brought back to around the level prevailing at the end of the 1960s prior to norway ’ s emergence as an oil nation. 4 the labour market in the long run, wage growth must be consistent with labour productivity. when real wage growth is higher than productivity growth, profitability in the business sector deteriorates and the business sector will then recruit fewer employees and reduce their workforces. likewise, employment in public entities see kydland, f. e. and e. c. prescott ( 1977 ) : ” rules rather than discretion : the inconsistency of optimal plan ”, journal of political economy85, pages 473 - 490. see akram, farooq q. ( 2003 ) : “ reell likevektsvalutakurs for norge ” ( real equilibrium exchange rate for norway ), norsk økonomisk tidskrift 118, pages 89 - 112. will decline if labour costs rise more than revenues. when the social partners engage in centralised and local negotiations, they will therefore weigh employment against the usefulness of taking out higher pay. compared with other european countries, income formation in norway has been fairly flexible. wage growth has rapidly declined when unemployment has risen. this is why unemployment has not taken hold at a high level. the favourable results partly reflect the considerations underlying the wage settlements at a centralised level. but perhaps it has been equally important that it has been possible to adjust workforces and wage growth at a local level. first, companies can adapt the use of labour to production by using overtime, part - time positions or contract labour. moreover, the supply of labour is highly flexible. when demand rises, the number of job - seekers increases. those who are already employed work more. during an upturn, we have in particular observed an increase in labour force participation among young people. along the same lines, the number of persons in education tends to rise when unemployment is rising. when labour demand increases, we see an influx of job - seekers from our neighbouring countries. in addition, close to 30 000 persons had some form of employment in norway throughout or during parts of 2001, but resided in sweden. with the enlargement of the eu norway has become part of a larger 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 the construction industry has increased. the activity level is now very high, and

terrorist attacks, two aspects of last year's slowdown were atypical. first, the main source of the negative hit to demand was a large shock to capital expenditures. in the past fifty years, investment spending has nearly always begun its decline one to four quarters after the peak of the economic cycle, not before it. what started out as a very gradual cooling of an overheated economy became much more serious because of the severe shakeout that hit the high - tech sector. second, consumer spending on goods and services - - which represents about two - thirds of the gross domestic product - - held up remarkably well last year. in the past, consumption spending has almost always declined as a recession started. but last year, despite a sharp drop in consumer confidence and a decline in wealth from lower equity values, households kept buying. at this point, it is still too early to classify this recession as mild or severe. in general, economic fluctuations in the past fifteen to twenty years have been tamer than their counterparts in earlier eras. economists have conjectured that this is so because improved technologies allow businesses to monitor their demand more closely and manage their inventories better. recent developments ought to give us more evidence on this subject. one thing is certain : because of the unusual, investment - led nature of this recession, we cannot put too much weight on the shape and profile of past recoveries in trying to predict this one. current situation and near - term outlook that said, the data we have received in recent weeks have been encouraging and suggest that economic activity is in the process of turning up. although payroll employment continued to fall in january, the pace of that decline was slower than in the fourth quarter of last year. initial claims for unemployment insurance have moved lower over the past two months - - another hopeful sign of recovery. industrial production fell in january, but here, too, the rate of decline was well below the pace in preceding months. as we obtain more information on spending patterns since september, the behavior of households is increasingly proving to be the key stabilizing force on economic activity. sales of cars and light trucks - though down from the extraordinary rates of the fourth quarter - - have continued at quite healthy rates. in addition, retail sales outside motor vehicles were very strong in both december and january. housing construction, too, has been robust, bolstered in part by favorable weather and low mortgage rates. in the business sector, the very rapid pace at which companies liquidated