There is evidence, across a number of countries, of the labour share having fallen over recent decades (Chart 24). Even in the UK, the labour share has glided south, if more slowly than elsewhere, over recent years. The relationship between productivity and real wages tells a similar story. Across a number of countries, there is recent evidence of real wages falling short of productivity (IMF (2015)). In the US, this has been evident since at least 1970, with average real wages rising 0.6 percentage points per year more slowly than productivity (Chart 25). In the UK, that gap has averaged 0.3 percentage points per year since 1990. For median wages, these gaps are larger still (Chart 26). Over time, these gaps can accumulate into big income differences. Had US real wages tracked productivity since 1970, the median worker today would be 40% better off. Had UK wages tracked productivity since 1990, the median worker today would be 20% better off. Unlike earlier phases of rapid technological change, labour has not shared equally in the fruits of recent great leaps forward – or at least not yet. A number of explanations have been put forward for these falling labour shares, including the falling relative cost of capital goods and globalisation (OECD (2012)). A third explanation, related to the first two, is technological change. As machine has substituted for man across a greater number of tasks, and as hollowing-out has intensified, the balance of bargaining power has swung against labour.
The quantitative definition of price stability has been clarified after five years of experience The definition adopted by the ECB’s Governing Council in October 1998 was confirmed and clarified in May 2003 following an in-depth review of its strategic framework by the Eurosystem. In the wake of this assessment exercise, the Governing Council specified that price stability was defined as an annual increase in the HICP close to, but below, 2% over the medium term. Several remarks should complement this definition: - by specifying that inflation should be close to 2%, the Governing Council intended first of all to confirm the symmetrical nature of its strategy by ruling out situations of deflation. This clarification also makes it possible to take account of any possible measurement bias in the price index, as well as inflation differentials within the euro area; - the quantitative definition of monetary stability brings the Eurosystem’s strategic framework close to that of central banks that rely on inflation targeting, especially if a broad definition of the latter is accepted, such as that expressed by the term “flexible inflation targeting”. The big difference is in the use made of forecasts derived from econometric models, which play a predominant role in “pure” inflation targeting strategies, whereas they are only one component in the decision-making process of the Governing Council of the Eurosystem; - especially in the early days, we were confronted with substantial criticism regarding our definition of price stability, considered by many observers as too ambitious.