Clearly the wage bill cannot be expanded by major pay rises, since this eventually leads to a higher relative cost of labour and, consequently, less job creation, higher unemployment, loss of household confidence and fresh falls in demand, which would mean still lower growth and more unemployment. Therefore, it is crucial to adapt wages to the specific situation of firms, to their activity, productivity gains, profits, etc. The current wage bargaining system does not take into account the large differences in individual firms’ specific situations, so it is not the most suitable one to prevent the bout of weak demand from generating a sharp fall in employment. Further, the predominance of indexation clauses in collective labour agreements is a problem that becomes particularly harmful when, as in the current circumstances, inflation has risen due to an external shock, like oil prices, at a time of cyclical weakness. It is naive to believe that automatic wage adjustment to reflect past consumer price increases provides any protection to household disposable income. On the contrary, these clauses (which have now been done away with in most European countries) lessen the ability of firms to compete and keep creating jobs, generate inflation (which affects those not protected by similar provisions) and, in short, hinder adaptation to the external shock. In general, these characteristics of the Spanish labour market have meant that employment has so far been the economy’s main adjustment variable in periods of crisis, since it is the quantities (i.e.
The government tried on several occasions in the first decade after WWII to turn Norges Bank into a subordinated agency. If the history of Norges Bank was written in a vacuum with no international references, one might have thought that this was unique for Norway. Not so, similar developments were observed in many countries who previously subscribed to the gold standard. Political control over central banks was tightened in many countries with one notable exception, the Bundesbank in West Germany which was established as the most independent central bank in the post-WWII period (Sejersted, 1994). 3 Norges Bank was in fact not as dependent as believed. The truth may lie somewhere in between. Recent research on the role of Norges Bank during the first decade after WWII (Ecklund, 2008) 4 suggests that Norges Bank maintained a relatively high degree of operational independence in this period. Norges Bank’s independence was gradually restored. In 1986 Norges Bank was granted instrument autonomy and started to set short-term interest rates to sustain the prevailing fixed exchange rate regime. The current inflation targeting regime was introduced in March 2001 and Norges Bank now sets short-term interest rates aimed at keeping inflation around 2.5% over time. Greater independence demands adequate accountability. Along with greater degree of autonomy and independence Norges Bank has become more open and transparent in its monetary policy communication. Increased openness by Norges Bank is not only a way of achieving accountability to its constituents, but is also instrumental to enhance policy effectiveness.