Labour Cost Index (Quarterly)

PDF Data Dictionary

Series Description

Title

Labour Cost Index (Quarterly)

Alternate Title

LCI

Rights

Statistics New Zealand

Unspecified
LCIQ.
Abstract

The Labour Cost Index sits alongside the Producers Price Inputs Index (which measures changes in businesses’ current costs of production, excluding labour and capital costs, as defined by the New Zealand System of National Accounts' concept of intermediate consumption) and the Capital Goods Price Index (which measures changes in businesses’ capital costs).

Purpose

The labour cost index measures changes in salary and wage rates for a fixed quantity and quality of labour input. Service increments, merit promotions, and increases (or decreases) relating to performance of the individual employee are not shown in the index.

Frequency

3 Quarterly

Main users of the data

• The business community, in contract escalation clauses.

• Government departments, such as the Reserve Bank, the Treasury, Te Kawa Mataaho Public Service Commission, the Department of Labour and the Ministry of Commerce.

• Employee organisations such as the PSA and the CTU.

• Business groups, such as the Employers’ Federation and the Manufacturers’ Federation.

• Economic forecasters such as NZIER and BERL.

• International organisations, such as the OECD and the ILO.

• Statistics New Zealand (as an input into other outputs, such as the National Accounts and the Producers Price Index)

Usage and limitations of the data

The Labour Cost Index provides employers, employer organisations, employees and employee organisations with an economy-wide measure of changes in pay rates costs.

The index measures changes in labour costs at a sector, sector by industry, sector by occupation, and industry by occupation level, providing users with a level of detail to meet most requirements. The salary and wage rates index is a quality-controlled measure, which provides a “pure” indicator of changes in pay rates not affected by compositional changes such as industry employment shifts.

The index quantifies the impact on employers’ labour costs of changes in the labour market such as the emergence of skill shortages, the trading off of overtime rates, and the impact of economic growth, consumer inflation. The index provides information on the distribution of changes in pay rates (such as what proportion remain unchanged on an annual basis, what proportion increase by up to 2 percent, etc.

The index is used in wage negotiations.

The index is used in contract escalation clauses (also referred to as cost fluctuation adjustment clauses). In these, the salary and wage rates index for the appropriate industry (or occupation) group is used together with the corresponding Producers Price Inputs Index (which measures movements in the price of non-labour production costs), to determine an appropriate cost fluctuation adjustment. This allows both parties to a contract to have an agreed procedure for adjusting the originally tendered price, therefore compensating the party providing the goods and services for ongoing changes in labour and non-labour input costs.

The index is used by economic forecasters and policy makers to monitor and forecast wage movements. The Reserve Bank uses the Labour Cost Index, in conjunction with the Quarterly Employment Survey, to monitor and forecast changes in unit labour costs and nominal wage inflation, which feed into monetary policy settings. The index is used within Statistics New Zealand, such as in the National Accounts, in the Producers Price Index and in calculating the now discontinued Real Wage Rate Index (which adjusted changes in pay rates for changes in tax rates and consumer prices).

The index excludes irregular salary and wage payments such as irregular bonuses, commissions and one-off payments in lieu of wage increases. The index excludes performance-based increases in salaries and wages, promotions and service increments.

There are no gender breakdowns.

There is no information available on the average dollar value of wages. This is because the sample is not randomly selected, is relatively small and is designed to measure changes not levels.

Significant events impacting this study series

LCI review 2022

We have reweighted the LCI salary and wage rate indexes to reflect changes in the industry and occupation structures of the labour market.

The changes in the LCI expenditure weights reflect real changes in the labour market, and to some extent changes to the data sources and methods used to calculate the weights. Real changes are the result of relative changes in quantity and price levels. For example, if an industry has experienced higher growth in paid employees and higher-than-average wage increases over the years between reweights, then that industry will experience an increase in its expenditure weight percentage. Industries with decreases or below-average increases will have a lower percentage weight in 2022 compared with 2014.

The main data sources we used were:

  • 2018 Census of Population and Dwellings information on the relative importance of occupations within each sector of ownership by industry group
  • Quarterly Employment Survey (QES) figures for the year to Sep 2021 on the relationship between full- and part-time paid employees, and Sep 2021 quarter figures on average earnings per full-time equivalent (FTE) job and relationship between ordinary time earnings and overtime earnings
  • linked employer-employee database (LEED) figures for the year to Mar 2018 on the number of jobs filled by under-15-year-olds
  • Business Register (BR) 2021 information on the relative importance of industry groups within each sector of ownership
  • pay rates surveyed in the Labour Cost Survey (LCS) for the Sep 2021 quarter
  • 2019 Household Economic Survey (HES) salary and wage information

We based the review on existing industry and occupation groups – the New Zealand Standard Industrial Output Categories and the Australian and New Zealand Standard Classification of Occupations, respectively.

The LCI was last reweighted using 2013 Census information as part of the 2014 reweight. The LCI will retain its June 2009 quarter (=1000) expression base.

For all sectors, and industries (and occupations) combined, the BR and other information showed a 33 percent increase from 2014 to 2022 in full-time equivalent (FTE) jobs. The salary and wage rates (including overtime) LCI for all sectors, industries, and occupations combined increased 18 percent over the same period. The overall level of expenditure on wages and salaries (which the weights are based on) increased 54 percent over the eight-year period.

Sector of ownership

In the 2022 reweight the private sector expenditure share rose to 82.0 percent, while public share fell to 18.0 percent. Within the public sector, the local government expenditure share decreased, while central government expenditure share increased from 2014 to 2022.

Base expenditure weights, by sector of ownership
20142022
Private75.6 82.0
Public24.418.0
100.0100.0

Ordinary and overtime rates

Compared with 2014, public sector salary and ordinary time wage rates increased from 98.3 percent to 99.0 percent; overtime wage rates decreased from 1.7 percent to 1.0 percent.

The private sector weights for salary and ordinary time wage rates also increased from 97.0 percent to 97.9 percent. Overtime wage rates fell to 2.1 percent.

For all sectors combined, the weights changed slightly: salary and ordinary time wage rates increased from 97.4 percent to 98.1 percent; overtime wage rates decreased from 2.6 percent to 1.9 percent.

Industry

The following table shows the industry weight movements since the 2014 reweight.

Base expenditure weights by industry
All sectors combined, All salaries and wage rates
Code Industry 2014 2022
AA1 Agriculture 2.5 3.1
AA3 Fishing, aqua & agri, forest, and fish support services 0.9 1.1
AA Agriculture, forestry, and fishing(1) 3.7 4.5
BB Mining 0.7 0.4
CC0 Food, beverage, and tobacco product mfg 4.7 3.4
CC1 Textile, leather, clothing, and footwear manufacturing 0.5 0.3
CC2 Wood and paper products mfg 1.3 1.0
CC3 Printing 0.4 0.3
CC4 Petroleum, chemical, polymer, and rubber product mfg 1.3 1.0
CC5 Non-metallic mineral product mfg 0.6 0.4
CC6 Metal product manufacturing 1.8 1.5
CC7 Transport equipment, machinery, and equipment mfg 2.4 2.0
CC8 Furniture and other manufacturing 0.5 0.4
CC9 Manufacturing 13.6 10.3
DD Electricity, gas, water, and waste services 1.3 0.9
EE Construction 7.5 10.1
FF Wholesale trade 6.0 5.4
GH1 Retail trade 6.3 6.4
GH2 Accommodation and food services 3.3 4.1
GH Retail trade and accommodation 9.5 10.5
II Transport, postal, and warehousing 4.8 4.2
JJ Information media and telecommunications 3.0 2.0
KK Financial and insurance services 4.8 3.8
LL Rental, hiring, and real estate services 1.7 1.9
MN1 Professional, scientific, and technical services 9.5 13.7
MN2 Administrative and support services 3.4 3.5
MN Prof, science, tech, admin, and support services 12.9 17.2
OO1 Local government administration 1.5 1.4
OO2 Central govt admin, defence, and public safety 6.6 5.7
OO Public administration and safety 8.1 7.0
PP Education and training 8.5 7.6
QQ Health care and social assistance 10.0 9.4
RS1Arts and recreation services1.4 1.4
RS2 Other services 2.6 3.4
RS Arts, recreation, and other services 4.0 4.9
All industries combined(1)100.0 100.0
(1) Includes industry forestry and logging (AA2).

The largest relative increases were in:

  • professional, scientific, and technical services (9.5 percent to 13.7 percent)
  • construction (7.5 percent to 10.1 percent)
  • accommodation and food services (3.3 percent to 4.1 percent)
  • Other services (2.8 percent to 3.4 percent)
  • agriculture (2.5 percent to 3.1 percent)

The upward movements in weights can be mostly attributed to the increase each industry experienced in FTE counts over the eight-year period between reviews.

For example, FTEs for the ‘professional, scientific, and technical services’ industry almost doubled up 91.9 percent, while salary and wage rates according to LCI increased 15.1 percent from 2014 to 2022. Similarly, ‘construction’ increased 81.1 percent in FTE counts and rose 19.7 percent in LCI salary and wage rates over the same period.

The largest relative decreases were in:

  • food, beverage, and tobacco product manufacturing (4.7 percent to 3.4 percent)
  • information media and telecommunications (3.0 percent to 2.0 percent)
  • financial and insurance services (4.8 percent to 3.8 percent)
  • education and training (8.5 percent to 7.6 percent)
  • central govt admin, defence, and public safety (6.6 percent to 5.7 percent)
  • wholesale trade (6.0 percent to 5.4 percent)
  • transport, postal, and warehousing (4.8 percent to 4.2 percent)
  • health care and social assistance (10.0 to 9.4 percent).

For most industries, the downward movements can be attributed to a decrease or lower-than-average growth in FTE counts over the same period.

For example, ‘food, beverage, and tobacco product manufacturing’ FTE counts were down 3.0 percent, while salary and wage rates matched the overall LCI change (up 17.8 percent) over the same period.

‘Information media and telecommunications’ had a decrease in FTE count of 8.5 percent, as well as the lowest industry increase in salary and wage rates of just 9.7 percent since 2014.

The remaining industries listed all had an increase in FTE counts but were lower than the overall average increase in FTE.

Occupation

Expenditure shares by broad occupation group have changed over the eight-year period between reviews, showing strong growth in ‘managers’ and ‘professionals’.

Base expenditure weights by occupation
All sectors combined, all salary and wage rates
Occupation group 2014 2022
Mangers 22.8 26.5
Professionals 28.4 29.5
Technicians and trades workers11.8 12.0
Community and personal service workers6.3 5.4
Clerical and administrative workers 10.9 9.0
Sales workers 6.1 5.5
Machinery operators and drivers 5.5 6.4
Labourers8.3 12.0
100.0 100.0

Higher-than-average growth in expenditure occurred for ‘managers’ (up 3.7 percentage points) and ‘professionals’ (up 1.1 percentage points). The increases were due to higher FTE counts. FTEs for ‘managers’ increased 58.0 percent, while ‘professionals’ increased 38.8 percent from 2014 to 2022. Both occupation groups had a lower-than-average increase in Salary and wage rates, up 13.5 percent and 16.3 percent, respectively. This compares to an overall LCI increase of 17.8 percent over the same period.

The expenditure share for ‘clerical and administrative workers’, and ‘labourers’ both decreased 1.9 percentage points. The decreases were due to lower-than-average FTE counts for these occupation groups. FTEs for ‘clerical and administrative workers’ increased 17.9 percent, while ‘labourers’ increased 12.2 percent from 2014 to 2022. Salary and wage rates based on the LCI grew 16.1 percent and 23.5 percent, respectively.

Skill level

By skill level, large movements in expenditure shares can be noted in skill levels 1, 4 and 5.

Base expenditure weight by skill level
All sectors combined, all salary and wage rates
2014 2022
Skill level 1 48.3 52.4
Skill level 2 9.8 10.4
Skill level 311.6 12.6
Skill level 418.715.8
Skill level 5 11.6 8.8
Sales workers 6.1 5.5
100.0 100.0

Skill level 1, which are occupations that require a bachelor’s degree or higher qualification, or at least five years of relevant work experience, increased in expenditure share from 48.3 percent in 2014 to 52.4 percent in 2022. The increase can be attributed to increases in FTE counts (up 46.3 percent). The increase in expenditure share is consistent with the higher expenditure shares for ‘managers’ and ‘professionals’ in the broad occupation groups, which are typically the composition of this skill level.

Skill level 4, which are occupations that require New Zealand Register levels 2 or 3 qualification, has decreased in expenditure share from 18.7 percent in 2014 to 15.8 percent in 2022. This decrease can be attributed to lower-than-average FTE counts (up 16.9 percent) over the same period.

Skill level 5, which are occupations that require no specific qualifications, has decreased in expenditure share from 8.3 percent in 2014 to 6.4 percent in 2022. This decrease can be attributed to lower-than-average FTE counts (up 12.8 percent) over the same period.

These expenditure share decreases are consistent with the lower expenditure shares for ‘clerical and administrative workers’, ‘sales workers’, and ‘labourers’ which are typically the composition of the lowest skill levels.

Related Documentation

Labour Cost Index (Salary and Wage Rates) – information releases

Studies

Coverage

Subjects
Macroeconomic statistics, Economic accounts, Prices, Labour
Keywords
Wage rates, Inflation, Labour, Wage growth
Date
December1992 -

LCI March 2017 quarter

Name
LCI March 2017 quarter
Label
LCI March 2017 quarter
Description

Response rates

Target: 94 percent

Achieved: 95.0 percent

Data Collection Date
1992 -
Data Collection Frequency
1992 -
Intended Frequency
Quarterly

Methodology

Methodology

Measures

  • Adjusted LCI measures the rates employers pay to have the same job completed to the same standard.
  • Controls for changes in sector, industry, and occupation by assigning fixed weights. Weights reflect relative importance of job descriptions for different combinations of sectors of ownership, occupation, and industry.
  • Unadjusted LCI measures the rates employers pay to have the same job completed to a differing standard (allowing the quality of labour within occupations to improve).

Data sources

A quarterly postal survey of employers provides data for a fixed set of job descriptions. Each quarter, we survey salary and wage rates for what employers pay at the 15th of the middle month of the quarter.

Survey samples

We collect salary and ordinary time wage rates for about 6,000 job descriptions each quarter (and nearly 1,000 overtime descriptions).

Approximately 2,000 businesses provide information.

Coverage

Jobs filled by paid employees in all occupations and in all industries except private households employing staff. We extended coverage to include jobs filled by paid employees aged under 15 years when the index was reweighted and re-expressed on a base of the June 2001 quarter (=1000).

Weights

Each job description used in calculating the index is assigned a weight that reflects the relative importance of the job description within its sector of ownership, industry, and occupation group.

Weights were calculated using: Census of Population and Dwellings information on the relative importance of occupations within each sector by industry group, Business Register (previously known as Business Frame) information on the relative importance of industry groups within each sector, and pay rates surveyed in the review quarter.

Classifications

Imputation

Imputation is the process of estimating data for surveyed respondents or businesses that do not respond. We carry forward the previous price for the relevant position that did not reply. This is the most likely outcome for salary and wage rates, which tend to change about once a year.

Rounding

Index numbers are rounded to the nearest whole number. We calculate percentage changes on rounded numbers. For this reason, total percentage changes for an index may not appear consistent with the percentage changes for its components.

Index calculation formula and base

We calculate the LCI using the price-relatives form of the base-weighted Laspeyres formula, and express it on a base of the June 2009 quarter (=1000). The index’s calculation base is periodically updated to reflect changes in the sector of ownership of organisations.

Quality control

The LCI is a quality-controlled measure. Only changes in salary and wage rates for the same quality and quantity of work are reflected in the index. We achieve this by asking respondents to provide reasons for movements in salary and wage rates. If a movement is due to more than one reason, we also ask the respondents to indicate how much of the movement is due to each reason.

In theory, these job descriptions should remain fixed between index revisions. In practice, many descriptions change over time, usually as a result of changes to contractual arrangements or because specific employees are being tracked through time. If a newly negotiated contract involves an increase in the number of ordinary time hours worked per week, then we amend the description and an adjustment is made to ensure that the pay rate movement used in the index relates to the same quantity of work as specified in the new contract.

Similarly, rates being paid for job descriptions in the survey may change partly or wholly because employees undertaking these jobs have become more experienced, more (or less) proficient or productive, better qualified, have taken on additional responsibilities, or have been promoted. Components of salary and wage rate movements that are due to changes of this type in the quality of work are not reflected in index movements. The policy of excluding increases due to service increments and merit promotions is consistent with this approach.

We also exclude one-off payments in lieu of pay rises, as they do not result in changes to pay rates, as such.

Regular fixed allowances and regular fixed bonuses are included in surveyed pay rates. Where included, these are specified in job descriptions. However, we exclude payments such as commissions and irregular bonuses, as these payments are usually performance related.

In instances where allowances, penal rates, and other payments (eg commissions), which have not previously been included in surveyed rates, are incorporated into base rates, only the overall effect of such changes is reflected in the index.

Contract indexation

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses (also known as contract escalation clauses). An indexation clause provides both parties to a contract with an agreed procedure for adjusting an originally contracted price, to reflect changes in costs or prices during the life of the contract.

Contract indexation: A Guide for Businesses (published 2009) provides information on the price indexes we produce and issues relating to their use in indexation clauses. The guide also outlines some points to consider when preparing an indexation clause, and includes an example of the mechanics of a simple indexation formula.

Analytical unadjusted series

An analytical unadjusted index series, based on ordinary time pay rates collected in the LCI sample, is available in the tables of this release (see the 'Downloads' box). The analytical unadjusted series is an additional measure intended to complement the official LCI and QES indicators and provide customers with a fuller picture on the wages front. The analytical unadjusted series is not affected by relative employment shifts between industries and between occupations, but, in addition to price change, it does reflect quality change within occupations.

In simple terms, the approaches we take in compiling the published and analytical unadjusted series are summarised as:

Published index:

  • often tracks employees, but does not show performance-related increases or service increments
  • commonly links in new employees (without showing change).

Analytical unadjusted index:

  • often tracks employees, and shows performance-related increases and service increments
  • shows any change when new employees replace incumbents.

The LCI is a price index that measures change in pay rates for a fixed quality and quantity of labour input. We show price-related change in rates reported by respondents, such as those to reflect the cost of living, to match market rates, to retain staff, and to attract staff. We don't show changes in reported rates that are the result of service increments, merit promotions, increases (and decreases) relating to the performance of individual employees, and change in hours worked are not shown in the index, as they are considered to represent quality or quantity change.

The analytical unadjusted index retains fixed weights for occupations within industries, within sectors of ownership, but is based on a matched sample of reported rates for the previous and current quarters before quality control. In addition to price change, it reflects quality change within occupations, such as change in the performance of individual employees, change in the qualifications, responsibility, or experience of employees filling surveyed positions, and the effect of different employees replacing incumbent employees in surveyed positions at lower or higher rates.

Rates for which the pay periods reported by respondents (eg per year, week, or hour) differ from those for the previous period, and rates where change is wholly or partly due to change in hours worked, are excluded from the matched sample. Typically, we exclude between 1 and 2 percent of surveyed rates from the unadjusted index each quarter for these reasons.

We calculate the analytical unadjusted index using a matched sample of reported rates for the previous and current quarters. Expenditure weights are used to weight movements in reported rates from the previous quarter to the current quarter. To derive the expenditure weights, we use the price changes (after quality control) of job positions in the sample (from the base period to the previous quarter) to scale base-period expenditure weights (which are then assigned to job positions in the sample).

Note: the LCI is designed to measure change in pay rates for a fixed quality and quantity of labour input. The sample of surveyed pay rates is not particularly suitable for preparing a measure that includes quality change. This is due in part to the fact that some positions in the survey follow individual employees (with corresponding pay rates subject to both quality and price change) and some positions specify particular points on pay scales (which are usually subject only to price change). In general, we track individual employees for positions surveyed in the private sector, and for positions surveyed in the public sector there is a mix of points on pay scales and individual employees being tracked.

The analytical unadjusted index reflects quality change within occupations. How well this is measured partly depends on how well the sample represents entrances and exits of employees, and on whether the sample replacement practice is unbiased in this regard (eg in some cases, replacement employees are incumbent employees filling other positions rather than new employees filling the existing positions – this can happen when there is a delay filling vacancies in surveyed positions). In addition, the analytical unadjusted index tends to reflect the effect of turnover in, and the cessation of, existing positions, but not the price and/or quality effect associated with employees being hired to fill new positions. An unadjusted measure designed from scratch might use the average pay rate, within each surveyed firm, of all employees filling jobs in each surveyed occupation.

The published LCI is a fixed-weight price index that measures changes in pay rates for a fixed quality and quantity of labour input. The index is not affected by relative shifts in the occupational and industrial composition of the pool of paid employees. It is useful in the context of the extent to which changes in businesses' input labour costs might put pressure on the output prices they charge for goods and services.

The analytical unadjusted LCI series has fixed weights for occupations within industries, within sectors of ownership, so is not affected by relative employment shifts between industries and occupations. However, it does reflect quality shifts within occupations. The index uses weights based on the mix of employment in occupations and industries evident in 2013.

It does not take account of the effect of any subsequent shifts in the mix of employment in occupations and industries. In addition, it will not reflect:

  • the effect of very new or emerging occupations and industries
  • the effect of employers mitigating the effect of skill shortages by substituting away from occupations showing high relative price change to occupations showing lower relative price change (eg from carpenter to builder's labourer, or from registered nurse to nurse aide).

Timing of published data

Labour market statistics are published within six weeks after the end of the quarter's reference period.

Confidentiality

Only people authorised by the Statistics Act 1975 are allowed to see your individual information, and they must use it only for statistical purposes. Your information is combined with similar information from other people, households, or businesses to prepare summary statistics.

More information

Principles and protocols for producers of Tier 1 statistics

Statistics in this release have been produced in accordance with the Official Statistics System principles and protocols for producers of Tier 1 statistics for quality. They conform to the Statistics NZ Methodological Standard for Reporting of Data Quality.

Sampling Procedure

Stratification

The sample of employers in the Labour Cost Survey was selected purposively. A sample of employers was selected in each relevant industry group within each sector of ownership (central government, local government and private). Care was taken to select a range of small, medium and large organisations, in a range of regional locations. Employers were asked, on a best-guess basis, whether they had employees in specific occupations. For occupations where this was the case, respondents selected individual employees to report on.

Extra Metadata