Wage growth for small and medium business employees in New Zealand has turned negative for the first time in more than a year, entrenching a real-time pay cut for thousands of Kiwi workers and further reducing the spending power of the customers SMEs rely upon.
Employment Hero’s July Jobs Report, which draws on data from more than 2,000 businesses and 85,000 employees, confirms wages are down 0.1 per cent month-on-month and 0.4 per cent year-on-year in New Zealand. While employment has grown over the same period, wage stagnation suggests increased demand for workers is not flowing through as higher salaries.
“With wage growth now falling well behind inflation, workers will continue to feel it in the back pocket, which piles more pressure onto an already high cost of living,” says Neil Webster, General Manager New Zealand at Employment Hero.
Workers Effectively Take A Pay Cut As Wages Trail Inflation
The July figure of -0.4 per cent year-on-year wage growth continues a trend that had begun even before the Middle East crisis put New Zealand’s economic recovery on pause.
“Salaries have been struggling for a year, with the downward trajectory starting this time last year when wage growth stood at 4.7 per cent year-on-year,” says Webster. “The drop to -0.4 per cent has been rapid.”
The negative figure for SMEs is even more pronounced than for the broader workforce, with Stats NZ estimating national wage inflation at 2.0 per cent. Both numbers fall below inflation, which currently sits at 4.1 per cent. The phenomenon has even attracted international attention, with an OECD report revealing New Zealand has some of the worst wage growth in the developed world.
Some age groups are finding it tougher to cope than others. Older workers have experienced the largest decline in median hourly rates in July. Wages are down 1.6 per cent year-on-year in the 55 to 64 age group and 1.5 per cent lower among those aged 65 plus.
In a boost for entry-level workers, wage growth among 18-to-24-year-olds is in positive territory, up 1.8 per cent year-on-year. There are also bright spots in some industries: wages are up 5.1 per cent year-on-year in Agriculture, Energy and Mining, and 2.5 per cent in Retail, Hospitality and Tourism.
Flat wage growth can affect small and medium businesses by limiting the purchasing power of potential customers while also prompting employees to look elsewhere in search of a pay bump. But Webster says there is an upside for SME employers. “The current employment market favours employers because there are plenty of workers available, staff are sitting tight in their roles, and there’s no pressure to pay more,” he says. “With SMEs under real cost and margin pressure, the result is their headcount stabilises and can even increase while wages stay flat.”
Some Businesses Are Swooping On Cheaper Workers
While wages remain soft, some small and medium businesses are taking the opportunity to expand. Employment has grown by 1.8 per cent in July, the strongest monthly gain in nine months, and by 3.0 per cent over the past three months.
This buoyancy reflects reduced competition for talent at a time when the unemployment rate has reached 5.6 per cent, the highest in more than a decade. “The latest unemployment figures signal businesses are being cautious but what we’re seeing in our SME data adds an important layer of nuance to the national picture,” explains Webster. “So, while the national unemployment rate climbs, our figures suggest some parts of the SME sector are still expanding.”
There is a regional variation in business expansion. After a blip last month, momentum has swung back towards the South Island, with 4 per cent employment growth far outpacing the figure for the North Island. Employers may be enticed to hire by lower salaries, as wage growth slides by 0.7 per cent in the South Island in July.
Employers Are Optimistic Despite The Pressure
The July Jobs Report comes as separate Employment Hero data offers fresh insights into business sentiment in the second quarter of 2026.
In the Quarterly SME Pulse, 33 per cent of companies with fewer than 21 employees cite wages as the biggest source of pressure, followed by employee workload and burnout at 28 per cent. Overall, 32 per cent of business owners find productivity and output the most onerous, with regulatory compliance and hiring also causing frustration.
The Reserve Bank’s assertion that New Zealand is back on the road to economic recovery is reflected in a largely positive business outlook for the next six months. 53 per cent of business leaders surveyed feel optimistic about the financial performance going forward, with 23 per cent declaring themselves pessimistic.
21 per cent are following up with plans for expansion or growth before Christmas. 39 per cent are taking a balanced approach, while 25 per cent are looking for efficiency gains. Only 13 per cent expect to engage in cost-cutting in the near future.
Business owners hoping to improve efficiency are not necessarily looking to AI to improve workflows. 18 per cent of businesses with fewer than 21 employees say that their organisation is not using AI at all and 24 per cent have no short-term plans to invest in the technology. Businesses with more than 150 employees are leading the charge, with 46 per cent integrating the technology company-wide. Overall, 62 per cent of companies say they are increasing AI investment significantly or slightly.
