This both can and must conceal considerable differences between sectors and regions. The wage formation system must achieve something better than a result for the economy as a whole which is commensurate with average inflation and productivity. If we want low unemployment and price stability, wage outcomes must be adjusted to productivity in different sectors of the economy, indeed to the situation in individual enterprises and to different individuals. The design of pay systems and pay determination is also crucial to the distribution of resources and thus productivity and economic growth. In other words, higher productivity can create more scope for wage increases, but a functioning wage formation system can also help to improve productivity. Sweden’s success in this area in the next few years will depend both on the measures taken by Parliament and the Government and on management and labour. Parliament and the Government establish the framework for the functioning of the labour market and wage formation. A more expansive financial policy would make the task of management and labour and of monetary policy more difficult in the next few years. The legal framework, for example the rules on industrial disputes, is another factor. Tax and benefit systems are important and affect both wage formation and the behaviour of private individuals, ie their willingness to find work, move, etc.
Nominal wage increases of over 9% resulted in real wage increases of only 0.7% between 1971 and 1989, while nominal wage increases of less than 4% yielded real wage increases of over 2% between 1993 and 1999. Diagram 5. Nominal and real wage increases  Nominal and real wages 10  Nominal wage  9  Real wage  10 9  8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0 1971-1989  1993-1999  Sources: National Institute of Economic Research and Statistics Sweden  BIS Review 39/2000  4  The general picture is thus encouraging. All in all, the policy has yielded satisfactory results. Naturally, it is too early to draw any definite conclusions from this. Many external factors have also had a favourable effect on developments in recent years. The later period also started with very low capacity utilization. But despite these reservations the situation certainly looks promising. The current situation The question today is: will this favourable development continue? This depends not least on the development of wage formation. Before I go into detail on this subject, however, I would like to say a few words about the Riksbank’s appraisal of the situation at the moment. The Swedish economy is currently making a strong recovery.