Kiwibank economists warn wage growth is frozen as unemployment 'came earlier than expected'
New Zealand's unemployment rate has hit an 11-year high earlier than economists had anticipated, with the latest data revealing deepening slack in the labour market and wages that are failing to keep pace with rising prices.
The unemployment rate climbed to 5.6% in the June 2026 quarter, up from a revised 5.4% in March, according to Stats NZ. The figure matches the level last recorded in September 2015, when the rate hit 5.7%.
Kiwibank economists Alexandra Turcu and Elliott Lowe said the result caught the market off-guard.
"We were expecting the Kiwi unemployment rate to peak at 5.6% later in the year, but it came earlier than expected," they wrote in a commentary. "This down-side surprise hurts."
The underutilisation rate, which captures unemployed workers, those underemployed, and the potential labour force, rose sharply to 13.8% from 12.9% in the March quarter, its highest level in over 12 years.
Stats NZ data showed 166,500 people were unemployed in the June quarter on a non-seasonally adjusted basis, with 19% having been out of work for more than a year.
Silver linings in the market
Despite the headline deterioration, Turcu and Lowe pointed to some silver linings. The labour force grew by 0.7% over the quarter, the participation rate rose to 70.7% from 70.4%, and the employment rate held steady at 66.7%.
Finance Minister Nicola Willis acknowledged the quarter had been a challenging one for employers.
"April, May, and June were difficult months for many employers. They faced real uncertainty and rising costs, and a lot of them made the hard call to hold off on hiring or expanding," she said.
The Employers and Manufacturers Association (EMA) attributed the caution largely to global volatility. Head of advocacy Alan McDonald pointed to the conflict in the Middle East as a significant factor.
"Fuel, transport, and input costs matter enormously to New Zealand businesses. The volatility we saw during the quarter affected confidence, investment decisions, and hiring intentions," he said.
Wage growth stalls
With hiring intentions still subdued, wage growth has stalled. Turcu and Lowe noted that wages grew only 2% annually in the June quarter, while inflation rose to 4.1%, meaning workers are going backwards in real terms.
Private sector earnings grew slightly faster than public sector wages (2% versus 1.7%), but neither group is better off after accounting for price rises. Average total weekly earnings across all workers stood at $1,730.
"With unemployment at its highest since September 2015, workers have relatively low bargaining power to negotiate higher wages," Turcu and Lowe wrote.
The picture is also uneven by region. Kiwibank's analysis found unemployment running at just 3.7% in the South Island compared to 6.0% in the North.
Northland recorded the highest regional rate at 8.8%, followed by Auckland at 6.5%. Canterbury and Otago were the country's tightest labour markets, both sitting at 3.6%.
McDonald previously said restoring business confidence would be key to turning the labour market around.
"Businesses want to invest, grow, and create jobs. If uncertainty eases and confidence continues to improve, we would expect hiring intentions to strengthen over the coming months," he said.
