productivity that occurred in the recession of the late 1980s and early 1990s. figure 4 contributions to changes in gdp per capita percent contribution to annual change note : the chart was derived using 3 year averages of gdp per capita, hours worked, and population in order to show the underlying trends in labour utilisation and labour productivity. the importance of labour productivity growth to the long run economic outlook becomes very clear when we look at demographic trends. figure 5 shows labour force projections which are based on three population projections. all three projections assume medium fertility and medium mortality but each has a different assumption regarding migration. with zero net migration the size of the labour force begins to decline from 2018. higher levels of migration push the track up, but even with an annual net gain of 10, 000 from migration, the growth in the labour force slows, and the labour force eventually levels off. net gains from permanent and long term migration have averaged 13, 600 per annum over the last decade, compared with - 4, 700 per annum in the previous decade. figure 5 projected labour force people in the in labour force, millions these projections reflect the ageing of the population. birthrates underwent a long term decline from the 1890s through to the 1970s, although the post war baby boom provided a temporary interruption. around 2010, the number of people leaving the labour force - mainly baby boomers - is projected to rise sharply. even if these people were to put off retirement for a while, growth in labour utilisation is still likely to slow. any substantial growth in the labour force would have to come via high levels of migration. taking one of our labour force projections - the one based on annual net migration of 10, 000 - we can derive scenarios for future gdp per capita based on assumptions about labour productivity. let ’ s assume that labour productivity grows at 1. 5 % per annum, which as we have seen, is similar to the present growth rate. for each year of the projection we add this growth to the projected growth in the labour force to get gdp growth. ( in doing this, we are assuming that number employed will grow at the same rate as the labour force. that is, we are assuming that the unemployment rate will stay constant over the projection period. ) for each year of the projection, we can then calculate gdp per capita, using the projected population figure. the result is shown in figure 6, along with projections using alternative labour productivity assumptions. the lowest scenario assumes no growth in labour productivity, and

? definitely not. there may be some topics which we have not yet addressed or which might need addressing because changes in the regulatory environment are always met with evasive manoeuvres. 1 / 3 bis central bankers'speeches one example is the shadow banking sector. when regulation is tightened in one area, incentives are put in place for other intermediaries to step in. when certain business activities are pushed out of the banking sector, it does not necessarily mean that the risks for financial stability increase, but nor does it mean that these activities will not pose risks if they are handled by other market participants. so developments in the shadow banking sector warrant our close attention. furthermore, we have to regularly assess whether the stated objectives have been fulfilled with the new set of rules. the financial stability board ( fsb ) is currently evaluating the recent reforms, so this will give us an indication as to whether there have been any unintended consequences and whether we need to adapt some of the rules – although i do not expect a need for huge amendments. as i mentioned, there is a second reason why i think that the reforms have made financial markets safer. the standards were set at the global level, by the fsb and the global standard - setting bodies. this addressed one of the lessons learnt from the last crisis – financial markets and financial institutions are much more closely interconnected than most people realised. there is no such thing as a national banking sector. the banking sector has become global. many banks operate not just in one country, but in dozens of countries. and almost all banks do at least some business with banks from outside their own country. such a global banking sector is a good thing. it facilitates global trade and investment ; it unlocks new sources of funding for the economy ; and it improves the way capital and risks are allocated across countries. and because the banking sector is global, the standards need to be global too, to contribute to financial stability in the major financial centres. so i hope that the latest package of global banking standards – basel iii – will be completed this year. and i am still confident that this will be the case. after finalising basel iii, we need to focus on implementing the standards. i worry that some financial centres might not implement significant parts of the agreed framework. and that would be a great mistake. without consistent implementation, the common standards will remain fragmented, leaving the door wide open to a race to the bottom in regulation, regulatory arbitrage, higher