Is your business paying more but getting less? That’s the reality many New Zealand employers are facing as wage growth slows but productivity continues to underperform. The question isn’t just how much you pay - it’s how you make every dollar count.
According to the latest Labour Cost Index (LCI) from Stats NZ, private-sector salary and wage rates rose 2.3% in the year to June 2025, down from 3.6% in June 2024. This decline reflects a cooling labour market, with unemployment edging up to 5.2%. For employers, this means wage pressure is easing but hasn’t disappeared.
A recent NZ Herald analysis highlighted again the sobering fact that New Zealand ranked near the bottom globally for income growth over the past decade. While wages have risen, they’ve done so at a slower pace than inflation and productivity gains in peer economies. This gap erodes purchasing power and competitiveness, leaving employers squeezed between rising costs, continued wage increase expectations but limited pricing power.
By pairing fair wage increases with productivity improvements / efficiency gains you have an opportunity to strengthen your margins and drive growth. Some practical recommendations to consider in your mix are;
- Budget for moderate wage growth - benchmark your pay rates using LCI and market pay data to ensure your frameworks remain competitive without overshooting market norms.
- Focus on lifting productivity - invest in technology and process automation where that helps to offset labour costs. Upskill your people for efficiency gains and review any workflow bottlenecks as small changes can yield big savings.
- Review your bonus & incentive structures to link payments to measurable productivity improvements. This will help align employee rewards with business performance.
- Strengthen your workforce planning by defining/rechecking what you need before adding or replacing roles to avoid unnecessary cost.
The bottom line is that the underlying productivity challenge we continue to face means employers can’t rely on wage containment alone. Those who invest in productivity, not just wages, will be best positioned to thrive.
Need help with benchmarking pay rates or designing productivity-linked performance strategies? Email team@growhr.co.nz for assistance.