The robust domestic economy is supporting increases in employment but it is also encouraging people to look for work, limiting the fall in the unemployment rate.
Statistics New Zealand will tomorrow release employment and wage data.
Westpac senior economist Satish Ranchhod expected strengthening labour demand could mean the unemployment rate for New Zealand would fall slightly to 5.3% but wage growth would continue to remain low for some time to come.
While employment and labour demand had been increasing, strengthening economic conditions had also encouraged more people to enter the labour force.
That included new migrants, many of whom had arrived for projects such as the Canterbury rebuild.
It also included a more general increase in labour force participation by New Zealanders.
Those conditions had pushed the labour force participation rate to historically high levels, which was limiting the fall in the unemployment rate even as labour demand increased, he said.
Westpac was forecasting the participation rate to have been 69.2% in December.
''We expect a trend increase in labour force participation - it can be volatile on a quarter-to-quarter basis. Consequently, we'll be watching the Quarterly Employment Survey as a cross check on the Household Labour Force Survey.''
The QES was expected to show the number of full-time equivalent employees grew by 0.5% in the December quarter to be 3.3% higher for the year - consistent with an economy growing at a firm pace, Mr Ranchhod said.
A stronger labour market had not yet translated into higher wages.
Westpac expected December's labour cost index to show wage rates rose by only 1.7% in the past year.
''We still think any material lift in nominal wage inflation is quite some way off.''
However, it was important to put the current low wage inflation in context, he said.
During the mid-2000s, when New Zealand had strong growth in wage rates, there were also high rates of general inflation eroding the purchasing power of households.
In recent years, there had been low wage inflation but even lower consumer price inflation.
That had meant the cost of living adjustments to wages had been limited.
That was likely to remain the case for the year ahead with headline inflation expected to fall to its lowest level in more than a decade, Mr Ranchhod said.
