Malta’s labour market transformation: Rapid growth and policy shifts drive employment surge

Malta’s labour market has undergone a dramatic transformation over the past decade, with employment increasing by an unprecedented two-thirds.

This surge has been fuelled by rapid economic expansion and significant policy reforms, rather than an exodus of young Maltese workers and an influx of foreign workers to Malta, as some have speculated.

A newly published discussion paper by Aaron G. Grech, Chief Officer of the Economics Division at the Central Bank of Malta, examines the forces shaping the country’s evolving workforce. The report highlights that while the influx of foreign workers has played a major role, Government policies have also significantly increased local labour participation, particularly among women and older workers.

Employment soars, defying past projections

Between 2013 and 2023, the number of employed individuals in Malta grew from just under 190,000 to nearly 317,000 – an increase of 127,000. This growth surpasses the previous 50 years combined, with employment rising at an annual average of nearly 13,000 workers. In contrast, earlier projections from institutions such as the European Commission suggested that Malta’s employment growth would slow to just 0.2 per cent in the 2020s. Instead, it has averaged close to five per cent.

The employment rate in Malta has skyrocketed. In 2004, it stood at 53 per cent, one of the lowest in the EU. By 2023, the country had surpassed both Germany and Poland, reaching an impressive 78 per cent, making it the second-highest in the European Union.

The role of policy reforms in labour market growth

While foreign worker inflows account for roughly three-quarters of the overall employment increase, local workforce participation has also expanded significantly. The number of Maltese in employment has risen by over 30,000 in the past decade, counteracting the decline in the local working-age population due to demographic shifts.

One of the key policy shifts has been the gradual increase in the pension age, which has led to a significant rise in the number of older workers. The early pension age of 61 remained unchanged, but reforms introduced in 2006 and phased in from 2012 onwards gradually raised the statutory pension age, incentivising workers to stay in employment for longer. The introduction of a pension top-up scheme in 2017 further encouraged later retirement. Without these changes, Malta’s workforce would have been 8,600 workers smaller in 2023.

Similarly, targeted policies to boost female employment have yielded significant results. The introduction of free childcare services in 2014 proved instrumental in reducing the employment gap between men and women. Before the reform, women often left the workforce for three to four years after childbirth. The availability of free childcare reversed this trend, keeping more women in the workforce. Had their employment behaviour remained the same as in earlier years, there would have been 6,200 fewer women in employment.

The tapering of benefits scheme, introduced in 2014, also contributed to higher workforce participation. Designed to gradually reduce social benefits for those who re-enter employment, the scheme added approximately 5,600 workers to the labour force, with 70 per cent of them being women.

Foreign workers: A response to economic growth, not emigration

Contrary to claims that rising foreign employment is linked to an increase in young Maltese leaving the country, the data tells a different story. Net migration of Maltese citizens remains positive, with more returning than emigrating. In 2023, for example, 2,256 Maltese returned to the islands, compared to 1,767 who left.

Instead, the growing reliance on foreign workers is primarily driven by the rapid pace of economic expansion. Certain sectors, such as remote gaming, information technology, and financial services, have experienced explosive growth, creating a demand for specialised skills that outpaces local supply. The computer programming and consultancy sector, for instance, has quadrupled in size in just a decade, now generating more real value added than the entire manufacturing industry.

Some traditional sectors, such as construction and hospitality, have also become increasingly reliant on foreign workers. The number of Maltese employed in construction dropped by 2,479 over the past decade, while the sector as a whole grew by more than 10,600 workers. A similar trend is evident in retail, transport, accommodation, and food services, where foreign employment increased by 30,333 workers, offsetting a decline of 2,751 Maltese workers.

Addressing future labour challenges

Looking ahead, Malta faces a delicate balance between managing population growth and avoiding labour shortages. While past labour market reforms have successfully offset some of the demographic impacts of ageing, further measures will be needed to sustain economic growth.

One key area for improvement is upskilling and lifelong learning. The report highlights that nearly 60 per cent of Maltese aged 50 to 74 have a lower secondary education or less, compared to just 16 per cent in the EU country with the second-highest employment rate for older workers. Investing in training programmes could help tap into this underutilised labour pool and reduce reliance on foreign workers, the author says.

Despite Malta having one of the highest employment rates for those under 50, it ranks among the lowest for those above 50. If the employment rate of older workers were to match that of the second-highest EU country, the local labour supply would increase by approximately 23,500 workers.