is an important factor that we at the bank are considering carefully as we evaluate the economic situation and the risks attached to our outlook. at the same time, we continue to assess other developments, notably a somewhat stronger - thanexpected recovery in world demand. dodge ( 1998, 2002b ). one way to approach this topic is to examine the share of labour in national income. since the late 1970s, it has shown no observable trend, hovering around 64 per cent. the labour share of income rose sharply in the early 1990s when profits fell during the recession and payroll taxes rose. after this period, profits rose, and the labour share declined. when the share of labour income in gdp is unchanged, we would expect growth in labour income to be close to the projected growth in nominal gdp. a general rule of thumb would be for nominal gdp to increase by roughly 5 per cent per year, on average, over the medium term - 2 per cent from inflation and 3 per cent from average potential output growth. this 5 per cent growth in labour income can be roughly divided into 1 per cent growth in labour input ( person - hours ) and 4 per cent growth in labour compensation per person - hour. see longworth ( 2003 ). dodge ( 2002c ). in this context, if it looked as though the appreciation of the canadian dollar would more than offset the effects of stronger world demand, or that world demand was weakening, we would act to stimulate domestic demand with the intent of returning inflation to the 2 per cent target over the next 18 to 24 months. such action would take the form of lowering interest rates. as i said in my recent testimony before the senate banking, trade and commerce committee, the bank continues to assess the implications of all past developments - domestic and external - for output and inflation in canada. this kind of analysis and the typically difficult assessment of future developments are what we at the bank have to consider at each monetary policy decision date. 6. concluding thoughts let me now conclude. changes in the conduct of monetary and fiscal policy, as well as increased emphasis on structural policies, have worked together to produce a better - functioning labour market in canada. the bank ’ s particular contribution has been to anchor inflation expectations at the 2 per cent target. because our monetary policy framework reduces uncertainty about inflation, it helps both firms and workers make better planning decisions. thus, wage bargaining can be concluded by focusing on factors that are relevant to wage - setting, such as productivity growth,

% on average, which may well be lower today given the evolution of the secular and cyclical forces since then. 7 in that context, if real rates were to continue their trend decline and inflation were to settle lower as well, nominal interest rates could well be considerably lower over future cycles. the central bank might then have to resort to unconventional measures more frequently to fulfil its mandate. this reveals the implicit trade - off in the argument that central banks should not fight too - low inflation because the unconventional measures required to do so produce more costs than benefits. if central banks did not use such measures to raise inflation today, they would be more likely to have to use them tomorrow, by which time low inflation and sluggish growth would have interacted to cause an even deeper slump. by contrast, by acting decisively to defend our objective now, we ward off more severe macroeconomic imbalances and create the minimal conditions for macroeconomic normalisation, which in turn is a precondition for policy normalisation. the costs of transitioning downwards alongside the costs of a low inflation regime, there are also costs associated with the transition process itself. again there are three main issues. coenen, g. ( 2003 ), “ zero lower bound : is it a problem in the euro area? ”, ecb working paper series no. 269, september 2003. for a fuller explanation of this point see praet, p. ( 2015 ), “ the low interest rate environment in the euro area ”, speech at a pension funds conference organised by de nederlandsche bank in bussum, 10 september 2015. bis central bankers ’ speeches the first is the impact of unexpectedly low inflation on real interest rates and debt dynamics. when interest rates have reached zero, a downward re - anchoring of inflation implies rising expected real interest rates. that is very problematic in current conditions since, with the economy still adjusting to pre - crisis investment misallocations, the real equilibrium interest rate is now at very low – possibly negative – levels. a fall in inflation would thus pull shortterm real interest rates away from their market clearing levels. saving and investment imbalances would then have to be resolved in another way, which in a market economy would take place through a fall in income levels, in turn compressing savings. in other words, in the environment we face today, the transition to lower inflation rates would risk the economy adjusting through recession. a parallel drop in inflation and rise in