New labour market figures show the job market remains under pressure, with spare capacity staying elevated and wage growth subdued.
The latest Statistics New Zealand data shows the unemployment rate fell slightly to 5.3% from 5.4% in the March quarter. The participation rate fell to 70.4%, while the size of the labour force grew 0.5% compared to the March quarter of 2025. The underutilisation rate, which includes Kiwi who are unemployed or want more work, remained at 13% (12.9% if we look at the decimal points).
Alexandra Turcu, Kiwibank Economist, says there is still an uncomfortable amount of slack in the labour market: “Businesses are understandably cautious in the current environment, and that’s showing up in slower hiring and very limited movement in pay increases.”
Wage growth remains weak
Wage growth remained low in the March quarter, with most pay rises staying in the 1-2% range.
“This is a tough period for both households and businesses. Costs have been rising for several years, and recent fuel pressures have added another layer of strain. Many businesses are facing higher operating costs at the same time households are already feeling stretched.”
“In that environment, there’s limited room for pay increases, even as the cost of living remains high,” says Turcu.
Underemployment remains elevated
Underutilisation remains high, driven by a mix of unemployment and underemployment.
“When people hear ‘underemployment’, they often think it means a lack of hours, but that’s not always the case. Many underemployed workers are working close to full‑time hours.”
“The difference is not how long people are working, but how much they’re earning. That’s why so many working New Zealanders are still looking for more or better‑paid work, even though they’re already employed.”
Productivity continues to lag
Data continues to show New Zealand lags other developed economies on productivity, measured by how much value is produced for each hour worked.
“Productivity matters because it’s what ultimately supports income growth over time. If more people are concentrated in lower‑paid roles, it limits how much wages can lift across the economy, even when people are employed.”
Turcu says that while this labour market data itself is unlikely to influence the next Reserve Bank decision, it continues to shape the inflation outlook: “With demand already weak, higher prices are unlikely to translate into stronger wage growth. The economy is slowing on its own, which means there is little justification for pushing interest rates higher right now.”
Kiwibank economists expect labour market conditions to remain soft in the near term, with unemployment and underutilisation staying elevated as the economy continues to adjust.
“This period is tough, but it isn’t permanent. When price pressures ease the economy will be able to rebuild. Stronger productivity and better‑paying jobs are what ultimately lift incomes in the labour market. The levers that will give this momentum is long-term stability and growth in business confidence,” Turcu concludes.
For more information, read our economists' labour market note, Slacklining into 2026. Walking the stagflation tightrope.
Media contact: External Communications media@kiwibank.co.nz.