Noel Grima

Labour supply shortages are seen as the leading cause of wage inflation.

This is the opinion of a majority of respondents to a survey conducted by the Malta Employers Association which was revealed to the press on Monday.

The survey in itself is a snapshot of the Maltese economy at present and it shows how the economy is being pushed here and there by what is going on and how there are no easy solutions ahead.

The survey shows the responses by the 441 employers who chose to reply to it. This is thus a more than respectable sampling, also considering that some respondents run more than one company.

The results of the survey reveal a widespread concern that wage inflation is a reality which is being mostly generated because of labour shortages, rent and property inflation, and a high turnover.

But other than react to the changing circumstances, the employers do not seem to have any idea where they want to go in the future - but this could also be because the survey did not go there in the first place.

Ours is, as we all know, a growing economy which has been experiencing record rates of expansion during the past five years. But this fast-growing economy needs additional labour input for such growth to be sustained. In the absence of more people working, wage increases are inevitable and will accelerate with possible negative implications for many companies especially low value-added sectors.

The increase in labour demand cannot be matched by the local labour supply. Female participation has increased substantially in Malta and is higher than the EU average among the younger cohorts. And although the projections point towards an even higher female participation in the coming years, this will not be enough for what the economy needs.

Nor will increasing the participation by the elderly suffice, even though the number of people who are retained in the labour force is on the increase.

The labour shortage is inevitably being addressed by an ever-growing influx of foreign workers. An increasing number of such workers are coming from non-EU, third countries. At around 60,000, one third of employees in the private sector today are not Maltese.

The dependency on foreign labour is generating massive demographic challenges that affect all aspects of Maltese society. Although MEA in 2017 called for a strategic approach to such challenges, there has been no response by the government. Nor has MCESD focused on the issue.

One other issue that impinges on the situation is employment by the public sector. The public sector is also contributing to the labour shortages in the private sector. Some respondents to the survey attribute their labour turnover to employment with the public sector. The salary scale in the public sector, with its peculiar structure, is becoming a magnet for low-skilled employees and causing a brain drain in the upper grades. And to bypass the official salary structure of the public sector, the government is resorting to engage people in a 'position of trust'.

At the other end of the scale, the increasing rate of Third Country Nationals coming to Malta is creating further stress for Identity Malta which is ill-equipped to handle the growing volume of TCNs.

On the other hand, the growth of the population is creating the need for the public sector to attract more employees in key areas, such as health. This in turn contracts further more the Maltese labour pool in the private sector and in turn generates more demand for foreign employees. In the coming years, the public sector will be employing a rising percentage of the Maltese labour force while the private sector will become even more dependent on foreign workers.

Finally, wage inflation does not reflect the financial performance of many companies. Many employers replying to the survey expressed a strong concern about the rate of increase in labour costs and competitiveness. Combined with tax harmonization in the EU, a fall in competitiveness will have a negative impact on essential sectors like manufacturing and financial services.

The employers' uneasiness is not that wages are increasing as such, but that the rate of increase in many enterprises does not reflect any corresponding increase in productivity.

Few may have any idea of what turnover there is among the workforce. More than half the respondents spoke of a turnover of over 10% but 16% spoke of a turnover in excess of 30%. Turnover has increased in recent years and the strongest cause of such a turnover is higher  wages. The employers reported that less people are changing jobs for better career prospects than for better remuneration. Higher turnover is not conducive to higher productivity. Many companies deal with labour turnover through raising wages or by employing foreign workers.

Among the conclusions and recommendations, the survey urges that Identity Malta must get the necessary resources to expedite applications. It is unacceptable to have people sleeping outside Identity Malta's offices to get their permits processed or renewed.

At the same time, the government needs to clarify any agreements it has with other countries to ensure that persons from countries such as the Philippines come to work here on clearly defined terms. Maltese employers, the survey adds somewhat cryptically, cannot be accused of human trafficking for offering conditions of employment that fully respect local legislation  and that do not discriminate between Maltese and foreign employees.