as 0. 4 percentage points higher per year during 2003 - 2008 if the government ’ s target to halve sick leave is achieved. this means that the number of hours worked will increase by 0. 8 instead of 0. 4 per cent a year. public finances would then be improved by sek 45 billion, which could be used for reforms - or for repayments on the central government debt and thus create increased scope for future borrowing. if immigrants participated in the working force to the same extent as swedes, it would provide a further contribution to the number of hours worked of 0. 1 percentage points a year. monetary policy and wage formation the labour supply thus comprises a problem both in the long term and closer to hand. if this cannot be resolved through structural measures that increase the labour supply - e. g. through less sick leave being taken, increased working hours per employee or by labour force immigration - the riksbank may be forced to subdue demand in the economy by raising the interest rate. the labour market ’ s ability to manage wage formation will be tested as early as next year, when actual growth is supposed to be in line with potential growth. of course, we do not believe that resource utilisation will put any great pressure on prices and wages so soon, but as economic activity strengthens, greater demands will be made on social partners to show restraint. the municipal workers ’ union ’ s demand for relative wage changes could also entail a problem in terms of potential contagion effects. wage costs are expected to increase this year by just over 4. 5 per cent, which is higher than the swedish economy can manage in a longer perspective. if the social partners do not succeed in accommodating the municipal workers ’ union ’ s wage demands, there is a risk of increased inflation. another challenge for wage formation is the government ’ s employment target, which entails 80 per cent of the working population having a job. achieving this requires reforms to increase the labour supply. moderate wage demands could hasten the adaptation to the higher rate of employment. the explanation for this is that in a small, open economy like sweden, the profit share of the value added is determined by international conditions and the prevailing production technology. in the short term, the labour market situation and negotiating strength can affect the relative profit shares and wage shares in the economy, but in the long term a high rate of wage increase will only lead to lower employment and production without affecting real wages and profit

gordon thiessen : the economic situation in canada and the prospects for inflation opening statement by mr gordon thiessen, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, on 16 may 2000. * * * mr chairman, and members of the committee : it is always a pleasure to appear before you. since other parliamentary business precluded my appearance before you last fall, i especially welcome this opportunity to discuss the economic situation in canada and the prospects for inflation. last week, we released our 11th monetary policy report. since our november report, the canadian economy has outperformed expectations. bolstered by vigorous external and domestic demand, canada ’ s economic expansion strengthened in the second half of 1999 and into early 2000. the buoyant us economic picture, combined with canada ’ s high levels of business investment and solid employment gains, augurs well for continued strong growth in canada. given the strong momentum of demand, the bank of canada has raised its projection for growth in 2000 to a range of 4 to 4. 5 %. the trend of inflation in canada over the past six months has been lower than expected and is among the lowest in the industrial countries. nevertheless, pressures on capacity will likely intensify through the year. consequently, we expect the trend of inflation, as measured by the consumer price index excluding food, energy, and indirect taxes, to rise gradually to close to the middle of our 1 to 3 % inflation - control target range. to keep this core rate of inflation steady near 2 %, some deceleration in economic expansion or a more rapid increase in productivity and production capacity will be required during 2001. when it comes to the production capacity of the economy, there is currently even more uncertainty than usual. the lower - than - expected rate of core inflation would suggest that conventional measures may be underestimating the economy ’ s capacity to produce goods and services without adding to inflationary pressures. while the conditions that would permit an increase in productivity growth and in capacity have improved substantially in recent years, there has so far been no significant hard evidence of such an increase. this makes judging the balance between aggregate demand and supply in the economy an even greater challenge than usual for monetary policy. the other main risks to canada ’ s economic outlook include the possibility that the momentum of aggregate demand from the us economy will continue to be stronger than expected and the likelihood of a buildup of inflationary pressures in the united states spilling over into