The adjustment of real wages to lower productivity has been greater than in many other countries where productivity has fallen (Figure 1.3, Panel B). This contrasts with the early 1990s, when hourly real wages increased, prompting firms to reduce their workforce. In the current downturn, the fall in the relative price of labour has been a major factor in allowing employers to limit layoffs, especially of skilled workers who are difficult to hire, or expand labour intensive activities, while preserving profit margins. Relative wage flexibility across sectors and occupations also helps reallocation of labour in an economy which needs rebalancing.