Malta’s employers find wage increases not in lockstep with productivity

The vast majority of employers found that increases in their wage bills have not been matched with commensurate productivity gains, according to a wage inflation survey conducted by the Malta Employers’ Association (MEA).

The study was conducted in light of the conditions in the labour market characterised by scarcity of resources and tight competitive forces and a sustained strong reliance on imported labour to meet demand.

“The survey clearly points towards a classical wage-price spiral, whereby employers continued to sustain wage inflation over the past two years and are attempting to neutralise the hit by increasing prices for their products or services,” said the MEA.

It added that this practice was expected to continue in light of forecasted wage bill increases, which were expected to fuel further cost-push inflationary pressures in the local economy.

The study found that 75 per cent of respondents claimed that the increase in their entities’ wage bills was not being matched with commensurate productivity gains, and was having an impact on competitiveness.

Despite the challenges highlighted, the survey showed that 38 per cent of the surveyed companies intended to increase their workforce over the next five years.

Almost three-quarters of those which intended to expand their workforce further (73 per cent) aimed to do so by importing labour.

It was found that over 90 per cent of respondents depended on foreign workers to varying degrees, and in 24 per cent of cases more than half the workforce was foreign.

Furthermore, 20 per cent of firms have developed a dependence on nomad workers.

In order to attract workers, employers were found to generally offer both increased remuneration packages and enhanced flexible work arrangements. A greater push towards the provision of training opportunities had also been registered.

To address the national situation, the MEA’s findings featured a number of recommendations which included; an urgent and clear action on the demographic profile being targeted by the country in the medium-to-long-term; incentives for persons who reach pensionable age to remain in the labour force; and investment in developing a knowledge-based and adequately skilled workforce.

It also appealed to the Government to refrain from introducing measures which increased businesses’ labour costs.

Furthermore, it proposed for COLA increases to reach employees net of taxation.

Otherwise, the MEA said, the mechanism defeated the purpose of compensating employees for inflation, since part of the amount would be a transfer of employers’ funds into tax coffers.

The MEA also called for investment in the development of reliable infrastructure.

“A weak infrastructure, currently being experienced in the energy distribution crisis, in addition to rising labour costs further erodes the economy’s competitiveness. These factors combined are detrimental to all business sectors and tarnish Malta’s attractiveness as an investment destination,” said the MEA.

It also called upon the Government to compensate companies that suffered losses due to the power cuts and called for an economic strategy based on higher output and efficiency, contrary to one based on workforce expansion.