Introduction
The labour cost index (all labour costs) is made up of two components: salary and wage rates, and non-wage labour costs. The salary and wage rates index measures changes in the base salary and ordinary time wage rates, and overtime wage rates. The non-wage labour costs measure changes in the following costs:
- annual leave and statutory holidays
- superannuation
- Accident Compensation Corporation (ACC) employer premiums
- medical insurance
- motor vehicles available for private use
- low interest loans.
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Overview
In the year to the June 2008 quarter the all labour costs index rose 3.7 percent. This is down from the record 3.9 percent increase in the year to the June 2007 quarter and identical to the 3.7 percent increase in the year to the June 2006 quarter. The latest annual increase is only the third time the all labour costs index increased more than 3 percent annually since the series began in the December 1992 quarter.
The two components contributing to all labour costs, the all salary and wage rates (including overtime) index and the non-wage labour costs index, increased 3.5 percent and 4.1 percent, respectively, in the year to the June 2008 quarter. This compared with a 3.2 percent increase in all salary and wage rates (including overtime) and an 8.1 percent increase in non-wage labour costs in the year to the June 2007 quarter. This also compared with a 3.2 percent increase in all salary and wage rates (including overtime) and a 6.2 percent increase in non-wage labour costs in the year to the June 2006 quarter.
The main factor that affected the non-wage labour costs over the past three years was the change to the Holiday Act (2003), which increased the minimum annual leave entitlement from three weeks to four weeks per year. In the year to the June 2006 quarter, annual leave and statutory holidays increased 7.1 percent and contributed 60 percent of the increase in the non-wage labour costs index. In the same period of the following year, annual leave and statutory holidays increased 9.3 percent and contributed 83 percent of the increase in the non-wage index. In the year to the June 2008 quarter, annual leave and statutory holidays increased 4.7 percent and contributed 84 percent of the increase in the non-wage index.
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Sectors
Private sector
In the private sector all labour costs increased 3.5 percent in the year to the June 2008 quarter. This is down from a 4.0 percent increase in the year to the June 2007 quarter and up from the 3.3 percent increase in the year to the June 2006 quarter. In the year to the June 2008 quarter, the all labour costs movement was driven by a 4.2 percent increase in non-wage labour costs and a 3.4 percent increase in all salary and wage rates (including overtime). These results compared with: an 8.9 percent increase in non-wage labour costs and a 3.2 percent increase in all salary and wage rates (including overtime) in the year to the June 2007 quarter; and a 5.2 percent increase in non-wage labour costs and a 3.0 percent increase in salary and wage rates in the year to the June 2006 quarter.
In the private sector, annual leave and statutory holidays has the largest weight (10.75 percent of all labour costs as at the June 2001 quarter) of all the non-wage labour costs. Annual leave was a major contributor in the year to the June 2008 quarter, contributing 42 percent of the increase in the non-wage index, mainly due to the 3.5 percent increase in all salary and wage rates (including overtime), but also as a result of the increase in minimum entitlement.
Public sector
In the public sector all labour costs increased 3.7 percent in the year to the June 2008 quarter. This followed increases of 3.7 percent (in the year to the June 2007 quarter) and 5.0 percent (in the year to the June 2006 quarter). Within the public sector, all labour costs for the local government sector increased 4.8 percent in the year to the June 2008 quarter. The central government sector all labour costs increased 3.7 percent in the same period.
In the year to the June 2008 quarter, non-wage labour costs increased 4.3 percent and all salary and wage rates (including overtime) increased 3.7 percent. For the same period in the previous year, non-wage labour costs increased 6.0 percent and all salary and wage rates (including overtime) increased 3.0 percent. In the year to the June 2006 quarter, non-wage labour costs increased 8.7 percent and all salary and wage rates (including overtime) increased 4.1 percent. As in the private sector, annual leave and statutory holidays has the largest weight of the non-wage costs (14.07 percent of all labour costs) and contributed 70 percent of the increase in the non-wage index in the year to the June 2008 quarter (with a 4.0 percent increase).
Non-wage labour costs
Non-wage labour costs increased 4.1 percent in the year to the June 2008 quarter. This is down from the record 8.1 percent increase for the same period in the previous year, and from the 6.2 percent increase in the year to the June 2006 quarter. The latest annual increase was due to increases in the cost of annual leave and statutory holidays, superannuation, workplace accident insurance and other non-wage costs (such as motor vehicles available for private use, medical insurance and employer-related low interest loans). Looking into the contributions of each cost to the increase in the non-wage labour costs index, annual leave and statutory holidays contributed 84 percent, workplace accident insurance contributed 10 percent, and superannuation contributed 5 percent. The remaining 1 percent was due to movements in the other non-wage costs.
Annual leave
In the year to the June 2008 quarter, annual leave and statutory holidays increased 4.7 percent. This is down from the record increase of 9.3 percent for the same period of the previous year, and from the 7.1 percent increase in the year to the June 2006 quarter.
In the last three years, annual leave has been the major non-wage contributor to the all labour costs index. In the year to the June 2006 quarter, annual leave and statutory holidays (up 7.1 percent) contributed 22 percent to the all labour costs index increase. In the same period of the following year, annual leave and statutory holidays (up 9.3 percent) contributed 28 percent of the all labour costs index increase. In the year to the June 2008 quarter, annual leave and statutory holidays (up 4.7 percent) contributed 16 percent to the all labour costs index increase. As mentioned earlier, the main reason for the increase was a 3.5 percent increase in all salary and wage rates. The increase in the minimum annual leave entitlement from three weeks to four weeks per year as at 1 April 2007 also had an effect. For more information on the movements in the year to the June 2007 quarter and in the year to the June 2006 quarter, see the Labour Cost Index (All Labour Costs): June 2007 quarter and Labour Cost Index (All Labour Costs): June 2006 quarter releases.
In the year to the June 2008 quarter, the 4.7 percent increase was a result of wage increases and of the remaining respondents increasing their employees' minimum annual leave entitlement from three weeks to four weeks per year. Although the legislation came into effect as at 1 April 2007, employers did not need to increase the entitlement for individual employees until the next anniversary of their employment. If an employee's anniversary was on 31 March, their minimum entitlement would not be required to increase until 31 March the following year and may not have been picked up in the all labour costs index until that time.
Workplace accident insurance costs
Employers’ workplace accident insurance costs increased 4.7 percent in the year to the June 2008 quarter. The latest increase is down from the 9.3 percent increase in the year to the June 2007 quarter. The increase in 2008 includes a 3.5 percent increase in all salary and wage rates (including overtime) and increases in ACC levy rates.
In the public sector, workplace accident insurance increased 12.0 percent in the year to the June 2008 quarter. This followed increases of 11.2 percent in the year to the June 2007 quarter and a 10.3 percent increase in the year to the June 2006 quarter. Workplace accident insurance increased 2.2 percent in the private sector in the year to the June 2008 quarter, following an 8.7 percent increase in the year to the June 2007 quarter and a 3.0 percent increase in the year to the June 2006 quarter.
Overall workplace accident insurance costs contributed approximately 2 percent to the increase in the all labour costs index and contributed approximately 10 percent to the non-wage labour costs increase in the year to the June 2008 quarter.
Superannuation
In the year to the June 2008 quarter, employer superannuation costs increased 2.7 percent following increases of 4.2 percent in the year to the June 2007 quarter and 6.6 percent in the year to the June 2006 quarter. The main reasons for these movements were a 3.5 percent increase in salary and ordinary time wage rates, and the introduction of a compulsory 1 percent employer contribution to employees' KiwiSaver superannuation schemes. For more information see the KiwiSaver article in this edition of Price Index News.
In the public sector, superannuation costs increased 1.9 percent in the year to the June 2008 quarter. This followed increases of 3.2 percent and 12.3 percent in the years to the June 2007 quarter and June 2006 quarter, respectively. In the private sector, superannuation costs increased 3.3 percent in the year to the June 2008 quarter, following a 5.2 percent increase and a 1.7 percent increase in the years to the June 2007 quarter and June 2006 quarter, respectively.
The superannuation index contributed a little over 1 percent to the increase in the all labour costs index in the year to the June 2008 quarter, and around 5 percent to the increase in the non-wage labour costs index.
Other non-wage labour costs
In the year to the June 2008 quarter, other non-wage labour costs increased 0.3 percent following increases of 1.8 percent and 0.7 percent in the years to the June 2007 and June 2006 quarters, respectively. As mentioned earlier, other non-wage labour costs include motor vehicles available for private use, medical insurance and employer-related low interest loans. The cost of providing medical insurance fell in the year to the June 2006 quarter, but increased in the years to the June 2007 and June 2008 quarters. Over the past three years, the cost of providing motor vehicles available for private use has consistently increased, while in direct contrast the cost of employer-related low interest loans has consistently decreased since the year to the June 2006 quarter. On the overall impact on the all labour costs index, the other non-wage labour costs contribution was negligible, with an increase of 0.3 percent in the year to the June 2008 quarter, and a relatively small weight of 1.83 percent.
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