so far the temporary labour migration has been only a small, although growing, element in the swedish labour market. however, the pressure from the labour supply from the new eu countries is bound to increase. the amount of foreign labour entering the various sectors will depend on the initial wage differences. the new member states ’ wage levels are in the process of converging with swedish wages in the long term, but it is dangerous to assume that neither wages nor employment in various sectors in sweden will be affected. if we assume this, there is a risk that we will not be sufficiently willing to make changes and then unemployment will rise. the swedish labour force is thus facing competition both directly from foreign labour coming here and indirectly through households and companies choosing to buy goods and now even services that are produced abroad. phenomena such as offshoring and merchanting can also be linked to the relatively high labour costs in sweden. they indicate that swedish companies can compete in the global marketplace, but their operations are such that they do not require very much labour, at least not in sweden. different assessments have been made of how large a percentage of total unemployment is cyclical and in turn how much of this cyclical unemployment can be affected by monetary policy. the serious assessment attempts that i have seen usually end up with only a small fraction, according to some estimates only one or a few tenths of a percentage points, of total unemployment being affected by monetary policy. those are calculations that are highly uncertain and should be taken with a large pinch of salt. however my point is that it is a gross exaggeration when, in the present debate, the riksbank ’ s decision to lower or not lower the interest rate is presented as having momentous consequences for unemployment in sweden. this kind of claim is not compatible with any serious assessments or forecasts. on the whole, the reason for the problems in the labour market is not poor demand – on the contrary, lending is growing at a rapid pace and companies have ample liquidity – but these problems are rather related to structural factors. even if the riksbank had conducted an even more expansionary monetary policy one to two years ago, it is not certain that this extra stimulation and the possibly even stronger lending that would have ensued would have affected the labour market in the way some critics believe. the situation today is quite simply a different one from the classical shortage of domestic demand, where lending and liquidity are weak and an interest rate stimulus would have a considerable effect on

declines. this means that resource utilisation, measured in terms of gdp, can increase or decrease without there being any simultaneous change in unemployment. neither is it certain, after companies have decided to increase or decrease employment, that this will be reflected by changes in aggregate unemployment. as the size of the labour force also varies, for cyclical reasons among others, the level of unemployment will depend on the extent to which individuals leave, remain in or enter the labour market. … but the connection is not stable monetary policy is forward - looking and must be based on forecasts. the practical conditions for forecasting actual unemployment are made more difficult by changes, over time, in the historical relationship between economic activity and the development of the labour market. during the financial crisis of 2008 – 2009, the riksbank was surprised ( as were other analysts ) to see that unemployment did not increase more, considering the steep fall in aku, 2010. bis central bankers ’ speeches output in the swedish economy. the swedish labour market coped comparatively well, both in comparison with how it is usually affected by falls in gdp and in comparison with developments in many other countries. 6 the former point is illustrated by figure 1. figure 1 unemployment calculated according to okun ’ s law7 per cent of labour force outcome okun 1 ( differences, 1980 - ) okun 2 ( differences, 2001 - ) 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 note : the difference version of okun ’ s law captures the relationship between gdp growth and the change in unemployment. the figure shows unemployment forecasts based on estimates of this relationship in two different time periods. source : the riksbank according to the historical relationship between changes in gdp and changes in unemployment, the change in gdp between the first quarter of 2009 and the third quarter of 2011 should have led unemployment to increase by 1. 5 – 2. 5 percentage points above the actual increase. the functioning of the labour market is decisive. actual unemployment is not only influenced by economic activity, but also by structural factors that shape the functioning of the labour market. these structural factors influence both the decision to enter the labour market and companies ’ decisions to hire and fire. examples of structural factors are the design of the taxation and social insurance systems, see, for example, the article “ the effects of the financial crisis on the labour market – a comparison of sweden,