Economy

The reasons our pay packets are increasing

The rising cost of living is the main reason we receive increases to our salary and wage rates.
  • Image, woman agrees to a pay increase outside her place of work.

    Six reasons push wage and salary changes

    Statistics New Zealand’s labour cost index (LCI) measures changes in salary and wage rates that employers pay to have the same job done to the same standard.

    We get the information about change by asking respondents to provide us with one or more reasons for any changes in salary and wage rates they report. Increases that are due to matching market rates, retaining staff, or that reflect the cost of living are shown in the LCI.

    What we don’t include are increases due to changes in the quality of work, such as individual performance or years of service – these are filtered out.

    We publish information on six different reasons for increases in salary and wage rates:

    • cost of living
    • collective employment agreements
    • match market rates
    • retain staff 
    • attract staff
    • match market rates, retain, or attract staff.

    Cost of living spurs most increases

    ‘To reflect the cost of living’ has remained the main reason that pay rates have increased for the jobs we survey. This is generally followed closely by collective employment agreements coming into effect, then by changes due to matching market pay rates.

    Despite the cost of living being the most-common reason provided by respondents for pay rises, the average annual increase in pay rates is lower than when the reason is to match market rates.

    From the March 2002 quarter to the March 2012 quarter, the average annual increases due to different reasons were:

    • 3.5 percent to 6.0 percent, when due to cost of living
    • 4.5 percent to 7.7 percent, when due to matching market rates
    • 3.2 percent to 5.8 percent, when due to collective employment agreements.

    As we can see above, increases due to collective employment agreements are similar to the increases due to cost of living. This suggests the factors that influence pay increases that are due to cost of living or collective employment contracts are similar (eg the cost of living as measured by the CPI or labour market conditions).

    Figure 1

    Graph, Average pay rate increase, by reason from March 2002 to March 2012.

    As figure 1 shows, pay increases made to match market rates are significantly greater than those made to reflect the cost of living or a collective employment agreement.

    How pay increases moved over 10 years

    We can look at how annual movements were distributed for the 10-year period. When ‘to match market rates’ was the reason for the change in pay rates, 35 to 56 percent of jobs surveyed had increases over 5 percent. The average annual increase was 4.5 to 7.7 percent, with an overall average of 6.1 percent. When the reason was the cost of living or a collective employment agreement, in both cases the overall annual average increase was 4.4 percent.

    Over the 10 years, the average gap between increases that came from a need to match market rates and to reflect the cost of living was 1.6 percentage points. This slowly narrowed after the 2008/09 recession, but in 2012 had returned to around its pre-recession level.

    Source: Statistics New Zealand

'To reflect the cost of living' is the main reason that pay rates have increased.
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Economy
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