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New Zealand Wage Inflation Post-crisis

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  • Adam Richardson

Abstract

Nominal wage and consumer price inflation have been subdued in New Zealand post crisis, particularly since 2012. This paper discusses a number of candidate explanations for these muted nominal wage inflation outcomes. The most notable explanations include: a gradual absorption of spare capacity amongst New Zealand's major trading partners; sharp declines in oil and export commodity prices in 2014/15; a significant rise in labour supply, and less inflationary pressure stemming from migration; and a change in price setting behaviour, with inflation expectations becoming more adaptive. This paper also summarises early work using micro-data that offer further insights into the drivers of low nominal wage inflation. A slow rate of job-to-job transitions helps explain some of the weakness in nominal wage inflation. In contrast, preliminary analysis suggests changes in labour market monopsony power of firms do not look to be a significant driver of low wage inflation in New Zealand.

Suggested Citation

  • Adam Richardson, 2019. "New Zealand Wage Inflation Post-crisis," RBA Annual Conference Papers acp2019-02, Reserve Bank of Australia, revised Jul 2019.
  • Handle: RePEc:rba:rbaacp:acp2019-02
    Note: Paper presented at the RBA's annual conference 'Low Wage Growth', Sydney, 4–5 April 2019.
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    File URL: https://www.rba.gov.au/publications/confs/2019/pdf/rba-conference-2019-richardson.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    wages; forecasting; Phillips curve; job-to-job transition; price setting; migration; global economy; New Zealand;
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