6  BIS central bankers’ speeches  experiences of individual firms and households are extremely diverse but like to think we can nonetheless lump them all together and treat them as homogenous wholes. Much of the time that’s a reasonable thing to do. But sometimes it matters what’s happening underneath. As we’ve seen, there was a distinct skew in recent job creation towards the less well paid in 2013 and 2014, one that has subsided in the first half of this year. While not the only factor – narrowing slack in the labour market has probably been more important – this helps to explain why growth of average wages was weak in those two years and has since picked up a bit. At least at the margin, these shifts will have had similar effects on productivity. So, in and of themselves, they have no direct bearing on impact on inflationary pressure9. Indeed, because the compositional effects are highly counter-cyclical, and tend to go up and down with unemployment, perhaps it doesn’t matter much if you never took them into account and stuck with Phillips curves estimated on unadjusted wage data. The problem is that, although they’re qualitatively similar in different cycles, the compositional effects do appear to vary in scale. This means it’s worth allowing for them: changes in the mix of employment may not affect inflationary pressure but they can have an impact on the aggregates we normally use to assess that pressure.
Chart 8 Euro area output gap  Measures of the euro area output gap across a suite of models (percentage of potential output)  Sources: European Commission’s Autumn 2022 European Economic Forecast, OECD’s June 2022 Economic Outlook and IMF’s November 2022 World Economic Outlook. Quarterly estimates are interpolated from annual data. An alternative way of analysing whether supply capacity has fallen is to examine the possible effects of individual adverse supply shocks. ECB staff recently conducted a series of studies which suggest that shocks analogous to those seen in recent months are likely to have limited effects on potential. The studies found that even significant hypothetical negative shocks such as deglobalisation[15] – and the associated global supply chain disruptions – or a permanent and large increase in oil prices[16] would induce only a moderate downward revision in the level of potential output in the euro area after four years, ranging from -0.3% in the first case to -0.8% in the second compared to the baseline scenario without these shocks. [17] These effects need to be set against a projected cumulative increase in potential output of around 5% over the same period, as estimated by the European Commission. Similarly, analyses focusing on the euro area labour market suggest that the shocks we have seen in recent years – in particular, the pandemic – do not seem to have left lingering scars on labour supply and potential output, for instance, by triggering early retirement. [18] As always, such estimates are surrounded by considerable uncertainty.