30 Jan 2017

Record immigration keeps unemployment, wages low

2:14 pm on 30 January 2017

The unemployment rate is expected to fall to an eight-year low, but wage rises will be subdued in official numbers due out this week.

Unemployment has remained above 8 percent in provinces such as Northland, Hawke's Bay and Wairarapa.

Unemployment has remained above 8 percent in provinces such as Northland, Hawke's Bay and Wairarapa. Photo: RNZ

The fourth-quarter report should confirm a buoyant labour market, as the strong economy creates jobs, but record immigration ensures a large labour force, keeping the lid on wage inflation.

Unemployment was expected to have fallen to an eight year low of 4.8 percent in the three months ended December, while around 15,000 jobs were expected to have been created, and the average wage growth was forecast to have held steady around 1.6 percent.

Westpac senior economist Satish Ranchhod said the labour market was likely to become more stretched the longer the economic good times last.

"The labour market is starting to change, employers rate looking for labour and they're finding it increasingly difficult at the same time inflation is starting to pick up and that will mean wage pressures also starting to increase."

Mr Ranchhod said record immigration was helping fill some of the demand for skilled labour, but was also preventing unemployment falling too much lower while limiting the extent of wage rises.

"But the labour demand story we're seeing right now is very robust and, even with record immigration, the labour market is tightening."

He said a tighter labour market would raise wage pressures and with it inflation, but that was not expected to show through for some time and would pose no threat to the Reserve Bank of New Zealand holding its official cash rate at 1.75 percent for the rest of the year.

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