Stop mistaking a trapped workforce for a loyal one

The leverage has swung back

For the first time since the mid-2000s, New Zealand employers hold the upper hand in pay negotiations. The OECD’s July 2026 report named New Zealand as having the worst wage growth of any developed country over the past five years. Unemployment sits at 5.3% in Q1 2026, down marginally from a 5.4% peak in late 2025 but still historically elevated, with youth unemployment at 17.3% and underutilisation at 12.9%.

Wage growth has effectively flatlined. Employment Hero’s real-time data from February 2026, drawn from more than 10,000 businesses, showed average wage growth had collapsed from 5.6% year-on-year to just 0.2%, well below inflation. Official figures are only slightly kinder: the Labour Cost Index rose 2.0% over the year to Q1 2026, its smallest increase since 2021, while SEEK’s advertised salary growth was 2.0% annually in August 2026.

For employers benchmarking pay decisions, the 2-3% band is now the market norm. That is the number to anchor to.

Compliance is not the same as engagement

Here is where employers can misread their own position. Worker confidence has cratered. The Westpac-McDermott Miller Employment Confidence Index for June 2026 fell to its lowest level since 2004, with a net 60% of respondents believing it is hard to find a job, up from 46% a quarter earlier. Westpac senior economist Michael Gordon noted employment confidence had been weak for five years, with the data representing “another step backwards.”

A workforce that feels trapped will stay put. It will not necessarily work harder, innovate, or advocate for the business. The leverage is real, but it comes with a morale cost that shows up later, in productivity and in the exodus that follows the first sign of recovery.

The low-hire, low-fire trap

In September 2025, RBNZ chief economist Paul Conway described a “low-hire, low-fire labour market”, with the job-finding rate at its worst in 30 years. Businesses have been reluctant to cut staff, having learned from the post-COVID scramble how painful rehiring skilled workers can be.

The result looks stable but is deeply stagnant. Employers carry labour costs they could theoretically reduce, while workers go nowhere because there is nowhere to go. That equilibrium is comfortable in the short term and a productivity problem in the long term.

The job-switch premium survives

Even in a soft market, movement pays. Seek’s May 2026 survey found only half of workers received a pay rise in the past year, and of those, 73% received 5% or less. Seek NZ country manager Rob Clark said it was “likely to remain a tricky time for those navigating pay conversations.” Yet workers who switch employers are three times more likely to land a rise above 10% than those who stay.

The lesson for employers is blunt. Replacing a departing worker who switches firms almost always costs more than a retention raise, even now. Betting on inertia is not a retention strategy.

The AI premium tells a different story

The headline 2% figure is misleading for anyone hiring into technical roles. PwC’s 2026 Global AI Jobs Barometer found roles requiring AI skills growing nearly eight times faster than the overall market, with those workers commanding a wage premium of over 60%. That market has not softened in line with the broader one. Employers who need AI-capable staff are competing in an entirely different arena to the one the unemployment rate describes, and the smart move is upskilling existing staff before the premium widens further.

Cheap benefits, real loyalty

With cash constrained, non-monetary levers matter more. Robert Walters’ 2026 NZ Salary Guide found 80% of employees want flexible working, 43% would accept extra leave, and 39% want financial benefits like share schemes and bonuses. Flexibility and remote days often cost less than a 3% rise and are genuinely valued.

Meanwhile casual roles grew 21.7% year-on-year in the Employment Hero data, a rational hedge against uncertainty that also builds a workforce that is less invested and easier to poach when conditions improve.

The employers who come out ahead will treat this reset as a chance to manage pay expectations sensibly while investing in the things a trapped workforce cannot be forced to give. Leverage is not a free pass, and the market will eventually turn.

Sources

• How to stay employed and earn more money when jobs are scarce and pay rates low (2026-07-25)
• Who Is Getting Pay Rises At The Moment? (2026-05)
• RBNZ says job-finding rate is worst in 30 years but businesses are hesitant to fire staff (2025-09)
• Employment confidence drops to lowest level since 2004 – report (2026-06)
• NZ jobs holding up but wage stagnation squeezes borrowers (2026-02)
• Job market shows early recovery, but weak wages limit firepower (2026-05-06)
• New Zealand Unemployment Rate (2026-07)
• SEEK NZ Advertised Salary Index – August (2026-09)