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On the verge of re-entry: readjustment of labour and the optimal policy towards a postpetroleum Norwegian economy

Støhlmacher, Synne Sogge; Meyer, Sara Skjeggestad
Master thesis
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URI
http://hdl.handle.net/11250/2383049
Date
2015
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  • Master Thesis [4207]
Abstract
Abstract

This thesis examines the petroleum effect in the Norwegian sectoral composition of labour

and the consequential effect for a forthcoming re-entry process to a post-petroleum

economy. The objective of the thesis is to suggest an optimal policy-mix based on the

Norwegian framework of monetary policy, fiscal policy and income policy to minimize the

restructuring costs associated with the re-entry process.

By use of a comparative sector specific employment analysis, the thesis disentangles the

petroleum driven sectoral adjustment of labour. This is conducted by comparing historic and

present Norwegian sectoral labour composition to the remaining Scandinavia.

At first sight, there is few evidence of an intra-sectoral movement of labour from the

Norwegian mainland economy towards the Petroleum Sector. However, the intra-sectoral

analysis shows evidence of increasing petroleum-related activities in the mainland economy

after the millennium. Yet, the properties of the Norwegian Fiscal Rule ensure sustainable

intergenerational redistribution of the petroleum wealth. This implies a modest inter-sectoral

readjustment of labour towards a new equilibrium rather than a reversal of the effects

following decreasing petroleum activities.

The government should conduct economic policy to ease the re-entry. Expansionary

monetary policy will be the main response. A lower key policy rate will imply increased

cost-competitiveness, which will be beneficial for restructuring and ensure readjustment of

labour towards exportable technology and capital intensive industries. This will be central

due to the current high share of GDP from petroleum. Monetary policy and automatic

stabilizers in the Norwegian economy will be important in limiting the repercussions and

further deepening of the recession. Fiscal policy is suggested limited due to uncertainties

related to the new Norwegian trend development and potential obstruction of the needed

structural shift. Further, long-run considerations and the aim to prolong the positive impulses

from the petroleum wealth in the Norwegian economy limits fiscal policy-response.

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