Svante Öberg: The financial crisis and wage formation Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, at the National Mediation Office, Stockholm, 29 January 2010. * * * Why is the Riksbank interested in wage formation? Wage formation and monetary policy are interrelated. The development of wages affects inflation and inflation affects the development of wages. The target for monetary policy is to maintain a low and stable level of inflation. This job is made easier if wage formation works well. Consequently, it is important for the Riksbank to follow this year’s comprehensive wage bargaining rounds. I will not make any recommendations to the social partners regarding the outcome of this year’s collective bargaining. Instead, I will describe the economic setting for this collective bargaining. This may seem to be an extremely subtle distinction, but it is an important one, nevertheless. We make no normative pronouncements regarding which rate of wage increase may be most appropriate. However, considering the drawn-out recovery and the weak labour market, the scope for wage increases seems to be highly restricted. I would also like to make two points during this introduction. Firstly: I will not be reporting any new view of economic developments beyond that presented in the monetary policy update of 16 December, although a few figures will be updated with the latest statistics. Secondly: The assessments and valuations I make here are not necessarily shared by all of my colleagues on the Executive Board of the Riksbank.
This would hit the regions impacted by the crisis hardest and the number of industrial jobs would decline more rapidly. Another important question concerns the implications of the division of the economy for the Industrial Agreement’s normative role in wage bargaining, a role which has been very important during the most recent agreement periods. The Industrial Agreement has been a restraining force, contributing towards retaining the competitiveness of that part of the Swedish economy exposed to international competition and keeping inflation at a low and stable level at the same time as real wages have risen and growth in the Swedish economy has been strong – until the financial crisis. In the period ahead, a drawn-out recovery, weak labour markets and low price and wage increases are also expected internationally. The sector exposed to international competition is the area of the Swedish economy to be most tangibly and directly affected by these external conditions for wage developments within Sweden. This suggests that this sector should also play a normative role in this year’s collective bargaining. The service sector is not as sensitive to cost increases, but finds it easier to pass these on to prices. If the service sector plays a normative role in this year’s collective bargaining, it is likely that wage increases, and thereby inflation, will be greater than would be the case if the sector exposed to competition were to be normative. Another issue that may play a major role is uncertainty concerning the future.