Labour Cost Index: (All Labour Costs): June 2005 quarter (final)

Overall labour costs

Labour costs increased 2.7 percent from the June 2004 quarter to the June 2005 quarter. The salary and wage rates (including overtime) component of the Labour Cost Index (LCI) rose 2.7 percent, while the non-wage labour costs component rose 3.0 percent.

The costs of other business inputs (excluding capital costs), as measured by the Producers Price Index, rose 4.7 percent from the June 2004 quarter to the June 2005 quarter. Capital goods prices increased 3.0 percent. The increases in the inputs prices were reflected in the prices charged by businesses for their outputs, which rose 3.0 percent. Over the same period, consumer prices increased 2.8 percent.

 

Overall non-wage labour costs

Non-wage labour costs rose 3.0 percent between the June 2004 quarter and the June 2005 quarter. This is the largest annual increase since the June 1996 quarter, when non-wage labour costs rose 4.3 percent.

The rise in non-wage labour costs was due to rises in the cost of annual leave and statutory holidays, superannuation, workplace accident insurance and employer-related low interest loans. These rises were partly offset by an overall fall in other non-wage labour costs: medical insurance and vehicles available for private use.

 

Annual leave and statutory holidays

From the June 2004 quarter to the June 2005 quarter, the cost of annual leave and statutory holidays to employers increased 2.9 percent. In the same period, salary and wage rates (including overtime) increased 2.7 percent. There were 10 paid statutory holidays in 2005, the same number as in 2004. Waitangi day did not fall on a weekday in 2005 so was not a paid holiday for most employees.

Annual leave and statutory holiday costs increased 2.8 percent for private sector employers and 3.2 percent for the public sector.

 

Superannuation

Employer superannuation costs increased 7.3 percent from the June 2004 quarter to the June 2005 quarter. This follows no change in the previous June year. The latest increase in superannuation costs was influenced by a 2.6 percent increase in salary and ordinary time wage rates.

In the public sector, superannuation costs rose by 15.2 percent, mainly due to the introduction of the State Sector Retirement Savings Scheme (SSRSS) and greater membership by teachers of retirement savings' schemes. From the June 2003 quarter to the June 2004 quarter, public sector superannuation costs decreased 3.1 percent.

Superannuation costs for the private sector increased 1.3 percent from the June 2004 quarter to the June 2005 quarter. This follows an increase of 2.5 percent in the previous June year.

Workplace accident insurance costs

Employers' workplace accident insurance costs increased 7.2 percent from the June 2004 quarter to the June 2005 quarter. This follows a flat movement in the year to June 2004, when costs increased 0.5 percent.

Employers pay residual claims levies (to fund historical injuries) and they also pay base Accident Compensation Corporation (ACC) WorkPlace Cover levies to cover the costs of ongoing injuries. There are two optional programmes offered by ACC: a workplace safety management practices programme, and a partnership programme. Under the partnership programme, employers are able to share risk in return for reductions in base premium rates. Under both programmes, employers passing safety audits at one of three levels are eligible for safety management practice discounts of 10, 15 or 20 percent off the standard base premium rates.

For the June 2005 quarter index, residual claims levy rates (applicable to earnings for the year to March 2005 and collected in arrears) were, at the disaggregated industry level, added to ACC WorkPlace Cover levy rates (applicable to earnings for the year to March 2005 and collected during the period) which were discounted to reflect actual eligibility for safety management discounts for the period to 31 March 2005.

The 2005 increase in the ACC Employer Premiums Index reflects rises in pay rates and increases in ACC levy rates. Workplace accident insurance costs in the June 2005 quarter were higher than in the June 2004 quarter for 23 of the 27 industry groups.

Workplace accident insurance costs rose 6.5 percent for the private sector, and 9.8 percent for the public sector.

 

Other non-wage labour costs

Other non-wage labour costs fell 2.8 percent from the June 2004 quarter to the June 2005 quarter. This compares with a fall of 1.2 percent from the June 2003 quarter to the June 2004 quarter. The other non-wage labour costs component of the Labour Cost Index includes medical insurance, motor vehicles available for private use, and employment-related low interest loans.

The cost of providing motor vehicles for private use fell from the June 2004 quarter to the June 2005 quarter, while the cost of providing employer-related low interest loans rose. The prescribed interest rate that is used to calculate the fringe benefit value of low interest loans increased from 7.30 percent to 8.76 percent and this would have had an upward influence on the costs. The cost of providing medical insurance cover fell from the June 2004 quarter to the June 2005 quarter.

Fringe benefit tax (FBT) rates derived from FBT data for the year to March 2005 were used to calculate the June 2005 quarter indexes for medical insurance, motor vehicles available for private use, and low interest loans. Employers have the choice of either using a flat 64 percent FBT rate or using multi-level FBT rules, whereby rates are based on the actual remuneration levels of employees receiving the benefits. Employers providing about 74 percent of fringe benefits by value chose the latter option for the year to March 2005. In the year to March 2004, this figure was about 75 percent, and about 74 percent in the year to March 2003.

 

Sectors and industries

Increases for individual industry groups' labour costs ranged from 1.1 percent (for communication services) to 3.9 percent (for education and health and community services) in the year to the June 2005 quarter. The increase for health and community services was driven by increases in salary and wage rates (including overtime), annual leave and statutory holidays, workplace accident insurance, superannuation and other non-wage labour costs.

Education labour costs rose 3.9 percent, more than the 3.0 percent annual increase for wage and salary rates (including overtime). This was driven by increases in the cost of wage and salary rates (including overtime), annual leave and statutory holidays, superannuation, workplace accident insurance and other non-wage costs.

Construction labour costs increased 3.8 percent from the June 2004 quarter to the June 2005 quarter. Increases in wage and salary wage rates (including overtime), annual leave and statutory holidays, superannuation and workplace accident insurance were partly offset by decreases in other non-wage costs.

Labour costs in the private sector rose 2.6 percent from the June 2004 quarter to the June 2005 quarter and 3.3 percent in the public sector. Within the public sector, central government sector labour costs rose by 3.5 percent, and local government costs by 2.1 percent.

Revisions

With the release of Labour Costs Index (All Labour Costs): June 2005 quarter (final) data, Statistics New Zealand has introduced an improvement in the quality of the indexes. This has resulted in revisions to some of the series for non-wage and all labour costs. The wage indexes are not affected. To resolve an issue of under-reporting, an exploratory questionnaire was sent to all respondents in the sample, to identify cases where respondents had begun to offer certain non-wage benefits that were not offered at the time the respondent was enrolled into the Labour Cost Survey. The introduction into the index of the newly offered benefits identified by this process has had a material impact on a number of the final published series.

The under-reporting issue arose from the methodology used to measure change in the non-wage benefit components of superannuation, vehicles, medical insurance, and loans. When respondents were originally selected to participate in the survey, they were questioned on which types of non-wage benefits they provided to employees. The respondents were then surveyed for these costs on an ongoing basis; they were not however surveyed on whether they had begun providing these benefits at a later date. To rectify this issue, an exploratory questionnaire was sent prior to this year's survey to identify cases where superannuation, vehicles, medical insurance, and loans were now being offered by existing respondents. This year's exploratory questionnaire built on one sent to some respondents prior to the 2004 survey.

The additional costs incurred by firms have been introduced into the index, the impact on the series quantified, and a determination made on how to show the impact in the index series.

The exploratory questionnaire asked respondents to record the year the employer began offering the non-wage benefit. The decision was made to operate on the assumption that if the introduction happened after 1992, when the series began, the impact of the additional costs identified by this process was introduced incrementally over the entire history of the series. This has resulted in revisions to a number of previously published index numbers.

Final data

Provisional results of the Labour Cost Index (All Labour Costs): June 2005 quarter were released on 4 October 2005.

The final data in this release differs from the provisional data in the following ways:

• the final data includes additional benefits, described above, that were not included in the provisional data
• the final data incorporate more up-to-date information regarding employers' superannuation costs, in particular the State Sector Retirement Scheme (SSRSS)
• the data includes updated information regarding FBT rates.

The impact of the inclusion of this information in the final data, and the subsequent differences between the provisional and final data, can be seen in Table 6 of this release.

The table below displays, for affected indexes at the sector level:

• the June 2005 quarter provisional data before the additional benefits were included
• the June 2005 quarter final data after the additional benefits were included.

The data gives a good indication of the impact of the additional benefits. They range from virtually no impact on All Labour Costs, to moderate impact on All Non-wage Costs, through to significant impact for series such as Public Sector Superannuation Costs.

* Final data for the Public Sector and All Sectors Superannuation series' incorporate more up-to-date information regarding employer's superannuation costs, in particular the State Sector Retirement Scheme (SSRSS).

For technical information contact:
Sharlene Turner or Bridget Hamilton-Seymour
Wellington 04 931 4600
Email: info@stats.govt.nz.