The income settlements in 1974/75 and 1986 in particular, but also the settlements in 1998 and 2000, contributed to higher cost inflation and weaker demand for labour. We have seen that income formation is affected by labour market conditions and profit trends in the business sector. This is also true of wage and income developments among managers, salaried employees and the liberal professions. The structural changes that now seem to have occurred in income determination for these groups has probably also been important for the outcome of the ordinary wage settlements. Through the last part of the 1990s, factor income rose as a share of labour costs. Over time, a balance will probably be reached between labour costs and the portion of income that goes to servicing capital. To some extent the process will be self-regulating. High profits tend to lead to stronger growth in wages. Lower earnings prompt companies to cut costs. This may take the form of increased work effort, or possibly workforce reductions, in order to increase productivity. Companies may also reduce growth in business fixed investment. Since 1997, price inflation has been higher in Norway than among our trading partners. The most important reason for higher price inflation in Norway is that we have had a tight labour market for many years. This has also led to high growth in wages and labour costs.
It is our job to ensure that companies and households can make transactions and calculations using a currency with stable purchasing power. During the time Estonia has been a member of the European Union, the well-being of the people of Estonia has improved. EU membership has meant our economic environment has been more stable and deserving of confidence. In the past ten years, economic growth in Estonia has surpassed average economic growth rates in the European Union, so that Estonian GDP in purchasing power terms has advanced from 55% of the EU average in 2003 to 71% in 2012. The incomes of residents of Estonia have also increased, with real wages up more than 40% in the past decade. EU membership has brought both opportunities and risks. It is the job of those setting national policy to make sure that risks are minimised and that we are best able to profit from opportunities and I am sure that the analysis provided here today by my colleagues will help in guiding the decisions behind that policy. The presentations we will hear today have been prepared thanks largely to the initiative of the European Commission Representation in Estonia to celebrate the tenth anniversary of Estonia’s accession to NATO and the European Union. In summary we can say that in ten years we have made Estonia and the space where Estonian people operate much larger. BIS central bankers’ speeches  1