Data from Statistics New Zealand out on Wednesday showed the unemployment rate rose to 5.6%, from an upwardly revised 5.4% the previous quarter, a sign of slack that could limit how high interest rates might rise this year, Reuters reported.
That figure was the highest since late 2015 and topped market forecasts of 5.4%.
Finance Minister Nicola Willis said April, May and June were "difficult months for many employers".
"For the New Zealanders who've been out there looking for work in that environment, we know it's been hard going," she said.
Prime Minister Christopher Luxon, a former airline executive, was elected in 2023 in part on his economic credentials, but has seen his popularity fall amid a weakening economy and higher unemployment.
Most voter surveys show Luxon's National Party trailing the centre-left Labor Party, though the complexities of the country's electoral system make November's poll too close to call.
The Reserve Bank of New Zealand has flagged more rate hikes will be needed to remove stimulus from the economy and restrain inflation, so markets remain set for a hike in September.
Yet the scale of spare capacity in the labor force means wages are not a homegrown threat to inflation, arguing against an aggressive rate cycle.
"All told, the June labor force survey should reinforce the RBNZ's gradual approach to withdrawing policy accommodation," said Abhijit Surya, a senior APAC economist at Capital Economics.
"Accordingly, we're sticking to our view that it will wait until October before hiking rates again, even though markets are expecting a 25bp hike as soon as September," Surya added.
The Reserve Bank of New Zealand lifted its official cash rate a quarter point to 2.5% in July as it sought to quell inflationary pressures in part driven by higher global oil prices.
Annual inflation climbed to a 2-1/2-year high of 4.1% in the June quarter as fuel prices jumped, taking it well away from the central bank's target range of 1% to 3%.
RBNZ policymakers have made it clear further rises will be needed as rates are well below most estimates of neutral, which are clustered around 3.0% to 3.25%.
Markets still imply a 90% chance of a hike to 2.75% at the RBNZ's next meeting on September 2, and see rates reaching a peak of 3.5% by the middle of 2027.
The kiwi dollar dipped 0.2% on the jobs data to $0.5879, while a key 2-year swap rate fell 6 basis points to 3.6351%.
Employment growth actually beat forecasts in the June quarter with a rise of 0.5%, but that was offset by a jump in the participation rate to its highest in over a year at 70.7%.
In another sign of spare capacity, the underutilization rate, which measures those unemployed and those who would like to work more hours, popped up to 13.8% from 12.9% the previous quarter.
With plenty of slack in the labor market, annual wage growth stayed at a subdued 2.0% and the private sector saw a small rise to 2.1%, both well under inflation.