Statistics New Zealand released its Labour Cost Index and the more volatile Quarterly Employment Survey yesterday, both confirming weaker employment indicators.
The private sector LCI increased 0.35% in the three months to June to leave annual inflation at 1.6%, still well below the Reserve Bank's preferred measure of 2%.
Labour Party economic development spokesman and Dunedin North MP David Clark told the Otago Daily Times Dunedin had set itself a task of growing income of its residents above the national average but had struggled.
"This is not unique. The Government seems to have a unitary focus on Auckland/Christchurch at the expense of the regions.''
House prices had risen 12% in Dunedin over the past year and younger people were being forced to look outside the region for opportunities.
There were higher costs associated with living in the South, including using more electricity and heating during winter, Dr Clark said.
First-home buyers were faced with loan-to-value ratios, largely introduced to address distortions in the Auckland market.
"The regions are collateral damage for the Government not getting to grips with the issues in Auckland and failing to support regional aspirations for growth,'' he said.
Westpac senior economist Anne Boniface said while wage growth was in line with expectations, employment growth was notably weaker than expected in the QES data.
"We had expected a third consecutive quarter of solid employment growth prior to the release, following a broad-based improvement in a range of surveys of labour market activity in the second quarter.''
However, full-time equivalent employment grew only 0.3% in the June quarter, with March growth also revised down to 1% from an initially reported 1.2%.
That left annual employment growth falling to 3.2%, she said.
ASB senior economist Jane Turner said muted wage inflation created a more challenging inflation environment for the Reserve Bank.
The softer growth came despite evidence of labour becoming more difficult to find during the first half of the year.
If the trend continued, it would suggest the fall in inflation expectations during the past year was starting to suppress wage growth, she said.
"This dynamic would be very concerning for the Reserve Bank as it makes it more difficult for the bank to bring inflation back to target.''
The QES data indicated total hours paid lifted only 0.2%.
As a result, ASB had lowered its second-quarter Household Labour Force Survey employment growth forecasts to 0.3% from 0.7%, and an unemployment rate of 5.5% was expected instead of the previously forecast 5.3%. The labour force survey would be released next Wednesday.
Statistics NZ figures showed full-time equivalents rose in the quarter to 1.5 million and filled jobs were up by 0.3% to 1.87 million.
The annual increase was led by a 14% increase in the number of workers in accommodation and food services to 89,500. Construction jobs, which had been booming due to the Canterbury rebuild and the Auckland housing shortage, fell 0.6% in the quarter to 125,000 and were up 6.3% from a year ago.
Tertiary Education, Skills and Employment Minister Steven Joyce took an optimistic view, saying it was great to see more people moving to areas where skills were required.
There were an additional 10,000 construction jobs, which was up 8.6%, he said.
Construction was at an all time high and the trend was set to continue.
Mr Joyce also interpreted wage growth as increasing at a "healthy margin'' over inflation of 0.4% a year to give wage growth of 1.6%.
"The growth in jobsunderlines our commitment to creating an environment where business have the confidence to invest and where people are able to gain the skills to work in areas of growth,'' he said.
