The potential for Kiwis and newly arrived migrants to find a job is strong and looks to be increasing, ASB economist Daniel Snowden says.
Putting an exact number on the strength of the labour market remained a difficult task, given recent changes by Statistics New Zealand to its Household Labour Force Survey.
"Even so, with so many metrics pointing in the same direction, there is a distinct improvement in the jobs outlook.
"As this continues, the increased scarcity of labour could be enough to start pushing wages higher as well — especially if migration starts to slow."
A stronger labour market should also lead to increased consumer confidence, he said. In turn, that would lead to greater consumer income and spending.
Businesses needed to brace themselves for the additional challenges in finding skilled labour and be willing to increase wages to attract and retain staff.
The ASB had analysed the New Zealand labour market after the changes in methodology by Statistics NZ to its labour force survey.
Mr Snowden said it was clear the labour market was enjoying a period of strength, encouraging previously disengaged job seekers back into the fold.
Such an effect was clear in the participation rate, which hit a record of 70.1% in the three months ended September.
He warned the participation rate needed to be taken "with a pinch of salt". June data, when the methodology revisions were introduced, picked up about 58,000 new participants. An undefined number of those new participants were a result of the survey revisions, rather than new joiners to the labour market.
The current lift in the participation rate was another signal the labour market was improving. Tied in with the improving jobless rate which dropped below 5% last year for the first time since December 2008, it was another sign of an improving labour market.
The employment-to-population ratio usually moved in step with the participation rate and a greater ratio of employment also usually moved in line with overall economic growth, Mr Snowden said.
Given the recent robust economic growth data, the ratio underscored the strength of the domestic labour market. A greater ratio also meant the nation’s tax burden was spread across a larger base, another boost to growth.
"There are some clouds in the employment picture, though. Wage growth is soft, especially given the increasing difficulty in finding labour."
The Labour Cost Index showed the index for all sectors — including overtime — only up 1.6% in the year ending September, relatively subdued given recent economic growth, he said.
Part of the softness in wage growth was due to the impact of migration, lifting the supply of new workers. While the Household Labour Force Survey and the Quarterly Survey of Business Opinion painted a strong picture for those in work, getting a real-wage pay increase remained a difficult task, he said.
"Should migration flows soften as expected in the coming 12 months, there is potential for the slowing growth in the supply of labour to enable real wages to move higher."
