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--Rising Economic Activity Leading To Increased Labour Supply
--Pay Growth Still Lagging Econ Growth
-Part 2 of MNI Interview With Riksbank Dep Gov Ohlsson
By David Robinson
LONDON (MNI) - Strong economic growth in Sweden could allow firms to boost
profits with wage growth lagging behind, with reduction in monetary (stimulus??)
justifiable despite the absence of accelerating earnings, Riksbank Deputy
Governor Henry Ohlsson said in an interview with MNI.
"Many people assume you first have wages increases and this will affect
inflation but the reverse causation is possible," Ohlsson said.
He set out a distinctive view of developments in the Swedish labour market
and how policy can and should respond when activity indicators are running hot
but earnings growth not picking up pace.
"Think of high activity making it possible for firms to increase their
prices and this will leave room for wage increases. And then in the second step
you will have the wage increases," he added.
In the current economic environment in Sweden Ohlsson said that he thought
that the causality from prices to wages is more likely."
Ohlsson voted to raise the repo rate by 25 basis points, to -0.25%, at the
most recent policy meeting.
In his view policy making should not be determined by where the jobless
rate is, or is heading, in relation to policymaker's estimation of a theoretical
concept -- the equilibrium, or non-inflationary, jobless rate.
"I don't find constructs like equilibrium unemployment rates very useful in
policy-making," he said.
With Swedish economy activity running hot, sooner or later firms will have
room for wage increases. The outlook for unemployment and employment, however,
is clouded by the increased flexibility and elasticity of labour supply, with a
mix of improved domestic labour market participation and inward migration
helping to meet demand.
Ohlsson said that some previously discouraged workers have entered the
labour market as employment demand has risen and a growing number of people of
retirement age are continuing to work.
"More than 4% of our labour force is older than 65 years. And it is
increasing .. People retire in Sweden and then they continue to work. And some
even retire and then return to the labour market after a couple of years of
being retired," he said.
Add in that Sweden is well placed geographically, and as a member of the
European Union, to pull in migrant labour and the question of how much domestic
labour supply remains becomes a less significant question for policymakers.
"We are close to the Baltic countries, we are close to Poland, it is just a
ferry over the Baltic. We have many temporary migrants working here," Ohlsson
A blot on the rosy picture of improved labour supply is that Swedish
companies are increasingly struggling with skill shortages. One explanation
Ohlsson offered in a recent speech was that there has been growing demand among
employers for cutting edge expertise and that people with these skills are hard
to find and hard to recruit and retain.
While this should lead to upward pay pressure in some sectors even here the
picture is not straightforward -- with headline pay not the only way of trying
to attract and keep staff.
The Riksbank's May business survey found that "companies are hesitating to
raise wages to attract the skills they need" and instead looking at "other ways
of attracting new skills" such as "increased wage benefits, increased
possibilities for flexible working hours and increased career possibilities."
All of which highlights why wage acceleration may come later in the day,
after employers have exhausted other options.
In Ohlsson's view, the Riksbank is justified in easing back on monetary
policy stimulus now, rather than waiting for the wage saga to unfold.
--MNI London Bureau; tel: +44 203-586-2223; email: firstname.lastname@example.org