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Assessing and communicating labour market indicators of inflationary pressure

Christopher Ball

Key findings

  • This Note proposes improvements to the methodology that we use to assess labour market indicators of inflationary pressure.
  • These results suggest inflationary pressure from the labour market can be summarised using a narrow set of 4 high-quality indicators consisting of:
  1. the job transition rate
  2. the vacancy-unemployment ratio
  3. the unemployment rate, and
  4. a business survey measure of labour as a limiting factor for business production.
  • These results also recommend retaining the full set of existing labour market indicators and using a new visualisation method to understand the broader context of the labour market.

Why we did this research

Labour market indicators can provide useful insights on domestic inflationary pressure, volatility in the real economy and the transmission of monetary policy. This paper ranks various labour market indicators based on their relationship to wage and price inflationary pressure. 

The adoption of the dual mandate (inflation and maximum sustainable employment) between March 2018 and December 2023 expanded our communication of developments in the labour market and accelerated a wide range of labour market research we published. 

In December 2023, the Monetary Policy Remit was changed by the incoming Government to focus on medium-term price stability as the sole operational objective for monetary policy. However, employment, and hence the labour market remains an important consideration in assessing the state of the broader economy. The new Remit also states that in pursuit of price stability, “the MPC shall…seek to avoid unnecessary instability in output, employment, interest rates and the exchange rate." We continue to study labour market indicators as they provide useful insights on domestic inflationary pressure, volatility in the real economy and the transmission of monetary policy.

What data have we used?

There are 44 labour market indicators we commonly use. Some of this data is collected in Labour market (M9).

Indicators include:

  • Job transitions
  • QSBO labour limiting
  • Vacancy-unemployment ratio
  • QSBO - skilled labour
  • QSBO - unskilled labour
  • Medium term unemployment
  • Total unemployment
  • Average hours worked gap
  • Female unemployment
  • Underutilisation
  • Pasifika unemployment
  • Youth unemployment
  • Job separation
  • Regional deviations
  • QSBO overtime worked
  • Māori unemployment
  • Job finding
  • Annual wage growth
  • Underemployment
  • Long-term unemployment