and that inflation can be kept at a low and stable level also in periods with high domestic cost inflation. however, if developments in the real economy are to be satisfactory over time, real wage growth must be adapted to underlying productivity growth. a precondition for countering a possible downturn by means of monetary policy easing is slower growth in labour costs. monetary policy cannot prevent an increase in unemployment that is caused by a significantly higher rate of growth in labour costs in norway compared with other countries. nor can an expansionary fiscal policy counter a cost - driven rise in unemployment. growth in real wages is far higher than the underlying growth in productivity. if higher costs cannot be passed on to customers, earnings decline and the wage share increases. many businesses will have to adjust their workforces to maintain profitability. this leads to a fall in employment and increased productivity. for some companies, this may be a prerequisite for maintaining operations in norway. the alternative is to close down or relocate production to another country. while the wage share has risen sharply in manufacturing, it has remained fairly stable in other industries. import firms have wider margins, suggesting that the appreciation of the krone has not fully benefited customers. we also know that employment in some service industries has fallen. many companies in the service sector have adjusted their workforces to maintain profitability. to some extent, higher costs can also be passed on to customers through higher prices in this sector. manufacturing employment is declining. in the public sector, where employment growth has been strong the last few years, budgets will only allow a moderate increase in employment in 2003. overall, employment is projected to fall by ½ per cent in 2003 and remain unchanged in 2004. employment followed a similar course in the early 1980s. at that time, employment rose markedly as a result of continued strong growth in the labour force. labour force participation in norway is currently at a record - high level, and the demographically determined supply of labour is low. at the same time, labour force growth may be lower than implied by demographic trends for various reasons. more people may choose to study until the situation in the labour market improves. some of the unemployed may exit the labour market on retirement schemes. outflows from the labour market and low labour force growth as a result of demographic trends may limit the increase in unemployment. nevertheless, unemployment is projected to rise, especially in manufacturing. the increase through 2002 primarily reflects a rise in unemployment in the service sector. manufacturing unemployment remained stable until

on the culture of firms, and the individual accountability of the 3 / 5 bis central bankers'speeches people who run them. we need a financial system that fosters trust, where consumers and investors are protected, deposits are safe and insurance reserves are adequate to meet liabilities. we work with the other parts of the state ’ s consumer protection framework – such as the financial services and pensions ombudsman and the competition and consumer protection commission – to deliver this. but we also need a strong culture of compliance. when it comes to issues like culture, the responsibility rests first and foremost on the leadership of firms. organisations make their own cultures and it is the responsibility of boards to ensure the development of consumer and compliance - focused cultures that the irish public deserves. if the sector wishes to regain trust, it must earn it by demonstrating trustworthiness. that is no easy feat and the public will rightfully be the ultimate adjudicators. i welcome the creation of the irish banking culture board as a positive sign of intent. the individual accountability framework that we have proposed should also help address some of the issues in the banking sector. mortgage arrears and market - based finance i want to turn to one ongoing challenge and one emerging risk. mortgage arrears the protection of borrowers in mortgage arrears continues to be a key priority for the central bank. the regulatory framework provides a significant number of protections for borrowers in arrears. this is important given the strain, stress, and vulnerability of people who are at risk of losing their homes. the central bank ’ s approach to resolution has focused on ensuring the fair treatment of borrowers and ensuring that lenders have appropriate arrears resolution strategies in place. significant progress has been made in terms of restructuring mortgage arrears, and critical to this has been the implementation of alternative repayment arrangements ( aras ). but it ’ s also true to say that a sizeable arrears problem persists and engagement between lenders and borrowers remains essential if this is to be addressed successfully. arrangements should be appropriate and sustainable for the borrower, regardless of whether a bank or non - bank holds the loan. it is important that any arrangement addresses the underlying problem for borrowers. as part of our supervisory work, we will continue to focus on ensuring the long term sustainability of any alternative arrangements. we will continue to press all firms to engage and work to find solutions for both firms and borrowers which address the underlying issues