The Director General of the Malta Employers' Association has said that many employees are already making demands for higher wages.
During an interview with this newsroom, MEA Director General Joseph Farrugia was asked for his predictions about wage growth, due to the current inflation.
"The fact that we have inflation means that many employees will make demands for higher wages, and this is already happening."
"In fact, it has also been happening because of the labour shortage, not because of inflation. Three years ago we didn't have inflation, but we still had wage growth, and that wage growth was fuelled by a shortage of labour, particularly skilled labour. Therefore labour market forces operate independently of the Cost of Living Adjustment (COLA), they even operate independently of inflation. Then it would come down to the company's ability to pay higher wages. Now if they can afford higher wages because they are raising their prices, we will go back to the wage-price spiral issue we mentioned," he said.
A wage-price spiral is a concept where, because of inflation, employees might demand better wages and businesses will have to pass on that cost to consumers as the wage increases would outweigh gains in productivity and businesses would not be in a position to absorb such increases, which will create another round of rising prices.
The ideal situation is to ride this inflationary wave that the country is facing through higher value added output, he said, "which can make companies more competitive and they would be able to afford to pay higher wages without reducing aggregate demand."
He stressed that it does not benefit businesses to have a fall in consumer purchasing power. "It is a double-edged sword. You cannot say that you're benefiting from not giving any wage increases, but at the same time if we have a market which is cutting its expenditure, you're going to lose from the other end. That's why a balance is always ideal. A balance which can allow wages to rise while keeping companies competitive and at the same time having sufficient purchasing power to keep companies going as well."
During the interview, which was published on Sunday, he had spoken about the MEA's COLA proposal in depth, as well as his predictions for the job market a year down the line and the results of a survey showing the impact of inflation on businesses. The full interview can be seen on www.independent.com.mt. The MEA's proposal to amend the COLA mechanism is to include a minimum COLA of €2.50 and a maximum of €6 per week for a period of five years, starting in 2024. Then, any amounts accrued in favour of employees or employers will be awarded on the 6th year and beyond.