We know that employment in some service industries has fallen. This may indicate that many service enterprises have adjusted their workforces. To some extent, higher costs can more easily be passed on to customers through higher prices in this sector. This picture is typical of the final phase of an expansion. A tight labour market and the contest for economic resources lead to a sharp increase in real wages. This results in high growth in household income, consumption and housing investment. The propensity to borrow increases and house prices rise sharply. On the other hand, the business sector faces pressures on profitability, a high cost level and declining investment. Commercial property prices fall. At the same time, corporate restructuring brings growth in employment to a halt. When costs reach a high level, employment starts to fall. The period of expansion has then come to an end. The cost level must be adjusted to restore balance in the labour market. Wage formation in Norway is subject to an institutional and statutory framework and agreements that have been developed over several decades. The result of negotiations is influenced by labour legislation, including regulations relating to job protection, unemployment benefits and the rules that apply to cooperation and settlement of industrial disputes. In important segments of the labour market, there appears to have been a shift in the social partners’ strategic position in negotiations in favour of employees.
The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. The responsibility for implementing monetary policy has been delegated to the central bank. This is also the case in comparable countries. The central bank shall exercise professional judgement within the framework of its mandate. Assessments of economic developments and the basis for interest rate decisions are presented to the public. This makes it possible for others to gain insight into the assumptions and analyses underlying interest rate decisions. The operational target is well defined. The Bank’s judgement can therefore be evaluated retrospectively. Norges Bank explains the reasoning behind its judgement in its annual report. The Bank’s reporting requirement is set out in § 75, litra c of the Constitution, which stipulates that the Storting shall supervise Norway’s monetary system. Up to 1950, the annual report was submitted directly to the Storting. Today, in keeping with the Norges Bank Act, it is sent to the Ministry of Finance for submission to the King in Council and communication to the Storting in the Government’s credit report. The law thereby provides a framework that allows the government authorities to follow up the performance of the delegated responsibility for monetary policy.