1
Monetary policy and the labour market
Governor Svein Gjedrem
Conference to mark the 10th anniversary of the Federation of Norwegian Professional Associations
24 October 2007
Norges Bank
2
Favourable developments in Norwegian economy
• Improved terms of trade
• High productivity growth
• Increased supply of labour
3
0 1 2 3 4 5 6
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 0 1 2 3 4 5 6
Tight labour market
Registered unemployed. Percentage of labour force
Source: Norwegian Labour and Welfare Organisation (NAV)
Norges Bank
4
-2 -1 0 1 2 3 4 5
1990 1992 1994 1996 1998 2000 2002 2004 2006 -2 -1 0 1 2 3 4 5
Employees’ and firms’ real earnings
Percentage growth
Sources: Statistics Norway and Norges Bank Employees’ real wages
Firms’ real earnings
5
Wage share 1) and registered unemployment
Per cent. 1985 – 2006
60 64 68 72 76 80
1985 1989 1993 1997 2001 2005
0 2 4 6 8 10
Sources: Statistics Norway, Norwegian Labour and Welfare Organisation (NAV) and Norges Bank
Wage share, left-hand scale
Unemployment, right-hand scale
1)Labour costs as share of factor income. Market-oriented enterprises in mainland Norway.
Norges Bank
6
Persons on benefit and early retirement schemes
Per cent of labour force. 1995 – 2006
0 5 10 15 20 25 30
1995 1997 1999 2001 2003 2005
0 5 10 15 20 25 30
Source: Norwegian Labour and Welfare Organisation (NAV) Sickness benefits
Early retirement schemes (AFP)
Vocational rehabilitation Rehabilitation
Disability schemes
7
-10 0 10 20 30
1993 1995 1997 1999 2001 2003 2005 2007 -10 0 10 20 30
Sources: Association of Real Estate Agents, ECON, Finn.no and Association of Real Estate Agency Firms and Statistics Norway
Rise in house prices and credit to households
4-quarter rise
Credit to households House prices
12-month rise in house prices September 2007
Norges Bank
8
0 1 2 3 4 5 6 7 8
Jan.01 Jan.02 Jan.03 Jan.04 Jan.05 Jan.06 Jan.07 0
1 2 3 4 5 6 7 8
Key policy rate and inflation measured by CPI-ATE
Per cent
Source: Norges Bank Key policy rate
Inflation
9
Interplay in economic policy
• Norges Bank’s response pattern is consistent with the inflation target set by Government and Storting
• Social partners: “Leader”
– take Norges Bank’s response to their actions into account
• Norges Bank: “Follower”
– sets the interest rate depending on the effects of wage developments on inflation
Norges Bank
10
0 2 4 6 8 10 12 14
1980 1985 1990 1995 2000 2005
0 2 4 6 8 10 12 14
Low inflation
10-year moving average and variation in CPI. Per cent. 1980 – 2006
CPI
Inflation target
Sources: Statistics Norway and Norges Bank Variation in CPI
