and capital equivalent to the surplus has been transferred to the fund. in 2000 and 2001, almost the entire cash flow was transferred to the fund, while in the last two years the share transferred to the fund represented about two thirds of the cash flow. the petroleum fund has become large, even compared with the biggest funds in the world. at end - 2004, the market value of the petroleum fund ’ s international portfolio was 1 016 billion norwegian kroner or 124 billion euros. the ministry of finance has defined a clear mandate for norges bank ’ s management of the petroleum fund. norges bank shall seek to achieve an excess return in relation to a benchmark portfolio. norges bank has developed principles of corporate governance. for the internally managed assets, norges bank has exercised voting rights at the general meetings since the beginning of 2003. the external managers have exercised voting rights for the assets they manage on behalf of the petroleum fund since 1999. for that portion of the portfolio that is under internal management, norges bank voted at 132 annual meetings on 1 541 items in 2004. norges bank voted against the management ’ s proposal on 18 per cent of the items. norges bank has voted most frequently on board - related matters. in november 2004, the ministry of finance approved new ethical guidelines for the petroleum fund ’ s investments. the ethical basis for the petroleum fund shall be promoted using the following three mechanisms : • corporate governance based on the un global compact, the oecd principles of corporate governance and the oecd guidelines for multinational enterprises in order to promote long - term financial returns. • negative screening from the investment universe of companies that, either themselves or through entities they control, produce weapons whose normal use violates fundamental humanitarian principles. source : kjell gunnar salvanes : “ omstilling og strukturelle endringer i det norske arbeidsmarkedet ” ( adaptation and structural changes in the norwegian labour market ). lecture at a conference arranged by the norwegian school of economics and business administration, the norwegian shipowners ’ association and the foundation for research in economics and business administration in oslo on 8 october 2004. • exclusion of companies from the investment universe where there is an unacceptable risk of contributing, inter alia, to gross or systematic violations of human rights. the chart shows developments in both the average annual net real return and the real return without the contribution from active management. returns have fluctuated considerably since the petroleum fund made

##largement of the eu, norway has become part of an extended labour market. enlargement also provides scope for increased trade in services. this increases the production capacity of the norwegian economy. for example, it seems that capacity in see kydland, f. e. and e. c. prescott ( 1977 ) : “ rules rather than discretion : the inconsistency of optimal plan ”, journal of political economy 85, pp. 473 - 490. see akram, farooq q. ( 2003 ) : “ reell likevektsvalutakurs for norge ” ( real equilibrium exchange rate for norway ), norsk økonomisk tidskrift 118, pp. 89 - 112. the construction industry has increased. the activity level is now very high, and there are still no signs of rising wage growth. hence, labour mobility can eliminate bottlenecks in the labour market. employment is also strengthened by local wage negotiations. some of the newer industries apply performance - related pay to a greater extent. this allows firms to reduce costs more easily while retaining employees when earnings decline. more traditional industries also seem to be making use of wage flexibility. differences in productivity growth and wage growth across norwegian manufacturing enterprises show that workers tend to accept lower pay increases in enterprises with low productivity growth. 3 this can provide companies with more time to adapt and curb the impact on unemployment. even though norway fares favourably in relation to many other countries, the norwegian labour market also has its weaknesses. wage growth now probably accelerates at a higher level of unemployment than it would have ten or twenty years ago. many unemployed are also channelled from unemployment to social security benefits, and benefits may be an obstacle to returning to the labour force. sickness absence also rose for a long period, but has declined markedly over the past six months, partly reflecting tighter requirements concerning individual follow - up. the petroleum fund the government petroleum fund was established in 1990 with a view to promoting an even distribution of wealth across generations. the idea behind the petroleum fund is to channel cash flows from petroleum production to the fund, with the capital being invested abroad. consequently, changes in oil prices have little effect on the mainland economy. the chart shows the share of the central government ’ s net cash flow from petroleum activities that has been transferred to the petroleum fund. the ministry of finance first transferred capital to the fund in may 1996. since then, the central government accounts have shown a surplus each year