Working New Zealanders, who feel like they are going backwards financially, aren’t just imagining it.
Real wages, or nominal wages adjusted for inflation, have been falling over the past five years.
The drop in New Zealand has been the most severe of 37 countries in the Organisation for Economic Co-operation and Development (OECD).
Real wages are now about 1% below where they were last year, and 6% below where they were in the first quarter of 2021, according to the OECD’s real wage index.
The change over the past five years hasn’t been as bad for those on the minimum wage.
While the coalition Government has implemented small minimum wage hikes, the Labour Government upped the minimum wage substantially.
The gap between the minimum and median wage in New Zealand is the fourth smallest in the OECD.
Real wages have also been falling in Australia since inflation spiked in the latter part of the Covid-19 pandemic.
The Czechia Republic, Denmark, Italy and Sweden are the only other countries where real wages are still more than 2% below where they were in 2021.
However, in these countries the situation has been improving. In New Zealand and Australia, it hasn’t been, with the OECD saying, “real wages are near the trough of the cost-of-living crisis”.
Finance Minister Nicola Willis blamed the situation on the previous government, under which the annual inflation rate rose to a peak of 7.3% in the June 2022 quarter.
“Grant Robertson and the Labour Party presided over a period in which price increases outpaced wage increases and that has left structural scars in our economy, which we have been working hard to recover,” Willis said.
The annual inflation rate fell within the Reserve Bank’s 1-3% target range in the September 2024 quarter, before rising to 3.1% just over a year later.
It is expected to peak at 3.9% in the June 2026 quarter, during which time oil prices soared.
Willis disagreed with the assertion her government hadn’t done enough to grow the economy to better boost wages.
“I stand by the decisions we’ve made. In the absence of those decisions, things would’ve been much worse,” she said.
The OECD noted that wage growth had been slow over the past year across all OECD countries, as weakness in the global economy made it harder for people to get jobs.
It noted geopolitical and trade tensions had created a lot of uncertainty. It was unconvinced the situation would improve for workers.
“In the future, geopolitical uncertainties and a time-limited increase in energy costs may significantly weaken labour markets while exerting further upward pressure on inflation, which likely will depress wages,” the OECD said.
Kiwis are working fewer hours and less productively
The organisation also looked at labour productivity.
Again, New Zealand was near the bottom of the pile, with the OECD suggesting Kiwis are both working less and producing less per hour worked.
The OECD said that between 2023 and 2025, the average number of hours worked per worker, per year, fell by about 0.8% in New Zealand.
This was the fifth-largest drop in the OECD.
During this period, the average number of hours worked per worker fell across most countries. However, it fell by less than in the past, going back to 1995.
In New Zealand, it fell more.
Commenting on the global picture, the OECD put the decline in hours worked down to productivity gains, changes in workers’ preferences towards working overtime, changes in working time regulations or collective agreements, and shifts towards jobs requiring fewer working hours.
It said part-time or temporary employment had become more common, “possibly in part due to the loosening of labour markets – firms had less need to attract workers by offering them fulltime, open-ended contracts”.
Zooming back in on New Zealand, the OECD found there had been a slight annualised decline in real gross domestic product (GDP) per hour worked between 2023 and 2025.
On average, other OECD countries were also producing less per hour worked post-Covid, compared to pre-Covid.
However, the situation was different in different places.
In Europe, for example, the OECD said high gas prices, uncertainty related to Russia’s invasion of Ukraine and a “tendency to hoard labour in European countries” had stymied labour productivity.
Whereas in the US, labour productivity had risen a little. The OECD put this down to the US having a number of sectors that play a central role in the adoption of AI and the transition to online retail.
Looking to the near future, the OECD said labour markets around the world would be shaped by the evolution of the energy crisis, the time it takes for conflict to subside in the Middle East and governments’ responses to this.
“Assuming the disruptions from the conflict are sizeable but limited to a relatively short period of time, and an otherwise solid underlying momentum in the global economy ... global growth is projected to soften considerably in the second quarter of 2026, before picking up gradually thereafter,” the OECD concluded.
“Employment growth is expected to be relatively subdued in 2026 before edging up in 2027.”
