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Monday, 9 June 2014

Labour Cost Index versus Quarterly Employment Survey

Last week on Prime's Back Benches, Labour List MP Andrew Little stated that  "46% of the working population can't get a pay rise". This is pretty worrying to hear, but take a closer look and the measurement being used and it doesn't actually say that.

The claim is based on a misreading of the Labour Cost Index (LCI). The LCI measures inflation (as an increase in what businesses pay for their staff) in the labour market. It's one of Statistics NZ's wider measures of inflation - most people would've heard of one of the other measures Statistics use -  the Consumer Price Index (CPI). As I've mentioned here before, there's plenty of criticism of CPI because people feel it doesn't always relate to what they actually pay for things they need, it's a "basket" of goods. It's a general measure of consumer prices.

The same goes for LCI. It's a guide that which Statistics NZ uses to measure the inflation of wages and rates that businesses pay for their staff. It measures the changes in salary and ordinary-time wage rates for a fixed quantity of labour. Of course most people get paid more when they are more productive, or they have been given a promotion or they have changed jobs. But the LCI specifically doesn't measure this, as it wouldn't produce a useful measure of inflation over time.

If you want to see if the working population is getting a payrise, look at the Quarterly Employment Survey (QES, just to add another three-letter acronym in to the mix). The previous Labour government made sure QES is used, by law, to set the superannuation rate and parental leave entitlements. Clearly the QES was their standard to make sure that New Zealanders receiving the pension received increases that would match what working New Zealanders earned, so they can pay their bills.