New Zealand small and medium businesses are capitalising on a window of unusually low wages to expand their teams as the economic recovery gathers pace.

August Jobs Report data from Employment Hero, representing more than 3,300 businesses and 73,000 employees, reveals monthly employment growth of 0.7 per cent. This is the seventh consecutive month of expansion, signifying a slow but sustained upward trend.

But wage growth remains negligible, with the needle barely moving last month and annual growth only just into positive territory. Strong regional variations are also emerging, with some areas performing better than others.

“The employment figures are encouraging, particularly in parts of the South Island, but the wage data signals the economic recovery is still a work in progress,” says Employment Hero New Zealand General Manager Neil Webster.

Businesses Are Expanding Slowly But Surely

New Zealand SMEs have been steadily expanding their workforces all year, recording month-on-month growth of at least 0.5 per cent. Growth for the three months to August has reached 3.6 per cent, the highest figure for 2026, a notable achievement considering the impact of the Middle East conflict on the nation’s economic recovery.

Stats NZ business financial data confirms the economy is improving. Across the board, sales were up 8.9 per cent in the June quarter and operating profits increased by 7.9 per cent. But input costs were up 10 per cent, meaning margins remain compressed.

The Reserve Bank has pointed to spare capacity in the labour market, as the unemployment rate sits at a decade-high 5.6 per cent. This means small and medium-sized employers are faced with a larger pool of available candidates and less jockeying for talent.

Labour market movement appears to be more visible among small and medium businesses than in the broader workforce. Stats NZ business employment data, which includes public and private sector payroll data, records a 0.1 per cent increase in filled jobs in the June quarter, well short of the pace of the SME sector.

The Reserve Bank of New Zealand (RBNZ) and major bank economists do not expect the jobs market will tighten any time soon, meaning the window for higher-value hiring may remain open for longer. “For many New Zealanders expecting a jetboat upturn in employment trends, we suspect it will be more like turning a tanker,” writes ASB Bank‘s economics team. “We do not expect to see a meaningful reduction in labour market slack until 2027.”

Low Wage Growth Creates Both Opportunity And Challenges

The lack of employer competition for candidates is prolonging wage stagnation. Growth in August was a miniscule 0.02 per cent, while the annual figure is a similarly muted 0.3 per cent. This deceleration in year-on-year growth began last August, dwindling from 4.7 per cent to the current rate.

This serves as a double blow for Kiwi workers. Since inflation sits at a two-year high of 4.1 per cent, employees have taken a real-time pay cut, as higher living costs far outpace salary increases. Breaking down the figures further, full-time workers, who make up the bulk of the workforce, face year-on-year wage growth of a paltry 0.16 per cent. A smaller cohort of part-timers has fared better, with their pay 3 per cent higher.

“The bottom line is Kiwis are not seeing their wages grow and it will feel like a real loss given inflation,” Webster says.

Hardest hit are employees in the Healthcare and Community Services sector. SMEs in this field are hiring, with quarterly employment growth of 2.1 per cent, but are actively paying less than a year ago. The hourly median wage has slipped to $33.85, a 6.1 per cent drop. Annual wage growth is also negative in Manufacturing, Transport and Logistics, down 0.1 per cent. The one bright spot is Science and Technology. Although employment growth has contracted by 0.6 per cent, remaining workers are the only ones seeing above-inflation wage growth at 4.6 per cent.

A Tale Of Two Islands As Gap Emerges

Just as the picture isn’t uniform across sectors, there are also regional variations among the data. South Island SMEs are expanding headcount at double the rate of the North Island.

“Canterbury is showing some of the strongest employment growth in the country, which is an encouraging sign for businesses and workers in this region,” Webster says.

Canterbury is the healthiest all-round performer, with business expansion up 6.3 per cent since May, while wages have ticked up 0.56 per cent. Christchurch continues to be a quiet achiever.

SME employment growth in Otago is tracking above the figure for the broader economy. But employers are not being forced to pay more for talent as wages declined over the same period.

Nelson and Tasman are leading on wage growth. At 5.5 per cent quarterly growth for Nelson and 2 per cent for Tasman, they are tracking well above the national flat line. But this may be a case of needing to pay more to retain talent, since employment growth has contracted by 3.9 per cent and 2.3 per cent respectively. Marlborough is among the weaker performers. It has experienced a notable decline in both employment and wage growth in the past three months.

While wage stagnation is tough for workers and reduces their spending power, reduced wage pressure creates breathing room for SME owners who continue to battle persistent inflation and higher interest rates, with further OCR hikes on the cards.