’ s achilles ’ heel. a particularly disturbing aspect is that disability is increasing among young people. 1 in economic terms, norway ’ s substantial petroleum wealth gives it a unique position compared with many other countries. nonetheless, labour is still by far the most important resource we have. a well functioning labour market is therefore important for our welfare. although it is difficult to quantify labour ’ s contribution in exact terms, even a small increase in the “ return ” on labour could generate considerable gains. inflation in norway decelerated markedly from the end of the 1980s to the mid - 1990s and has since been low and stable, and fairly close to 2. 5 per cent, with considerably lower variability than earlier. over the past 5 - 10 years, inflation has averaged around 2 per cent, i. e. somewhat lower than the inflation target. the current economic situation the norwegian economy is in a period of strong expansion after a marked upturn began in summer 2003. the upturn followed a period of slow growth from 1998 and a mild recession in 2002 and into 2003. so far in the cyclical upturn, the mainland economy has grown by an average of just over 4 per cent annually. this year, growth appears to be over 5 per cent. growth is very strong for such an advanced stage of the economic cycle. this is clear from a comparison with the upturns in the 1980s and 1990s. there has been a sharp increase in the utilisation of production resources since 2003. the level of capacity utilisation is particularly high in the building and construction industry. order backlogs in this industry and in some manufacturing sectors are full, and many companies say they cannot take on any new assignments. there are shortages of many inputs, not just labour. contacts in our regional network frequently report purely physical production constraints. there is a shortage of rigs and equipment in the petroleum sector, and periodic shortages of planks, concrete, insulation and scaffolding in the building and construction industry. high capacity utilisation is placing limits on growth. pressures in the building industry are reflected in building costs, particularly the cost of materials, which has risen sharply. building a detached home ( in wood ) today results in ten per cent less house per krone than it did just one year ago. but costs are increasing for all types of building and construction. each million allocated over central and local government budgets now buys considerably fewer square metres of building and fewer metres of road. strong economic growth has so

far only to a limited extent fed through to a higher rise in prices for consumer goods and services. lower electricity prices have contributed to a fall in total cpi inflation in 2007. consumer prices adjusted for tax changes and excluding energy products were stable at between 1 and 1½ per cent for a long period. underlying inflation has see elisabeth fevang and knut røed ( 2006 ) : “ veien til uføretrygd i norge ( the route to disability pensions in norway ) ”, report no. 10 2006, ragnar frisch centre for economic research. norwegian only. edged up gradually since late summer 2006, and the most recent figures indicate that it now stands at approximately 1½ per cent. developments in recent years have paved the way for strong growth in employment, even now that the cyclical upturn is in a mature phase. the labour market is tight. unemployment has not been as low since the latter half of the 1980s, and employment has risen faster this year than in living memory. it is estimated that the number employed will increase by 3. 5 per cent this year, which would be the strongest rise recorded in the post - war period. the number of vacancies per unemployed has never been higher. there is a shortage of qualified labour in many industries. although unemployment is now very low, employees ’ share of value added has been reduced. this conflicts with previous experience. historically, unemployment has been high when the wage share was low. what are the factors that can explain the current situation of both low unemployment and a low wage share? developments have been influenced by a number of positive supply - side conditions. first, due to high export prices and low import prices, we can now import considerably more for a given quantity of export goods. this means that norway ’ s terms of trade have improved considerably. second, an ample supply of foreign labour has been an important factor behind output growth. there was a particularly sharp increase in the supply of foreign labour after eu enlargement in 2004, and inward labour migration and population growth have risen to record - high levels. at the same time, this has enabled norwegian companies to be bolder in accepting new assignments and making investments, in the knowledge that they can procure labour not only from the nordic countries, but throughout europe. norwegian firms also have greater scope for relocating production to other countries if labour costs become too high. this has resulted in intensified competition in the labour market and has probably had a damp