The analysis reveals that, in general, there are multiple margins for adjustment that allow to cushion macroeconomic shocks and moderate the effect on employment that would exist absent those margins. These include changes in the composition betwee salaried and self employment, changes in participation rates, high turnover and rapid transitions between salaried jobs, the creation of jobs in new firms, and wage flexibility in hired work. At the same time, evidence has it that the costs associated to such adjustment, both for the workers and for the economy’s aggregate productivity, can be significant. The results presented also have implications on how the shocks hitting the economy can affect the evolution of wages and inflationary 8  pressures, information that is of particular importance for monetary policy. Thus, despite the labor market’s capacity for adjustment, the weak periods entail important costs. In particular, the process of realocation to quality jobs and more productive enterprises, with the consequent impact on aggregate productivity and the workers’ purchasing power, is diminished in the lower phase of the cycle. For some workers, especially those in the early stages of their working lives, the effects can be very persistent. These situations explain the need to have a wider toolkit with indicators to monitor the behavior or the labor market over the short term. In particular, it is useful to complement survey data with information from administrative data bases and traditional aggregates on occupation and unemployment with statistics on resignations, firings and hirings. Anyway, the BCCh has made progress on these matters.

Evidence of and expectations for a sustainable firming in domestic cost pressures; and  3. Developments in core inflation consistent with a reasonable expectation that total CPI inflation will return to the target in around two years’ time. Progress in all three, both realised and prospective, will increase confidence that the initiation of limited and gradual rate increases will be consistent with returning inflation sustainably to the target. In this light, let me turn to recent developments. Momentum and slack After gaining momentum in 2013 and peaking around 3% in 2014, output growth has been steady during 2015, at rates close to 2%, a little below pre-crisis norms (Chart 5).11 The average quarterly growth rate for 2015 of around 0.5% has disappointed compared to the MPC’s summer expectations of 0.7%. This shortfall reflects much weaker net trade, the absence of a rebound in housing activity, and less robust consumption growth. Nonetheless, private domestic demand is still solid, and household consumption has been resilient. Consumption growth accelerated to 3% in the third quarter of 2015 (Chart 6), underpinned by the strongest real income growth since the crisis and highest consumer confidence in a decade. Excluding the understandable weakness in North Sea oil, business investment grew strongly throughout 2015. Surveys suggest investment intentions remain robust and, consistent with a stronger banking system, accommodative monetary policy, and very supportive credit conditions. Such solid private domestic demand growth can be expected to continue. 10  See Carney (2015a).