“We felt that the jump in the participation rate in the previous quarter was overstated, having been concentrated among young people during the school holidays, and would unwind this time.”
“That did happen to some degree, but was balanced out by stronger employment among older groups than we expected.”
The underutilisation rate remained the same at 12.9%. There were 406,000 underutilised people in the March 2026 quarter.
Underutilisation is a broader measure of untapped labour market capacity than unemployment. It includes unemployed people, the potential labour force, and people who are underemployed.
The Labour Cost Index (LCI) showed all salary and wage rates (including overtime) increased 2% in the year ended March 2026, while the unadjusted LCI increased 3.1%.
Private sector wages increased 2% over the year. Public sector wages increased 1.7% over the year.
Kiwibank economist Alexandra Turcu said the data showed an economy that was still under pressure, even before the war and oil shock
“There’s still a lot of slack in the labour market. With demand already weak, higher prices are unlikely to translate into stronger wage growth, reducing the risk of domestically driven inflation,” he said.
“We think today’s data reinforces the view that there is little case for [official cash rate] hikes in the near term.”
The urban hubs remained under pressure – with Wellington and Auckland’s unemployment rates increasing to 6.4% and 6.6% (non-, respectively, said ASB’s Wesley Tanuvasa.
“This is consistent with our view that while the economic recovery was underway, it was multi-speeded. Labour market slack looks to have remained in the NZ economy, although the direction of travel was upwards.”
Youth unemployment remained elevated at 24.9% for those aged 15-19 and 12.2% for those aged 20-24 years.
The proportion of youth aged 15 to 24 who are not in employment, education, or training (the Neet rate) was 14.4% in the March 2026 quarter, compared with 13.3% in the December 2025 quarter.
That suggests those leaving school or university are finding ot tougher to get work.
Earlier
There was unanimous agreement among economists that the full impact of the oil shock is yet to be felt in the labour market.
The first quarter data captures just one month of post-war economic activity.
“The fast-moving developments in the Middle East mean that the labour market surveys will already be somewhat dated on their release,” Westpac’s Gordon said.
ASB’s Tanuvasa noted the Middle East conflict presented challenges to the labour market outlook.
“We do not envisage a labour market recovery unfolding until 2027 and cite heightened stagflationary risks over 2026 given higher near-term unemployment and higher near-term inflation in our projections.”
Despite the war and oil shock, there was scope for economic growth this year, BNZ head of research Stephen Toplis said.
Economic growth has struggled for the best part of the past two years. The oil price shock is occurring just as businesses were starting to find their feet.
“Headline inflation is already above the RBNZ’s 1-3% target band and expected to go much higher,” he said.
“Nonetheless, while any current forecast has a wide error band around it, we remain relatively confident that the New Zealand economy will still eke out some growth this year.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.