Increasing wages ‘no silver bullet’ to fix labour shortage – Malta Employers Association director Joe Farrugia

The challenges employers are facing in finding the right staff are unlikely to be fixed by merely raising wages, according to Joe Farrugia, director general of the Malta Employers Association, who argues that the multi-faceted nature of the problem requires profound changes on a structural level.

Speaking at the annual conference of the Malta Association of Credit Management earlier this week, Mr Farrugia first outlined the many factor causing the crunch in the labour market.

Interestingly, the shortage of labour seems more pronounced at the intermediate level of education and training, he said.

“It is around [Maltese standard academic levels] MQF 4 and 5 – the diploma levels – that our members are reporting it most difficult to find workers. You can source a good engineer, but not a technician.”

The education gap, then, seems to be going the way of the wealth gap, with the two ends of either spectrum getting ever heavier while the middle is gutted out.

“You have too many overqualified people, on the one hand,” said Mr Farrugia, “leading them to seek opportunities abroad and causing a brain drain, and on the other, there are too many underqualified, underskilled, and illiterate people.”

The onset of the COVID-19 pandemic and the efforts to mitigate the spread of the virus led many to experience an enforced time at home – a unique occurrence that helped many workers realise that it might be a good idea to spend less time at work and more time on themselves and their families.

“Workers nowadays are more mobile, less loyal, want more flexible conditions,” said Mr Farrugia.

“It is more challenging than ever to source the required talent. Employers are doing their utmost to retain existing workers, but they are often failing, with the open positions remaining vacant for months at a time.”

Another new development is that wages, although important, are today just one of a number of important factors employees are looking at – “this means that employers, too, must look at the whole package of their offering”.

Commenting on the various reports of young people wanting to leave Malta, Mr Farrugia said that 6,000 young people went to work abroad last year, comparing this to a failure to “watch our back door”.

Many of these émigrés, he noted, are among the brightest and most talented of their generation.

He said that the drop in the number of young people is seen in the demographics of those attending educational institutions, with the student population only being maintained due to an influx of foreign students.

Adding to the perfect storm in the Maltese labour market, Mr Farrugia argues, is that Malta has the lowest fertility rate in Europe.

“We have long said that people are our most valuable resource,” he said. “And I do not think there is any doubt about that. But then, we must manage it well. If people are leaving, if they are not reproducing, this is a serious national problem that merits a national response.

Referring to female participation in the workforce, Mr Farrugia noted that Malta can no longer depend on an untapped labour source.

“That untapped female portion has been absorbed, nowadays,” he said. “We not have access to that underutilised resource anymore.”

In fact, Malta’s female participation rate compares very favourably with that of many other European countries – “and among the younger cohorts, it is even higher than the European average.”

“Then,” the MEA director general continued, “there are sector-specific issues, with companies requiring a large supply of unskilled labour finding that the local pool is dwindling, leading to an overdependence on the importation of migrant labour.”

Addressing a longstanding bugbear for the association, Mr Farrugia noted that many Maltese workers falling in this category have been absorbed by the public sector.

“As for sectors like hospitality or care, we hear that people do not want to work during weekends, or on shift. They are seeing better options, not necessarily in terms of income but in terms of quality of life,” he said, adding that these sectors are competing with others offering better flexibility, fewer hours, and the opportunity to work remotely.

After sketching out the challenges faced by employers, Mr Farrugia turned to the possible solutions, arguing that increasing wages cannot be seen as a silver bullet.

“Our worry is not that labour costs are increasing, but that productivity is not going up in line with that increase,” he said. “If you raise wages, will you be expecting more from the worker? Will that affect the working relationship?”

He argued that structural problems require structural fixes, with industry working hand-in-hand with Government to invest in training and mentorship while improving the connection between academia and business.

“We also need to start promoting careers, not jobs,” Mr Farrugia continued. “We need the next generation to adopt a growth mindset, to keep investing in themselves after leaving school.”

He acknowledged that this is a challenge for companies too, which will need to understand how to repackage their current employment offering to meet workers’ needs and ambitions.

Building on a point raised earlier in the conference, he said that soft skills remain a crucial area where employers are finding issues, with new hires often lacking the can-do attitude and interpersonal skills of previous generations.

Other solutions include the freeing up of human resources from the public sector and by encouraging work beyond retirement.

Mr Farrugia admitted that even if all such proposals had to be taken up, it would not be able to satisfy the great demand for labour, making investment in Malta’s attractiveness for foreign workers a must.

“We are competing with other developed countries, which are facing similar challenges,” he said. “Most of the EU has the same problem. Nowadays, we not only competing at product and service level, but also for talent.”