It was an unprecedented start for the New Year as it was characterised by a series of price increases for commodities and national insurance contributions. These hikes elicited a reaction from unions who are demanding a revision of the cost of living wage adjustment (COLA), by way of compensation, literally days before this year’s increase of EUR1.16 was added to worker’s wages.

Understandably, the Malta Employers’ Association (MEA) immediately refused the notion of an increase in the cost of living wage adjustment this year, arguing that businesses were also incurring extra costs through the increase in fuel prices and national insurance contributions.

The situation is more complex than it may seem and given the current situation a better analysis has to be made of the issues at stake. The concern voiced by unions cannot in any way be discounted as they are right in their assessment that the cost of living wage increase of €1.16 per week has been practically eroded (before it even ended in the workers’ pockets) by the increased prices of energy. Moreover, more increases are anticipated as bakers have warned that their operating costs have to be revised due to both the local energy prices and the inclement weather throughout the world which is affecting the supply of flour, thus increasing its value.

Nevertheless, the point of view of businesses has to be added to the equation too before making blanket statements such as increasing the cost of living wage adjustment. Businesses have to generate a profit after expenses to be able to continue operating and employing people. The recent increases in energy and national insurance contributions will also affect the bottom line of companies and a consideration has to be made to ensure that their profitability levels are healthy enough to allow room for further investment. These are basic principles which unions should understand perfectly before making claims such as that made last week to revise the COLA barely days into the year.

The Malta Employers Association declared its opposition to any COLA increase and argued that raising COLA would create inflationary pressures that would contribute to further wage increases and negatively affect the competitiveness of the country.

Interestingly, the MEA also accused unions of being inflexible whenever employers requested to discuss a revision of the COLA mechanism and an increase of €5.82 was given for 2010 during a period of recession.

Thus, before even considering the call for a higher cost of living wage adjustment, a thorough assessment of the current situation should be made to determine whether all sectors of the economy are performing within acceptable profitability levels.

One must not forget that Malta is gradually emerging from a recession following the global financial crisis. Moreover, Europe and the euro are facing possible instability after Greece and Ireland had to be bailed out last year while Portugal is borrowing funds at very high rates to service its debt and could possibly be the third European Member State to require a financial bailout.