I would also like to make it clear that the views on wage formation that I express in this speech today are my own and are not necessarily shared by my colleagues on the Executive Board of the Riksbank. Wage formation in a longer perspective High wage increases and devaluations in the 1970s and 1980s I think that every one here would agree that wage formation has functioned better in the last fifteen years than in the 1970s and 1980s. One way of illustrating this is to compare the development of inflation in Sweden and Germany. In the 1960s, inflation was on average just over one percentage point higher in Sweden than in Germany. Following the breakdown of the Bretton Woods system in the early 1970s, inflation in Germany was seen as a nominal anchor for inflation in Sweden in that the Swedish krona was pegged to a currency basket dominated by the D-mark. This strategy did not work. During the 1970s and 1980s, inflation in Sweden was on average more than four percentage points higher than in Germany (see Figure 1). This is largely related to the development of labour costs in the two countries. Labour costs per produced unit – unit labour costs – increased much more rapidly in Sweden than in Germany during the 1970s and 1980s (see Figure 2). In order to increase the competitiveness of Swedish industry, the Swedish krona was devalued several times in the late 1970s and early 1980s.
Labour productivity in entire economy Annual percentage change, seasonally-adjusted data 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1 -2  -2 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11  Note: Squares are the Riksbank’s forecasts. Outcomes are quarterly data and the forecasts are annual averages. BIS Review 154/2008  Sources: Statistics Sweden and the Riksbank  11  Figure 7. Cyclical variation in GDP and number of employed Percentage deviation from trend 6  6 GDP  4  4  Employment  2  2  0  0  -2  -2  -4  -4  -6  -6 80  82  84  86  88  90  92  94  96  98  00  02  04  06  08  10  Note: Trend calculated using Hodrick-Prescott filter. Broken lines are the Riksbank’s forecasts. Sources: Statistics Sweden and the Riksbank  Figure 8.