupations, such as change in the performance of individual employees, change in the qualifications, responsibility or experience of employees filling surveyed positions, and the effect of different employees replacing incumbent employees in surveyed positions at lower or higher rates.

Rates for which the pay periods reported by respondents (eg per annum, per week, per hour) differ from those for the previous period, and rates where change is wholly or partly due to change in hours worked, are excluded from the matched sample. Typically, between 1 and 2 percent of surveyed rates are excluded from the unadjusted index each quarter for these reasons.

The analytical unadjusted index is calculated using a matched sample of reported rates for the previous and current quarters. Expenditure weights are used to weight movements in reported rates from the previous quarter to the current quarter. To derive the expenditure weights, the price changes (after quality control) of job positions in the sample (from the base period to the previous quarter) are used to scale base-period expenditure weights (which are then assigned to job positions in the sample).

It should be noted that the LCI is designed to measure change in pay rates for a fixed quality and quantity of labour input. The sample of surveyed pay rates is not particularly suitable for preparing a measure that includes quality change. This is due in part to the fact that some positions in the survey follow individual employees (with corresponding pay rates subject to both quality and price change) and some positions specify particular points on pay scales (which are usually subject only to price change). In general, individual employees are tracked for positions surveyed in the private sector, and for positions surveyed in the public sector there is a mix of points on pay scales and individual employees being tracked.

The analytical unadjusted index reflects quality change within occupations. How well this is measured partly depends on how well the sample represents entrances and exits of employees, and on whether the sample replacement practice is unbiased in this regard (eg in some cases, replacement employees are incumbent employees filling other positions rather than new employees filling the existing positions – this can happen when there is a delay filling vacancies in surveyed positions). In addition, the analytical unadjusted index tends to reflect the effect of turnover in, and the cessation of, existing positions, but not the price and/or quality effect associated with employees being hired to fill new positions. An unadjusted measure designed from scratch might make use of the average pay rate within each surveyed firm of all employees filling jobs in each surveyed occupation.

The published LCI is a fixed-weight price index that measures changes in pay rates for a fixed quality and quantity of labour input. The index is not affected by relative shifts in the occupational and industrial composition of the pool of paid employees. It is useful in the context of the extent to which changes in businesses' input labour costs might put pressure on the output prices they charge for goods and services.

The analytical unadjusted LCI series has fixed weights for occupations within industries within sectors of ownership, so is not affected by relative employment shifts between industries and occupations. However, it does reflect quality shifts within occupations. The index uses weights based on the mix of employment in occupations and industries evident in 2006. It does not take account of the effect of any subsequent shifts in the mix of employment in occupations and industries. In addition, it will not reflect:

  • the effect of very new or emerging occupations and industries
  • the effect of employers mitigating the effect of skill shortages by substituting away from occupations showing high relative price change to occupations showing lower relative price change (eg from carpenter to builder's labourer, or from registered nurse to nurse aide).

In addition to changes in pay rates, change in the QES measures of total and average gross earnings fully reflect compositional change, such as change from period to period in the proportions of employees and paid hours in different industries and different occupations. The measures reflect relative employment shifts both between and within industries and occupations. These measures are useful in the context of the potential effect that change in gross and average income earned by paid employees might have on the demand for goods and services purchased by the household sector.

An example of how a specific position would be treated in the published LCI and in the analytical unadjusted index follows: 

Year Salary scale
Step 1 Step 2 Step 3 Step 4 Step 5
1 $30,000 $40,000 $50,000 $60,000 $70,000
2 $30,900 $41,200 $51,500 $61,800 $72,100
3 $31,827 $42,436 $53,045 $63,654 $74,263
4 $32,782 $43,709 $54,636 $65,564 $76,491
5 $33,765 $45,020 $56,275 $67,531 $78,786
 
Year/quarter Reported pay rate(per annum) Reason for change Treatment Published LCI Analytical unadjusted index
Y1Q1  $40,000 1000 1000
Y1Q2 $40,000 1000 1000
Y1Q3 $40,000 1000 1000
Y1Q4 $40,000 1000 1000
Y2Q1 $41,200 Price adjustment to step 2 of scale to match market rates and reflect the cost of living. Price change; shown in the published and unadjusted indexes. 1030 1030
Y2Q2  $51,500 Service increment from step 2 to step 3.  Quality change; shown only in the unadjusted index.   1030  1288 
Y2Q3  $51,500      1030  1288 
Y2Q4   $51,500       1030 1288
Y3Q1  $53,045 Price adjustment to step 3 of scale to match market rates and reflect the cost of living.  Price change; shown in the published and unadjusted indexes.   1061  1326 
Y3Q2   $42,436  New, less experienced employee placed on step 2 replaces the incumbent.  Quality change; shown only in the unadjusted index.    1061   1061 
Y3Q3   $42,436        1061  1061
Y3Q4  $42,436       1061   1061
Y4Q1  $43,709 Price adjustment to step 2 of scale to match market rates and reflect the cost of living.  Price change; shown in the published and unadjusted indexes.    1093   1093
Y4Q2  $54,636  Service increment from step 2 to step 3. Quality change; shown only in the unadjusted index.   1093  1366
Y4Q3  $54,636       1093   1366
Y4Q4  $54,636      1093  1366
Y5Q1  $56,275 Price adjustment to step 3 of scale to match market rates and reflect the cost of living.  Price change; shown in the published and unadjusted indexes.   1126  1407
Y5Q2  $45,020  New, less experienced employee placed on step 2 replaces the incumbent. Quality change; shown only in the unadjusted index.   1126  1126
Y5Q3  $45,020       1126    1126 
Y5Q4  $45,020       1126    1126 

For more information on the differences between the QES, the LCI, and the LCI analytical unadjusted series, please see please see 'Comparing the QES and the LCI' under the Data quality section of the Quarterly Employment Survey: December 2011 quarter information release.

Liability

While all care and diligence has been used in processing, analysing, and extracting data and information in this publication, Statistics NZ gives no warranty it is error-free and will not be liable for any loss or damage suffered by the use directly, or indirectly, of the information in this publication.

Timing

Timed statistical releases are delivered using postal and electronic services provided by third parties. Delivery of these releases may be delayed by circumstances outside the control of Statistics NZ. Statistics NZ accepts no responsibility for any such delays.

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