Pay rises stall against escalating living costs

Published 12 December 2023 | 2 min read

Robert Walters survey reveals pay rise dilemmas for Kiwi businesses

The rising cost of living threatens to outpace the modest waves of pay raises. According to a survey by global consultancy Robert Walters, about two-thirds of employers are willing to grant their hardworking staff a pay raise, but nearly three-quarters foresee the increase hovering between 1 and 5 percent.

The latest data from Stats NZ showcases a staggering 7.4% surge in average household living costs in the year ending September. Simultaneously, annual headline inflation reached 5.6% in the third quarter. The financial strain on the average Kiwi household is palpable, and the disconnect between pay raises and the burgeoning cost of living is a thorn in the side of the workforce.

What's behind the change in New Zealand's labour market dynamics?

Shay Peters, the Chief Executive of Robert Walters Australia and New Zealand, sheds light on the broader economic landscape. "The cost of sales for an organisation is increasing significantly. However, their own revenue lines aren't increasing at the same rate," Peters explains. "Therefore, the ability to give pay rises to match the cost of living and inflationary pressures is really taking a hit this year compared to the last two years."

The once-favorable employment market is experiencing a subtle shift. While signs of constraint persist, Peters notes, "we've definitely seen the wind of change come through the labour market." The balance of power in the employment relationship, he asserts, is swinging back towards the middle ground.

Yet, challenges persist. The survey reveals that 44% of employers are grappling with a lack of applicants, and 43% cite fierce competition for candidates as a significant challenge. This dichotomy creates a paradox where businesses are cautious about pay raises, but simultaneously face difficulties in attracting talent.

Peters, however, reframes this as a "healthy place" for the labour market. In his view, maintaining equilibrium is crucial. "If the pendulum swung too far either way, it would become unhealthy, and candidates and employers would feel pressured."

How to manage pay raise constraints effectively

In the face of these challenges, New Zealand business leaders are urged to adopt a strategic and holistic approach to remuneration. Balancing the imperative of controlling costs with the need to attract and retain top talent requires innovative solutions.

Considerations such as flexible work arrangements, skill development programs, and employee well-being initiatives can be powerful tools to enhance employee satisfaction without solely relying on traditional pay raises. Engaging in open communication with employees about the financial constraints the business is facing can foster a sense of understanding and collaboration.

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