In addition to the discussion on the causes of the low levels of wage increases and inflation, there have also been a discussion of the possibility that the flatter Phillips curve, that is, the weaker covariation between wage increases and unemployment, may have led to a deterioration in monetary policy’s capacity to steer inflation. We can see in Figures 5a and 5b that in the period prior to the financial crisis the Phillips curve had a negative slope, so that lower unemployment was linked to higher wage increases, but that after the financial crisis it has become flatter and slightly positive. Figure 5. Phillips curve prior to the financial crisis (blue line) and after (red line). Wages measured as short-term wages and collectively agreed wages. (a) Short-term wages (b) Collectively agreed wages 2000-2007 2010-2018  5  4  4  3  3  2  2  1  5  6  7 8 Unemployment  9  1  5  Nominal wage growth  Nominal wage growth  5  2000-2007 2010-2018  5  4  4  3  3  2  2  1  5  6  7 8 Unemployment  9  1  Note. Annual percentage change and percentage of labour force, 15–74 years. Seasonally adjusted data. Sources: National Mediation Office, Statistics Sweden and own calculations  The apparently weaker link between wages and unemployment is not merely a Swedish phenomenon.
12 They say that there has been a change in the composition of the labour force over the past  11  See Jonsson and Theobald (2019). 12 See Mojon and Ragot (2019). 8 [24]  ten years. Labour force participation in the age group 55-64 years has tangibly increased, which has slowed down prices and wages. If the compensation levels are lower, employees will have greater incentive to accept lower wages. This will also lead to companies’ costs declining and to price pressures slowing down. If employees’ negotiating strength weakens, their scope to have their wage demands accepted declines. This means lower wages and a downward adjustment in prices. One should not draw any definite conclusions regarding the implications for monetary policy on the basis of these results. While lower price pressures in themselves might justify a more expansionary monetary policy, decisions on the policy rate consist of an overall assessment of various different factors, where developments on the labour market are one such factor. On the other hand, one can say on the basis of these results that supply effects and long-term trends may be important pieces of the puzzle for monetary policy analysis. This is something that has been emphasised in other studies, too. 13  A flatter Phillips curve need not signify less of an impact from monetary policy.