Senior Associate Adrian Tocker shares valuable perspectives on the 2025 collective bargaining landscape and offers insight into what for 2026.
December 2025
The year 2025 has been marked by a delicate balancing act between economic stability and wage expectations. As we close out December, the labour market reflects a cooling trend with unemployment remaining at 5.2% which many think will be the peak of this current economic cycle. However, pressures from unions and cost-of-living concerns of workers remain palpable. The public service is facing industrial relations challenges on many fronts with ongoing industrial action in health and education still grabbing headlines.
We also saw unions more agreeable to terms longer than 1 year in 2025, with 2-year terms becoming most common. It seems a response to the previous uncertainty and current stabilisation in the economy that unions and their members are more willing to consider terms that don’t require coming back to the bargaining table in another 9-12 months. This is a trend we think is likely to continue into 2026.
Economic Context and Outlook
While 2025 has been an incredibly tough year and resulted in a number of businesses downsizing or completely shutting up shop, there are positive signs of growth. While inflation is sitting at 3.0% (to the year ended September 2025), at the top of the Reserve Bank’s target band, while annual wage inflation for the same period, as measured by the Labour Cost Index (LCI), sits slightly lower at 2.1%.
Over the past decade, CPI and LCI have moved in tandem, reflecting a generally stable inflationary environment punctuated by pandemic-era volatility and subsequent recovery. The Reserve Bank’s latest Monetary Policy Statement projects CPI to hover around 2.0% to 2.5% over the next two years, while wage growth is expected to remain subdued at approximately 2.3%, reinforcing a narrative of cautious optimism for Employers and Employees.
Notably, the annual Household Living Cost Price Index (HLCPI) with its first releaser in 2025, show the true costs-of-living increases has dipped below CPI to 2.4%, signalling some relief for households despite persistent food price pressures earlier in the year. Unions have been relying on HLCPI to support their claims for higher wages as over the last 2 years this has been sitting above CPI. As CPI has stabilised after an unpredictable COVID period, HLCPI has returned to its more traditional level of slightly below CPI.
Employers, particularly in the public sector, continue to operate under fiscal constraints, with wage offers likely capped at 0–1%. Private sector adjustments remain modest throughout 2025, with entry-level and skilled roles seeing increases of 1–2%, and high-demand sectors such as healthcare and IT achieving slightly higher gains of 2–3%. With a more positive outlook for 2026, we expect Employers to be looking at slightly increased collective bargaining settlements in 2026.
Union Expectations and Employer Constraints
Despite easing inflation, unions are expected to maintain an assertive stance in 2026 bargaining rounds, citing cost-of-living challenges, recent pay equity setbacks and improving economic conditions. Employers, conversely, are prioritising non-monetary benefits such as flexible work arrangements and professional development opportunities to offset limited wage growth. This dynamic underscores a shift in negotiation strategies, where holistic employee value propositions increasingly take centre stage.
It is a big year for unions as 2026 is an election year and unions are wanting to highlight where they believe there are inequities in the workplace. Wage increases above the cost-of-living are expected to be a strong push from unions in 2026. Unions have not seen the current government as supporting their aims with public service constraint and the substantial changes to pay equity and will lobby strongly for their interests and the interests of their members.
Changes to Employment Law – they are coming!
The current government has been active in 2025 getting a number of pieces of new legislation in the works. These are all likely to have an impact on bargaining in 2026. The legislative changes include:
- KiwiSaver changes:
- Employer contributions increasing from 3% to 5% from 1 April 2026
- Employment Relations Act Amendment Bill (report back from select committee now rescheduled to February 2026)
- Dependant Contractors – addressing the “Uber” type arrangements
- Changes to PG remedies
- High income threshold of $180k, removing right to pursue unfair dismissal
- Removal of 30-day rule and MBIE Active Intent form requirements
- Employment Relations Act Amendment (Termination by Agreement) Bill
Changing from the Holidays Act to Employment Leave Bill
The most significant change to employment law signalled is the proposed Employment Leave Act, set to replace the Holidays Act, possibly in 2028. This will bring about a fundamental change to all forms of employment and while we see this as an extremely positive change, addressing an area of legislation that has caused untold heartache for Employers and Employees, it will involve a lot of work and preparation for Employers.
Some unions are already trying to pre-empt what impact the proposed legislation will have, and our advice is at this stage don’t look to make too much change as the draft Bill is yet to be presented to parliament and a 2-year implementation is signalled.
In preparation, our advice is that Employers review their employment arrangements especially around the minimum hours-of-work requirements as indications are that this will be a critical component of determining leave entitlements and payments under the proposed changes.
Here’s how we think wage increases in collective bargaining could shape up in 2025:
- Public Sector (e.g., nurses, teachers): For the government year from 1 July 2026, offers around the 5%–2.5% increases, reflecting government fiscal constraints.
- Private Sector (entry-level roles): With a soft labour market but slowly improving economy, pay increases in areas like retail, hospitality, and logistics could trend at 0%–3.0%.
- Private Sector (skilled trades): While substantial increases are unlikely, with improved economic activity forecast, increases, with potential growth around 2%–3.5%, are likely as competition for skilled labour increases.
- High-Demand Areas (e.g., specialist healthcare, IT, electrical engineering): In industries where shortages remain acute, wage increases potentially remain in the 0%–4.0% range.
Final Thoughts: 2026 – Green Shoots for the Economy and Wage Growth
The outlook for pay rate increases in 2026 has improved from 2025. While we don’t foresee substantial change on the upside, the floor for wage increases is likely to lift to reflect improving economic confidence and improved consumer economic activity in 2026.
We do believe that there will be a higher level of increases agreed in collective bargaining rounds that commence in 2026, there will still be substantial industrial unrest as disputes, especially in the public sector, continue as both worker expectations and union activism in an election year continue to rise.
Organisations that treat collective bargaining as a strategic activity, integrated into the whole remuneration approach and your employee value proposition (EVP) will be better placed than those who rely on a one-off approach to collective bargaining rounds as they risk losing talent and credibility. Collective bargaining will be shaped by the interplay of economic restraint, assertive union demands, regulatory change, and the need for transparent, future-ready pay.
For workers, this means keeping expectations realistic while pushing for additional benefits where possible, such as flexible working arrangements or training opportunities. For employers, transparent communication about financial constraints will be critical to maintaining trust during negotiations.
What do you think?
Are wage increases meeting expectations in your sector, or are they falling short? Let us know your thoughts!
