Will high salary movements continue this year?

In a financial year where many organisations are likely to be facing tougher trading conditions or slower growth, budgeting for high wage growth is likely to be quite a challenge. However, the indicators are that wage pressure is going to continue well into 2023, writes Cathy Hendry.

The beginning of the year often kicks off the budgeting rounds for organisations and for most employers wage bills represent one of the larger costs to account and budget for. 

Typically, many clients come to us at this time of year looking for advice or projections on wage movements and this year, in spite of slowing economic conditions, we are not seeing any evidence of lower wage increases. 

We recently conducted a pulse survey to see if organisations had reduced their forecast this year following the Reserve Bank’s efforts to slow growth; the results were surprising. 

Median forecast salary increases for all sectors including the public and not for profit sectors are at an impressive five percent across all levels.

Figures this high have not been seen since pre-GFC times, however, this figure is still not matching inflation and those on lower wages are continuing to feel the impacts of the stubbornly high costs of living. Results from the same pulse survey this time last year showed only the private sector was forecasting five percent increases. 

However, in August last year we asked how many organisations were forced to re-forecast their salary increases, with 58 percent of organisations revealing they had to increase their budgets as a result of increasing wage pressure and skill shortages. 

Wage increases typically lag economic indicators and, following the GFC, wage increases remained high for 12 months before dropping dramatically.

However, as mentioned in one of my previous columns last year, the shocks of the initial Covid lockdown, followed by significant skill shortages driving wages back up again, have resulted in the fastest turn around in salaries that we have witnessed in over 20 years of salary surveys.

This year is also shaping up to be challenging, with unusual trading conditions which are likely to create headaches for most organisations around business planning and budgeting.

Although net migration into New Zealand is no longer negative, thanks to the reforms in immigration, skill shortages remain. 
While we are now seeing impacts of a slowing economy both in New Zealand and overseas, including some relatively high-profile insolvencies and staff layoffs, over a quarter of respondents to our pulse survey said they were planning on increasing headcount. 

Other business confidence surveys are continuing to cite the lack of quality, skilled staff as a major barrier to growth.
While unemployment has increased marginally, the stubborn skill shortages continue to put employees in a strong position to demand higher salaries.

Another consideration is that around half of all mortgages will be up for repricing this year, while inflation is expected to reduce over the year but still estimated to be sitting at around five percent by the end of 2023.  Employees are going to continue to feel the pain in their back pocket and expectations for wage increases are likely to remain high. 
We are already seeing an increase in industrial action, and this is unlikely to decrease in 2023. 

In a financial year where many organisations are likely to be facing tougher trading conditions or slower growth, budgeting for high wage growth is likely to be quite a challenge. However, the indicators are that wage pressure is going to continue well into 2023.  

Cathy Hendry is the CEO at Strategic Pay. 
www.strategicpay.co.nz 

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