Ohlsson: With inflation on target – new challenges to take on
“The economy and the way it works are constantly changing. This means that monetary policy and economic policy otherwise are always facing new challenges. These are the words of Henry Ohlsson in his speech today at Örebro University. The issues he highlights in particular are: recent, unexpectedly subdued wage increases despite strong economic activity, the apparent difficulty in reducing unemployment further via expansionary policy alone, and the apparent deterioration in matching on the labour market.
Date: 29/05/2018 11:00
Speaker: Deputy Governor Henry Ohlsson
Place: Örebro University
Subdued wage increases
The first challenge is that for a few years now there has been no correlation between unemployment and vacancies on the one hand and wage increases on the other. Unemployment has fallen but wage increases have remained steady at around 2 per cent. This is unusually low bearing in mind the good economic situation, Mr Ohlsson pointed out. Inflation has nevertheless reached the target, but the question is whether the subdued wage increases are a lasting phenomenon and how monetary policy should therefore deal with this in the period ahead.
Can employment fall further?
The second challenge has to do with unemployment. "My assessment is that it will not be possible in the current situation to attain lower unemployment via monetary policy alone," Mr Ohlsson said. "In my view, the increased demand for labour that we are currently witnessing is more likely to lead to increased labour supply than to lower unemployment." A further reduction in unemployment requires measures from other policy areas.
The third and final challenge is the fact that matching on the labour market has deteriorated. This implies that output and employment are not as high as they could have been. Monetary policy can scarcely improve matching on the Swedish labour market. Here, too, measures in other policy areas are required. It is a question of increasing productivity among unemployed persons and reducing the cost of employing them. "Labour market policy therefore has a crucial role to play here", Mr Ohlsson concluded.