About the labour cost index
The labour cost index (LCI) measures changes in salary and wage rates for a fixed quantity and quality of labour input. Service increments, merit promotions, and increases (or decreases) relating to performance of the individual employee are not shown in the index.
The salary and wage rates component of the LCI measures movements in base salary and ordinary time wage rates, and overtime wage rates.
The non-wage component measures changes in the following costs to employers:
- annual leave and statutory holidays
- Accident Compensation Corporation (ACC) employer premiums
- medical insurance
- motor vehicles available for private use
- low-interest loans.
The LCI sits alongside the producers price inputs index (which measures changes in businesses’ current costs of production, excluding labour and capital costs, as defined by the New Zealand System of National Accounts' concept of intermediate consumption) and the capital goods price index (which measures changes in businesses’ capital costs). This is shown in figure 1 below. These three indexes provide measures of the extent to which changes in businesses’ input costs put pressure on the output prices they charge for goods and services.
By comparison, the average earnings measures from the Quarterly Employment Survey (QES) reflect not only changes in pay rates, but also compositional change (ie changes in the mix of labour from period to period).
Index reference period: the benchmark with which prices in other periods are compared (eg if the index number in a later period is 1150, prices have increased by 15.0 percent since the index reference period). Prices for later periods can also be compared in the same fashion.
The LCI has an index reference period of the June 2009 quarter (=1000).
Price index: measures the change in price between time periods for a given set of goods and services. It summarises a set of prices for a variety of goods and services collected from a number of outlets.