Low wage growth and job-to-job transitions: Evidence from administrative data in New Zealand

Release date
12/12/2019
Reference
AN2019/11
Authors
Christopher Ball; Nicolas Groshenny; Özer Karagedikli; Murat Özbilgin; Finn Robinson
Supplementary file
Technical Summary (PDF1.43 MB)
ISSN
2230-5505

Non-technical summary

Low wage growth since the global financial crisis (GFC) has puzzled policymakers in New Zealand and around the world. Annual wage inflation in New Zealand declined from 2012 to 2017, despite the unemployment rate trending down since 2012.

We find that a compelling explanation for low wage inflation since the GFC is the relatively low number of people switching jobs. People who move from one job to another often receive higher wage offers than unemployed job-seekers. With less people moving from job-to-job, fewer people have received higher wage offers. Overall wage growth has therefore remained weaker than looking at the unemployment rate alone would suggest.

Understanding the link between job switching and low wage inflation supports both elements of the Reserve Bank's dual mandate. Job switching offers a more comprehensive view of labour market slack than is offered by standard measures such as the unemployment rate. In addition, the effect of low job-to-job movements on wages is another factor helping us understand low CPI inflation since the GFC.