The issue of the extent of foreign labour in Malta and its role in the country's economic growth came to the fore again a few weeks ago, when the Minister of Finance Clyde Caruana, Malta Employers (ME), the Chamber of Commerce, and the Chamber of SMEs argued vehemently about the importation of foreign workers and their role in the development of the country.
The foreign labour component in the workforce has increased from 9.9% in 2012 to 74.2% in 2025, but there was a significant jump in the ratio in 2022. I would suggest that this was because the government aggressively pursued economic growth at the same time that Malta's indigenous workforce was stalling.
In fact, the Maltese component of the workforce rose from 151,000 in 2012 to just 183,000 in 2025 (+ 21%), mainly as a result of the thousands of women who started participating in the labour market, though there was also a reduction in unemployment and activation of some working-age adults who were still outside the labour force.
But there is no way that this modest increase in the workforce would have delivered the economic results we achieved, because the indigenous population of working age (20-64 years) during that period actually declined, from 406,500 to 357,000 (-12.2%). This means that less workers were expected to sustain the non-working parts of the population (children and senior citizens). The population decline was mainly due to a lower fertility rate.
There was no alternative to foreign labour. There is no alternative to foreign labour in the future. If anything, the situation is getting worse. Fertility continues to decline, while there is a limit to how many more indigenous people can join the labour force. Our labour force participation rate increased from around 60.5% in 2012 to 83.3% in 2025, almost exclusively due to women workers. The rate is now 6.5 p.p. higher than that of the EU. The future potential is for something like another six percentage points, if we manage to convince more women to enter the labour market or more seniors to remain in it after reaching pensionable age.
There is no doubt that foreign workers were essential to the 8.9% compounded annual growth rate in GDP, which more than doubled GDP per capita to €23,840 (2005 chain-linked volumes). Foreign workers have significantly supported Malta's economic output and filled critical labour shortages. Their arrival has enabled indigenous Maltese workers to shift from blue-collar jobs to white collar jobs and professions, giving them a better income and life opportunities.
Some people who should know better have said that what they call a low-wage economy hasn't benefited Maltese workers. This is an outright falsehood. While the average wage has risen by a modest 4.1% per annum, that of the indigenous population has increased by considerably more. According to NSO data, in 2024 the average annual gross wage of a Maltese national stood at €22,260, versus an average of €18,278 for a non-Maltese worker. The disparity is even greater if the comparison is made between a Maltese worker and a Third Country National, where the latter earns roughly 38% less than the national average.
Other counter-factual confirmation that Maltese nationals have benefited from higher-than-average income growth is that the material and severe material rates have seen sharp drops during this last 13-year period, indicating that the depth of poverty in Malta has declined. The at-risk-of poverty rate of employed Maltese is just 5.5% compared to the overall rate of 9.2%, whereas the number of Maltese people whose household equivalised disposable income is below the threshold is 14.4% versus 16.9% overall.
The debate about the role of foreign workers, especially TCNs, is loaded with misconceptions and untruths, even if it is laced with some truths from time to time. Criticism of dependence on foreign labour is based on three contentions: that foreign workers are to blame for (1) low productivity, (2) lack of capital investment by their members, and that (3) the GDP growth model depends crucially on foreign workers.
Let's take the productivity argument first. There is no doubt that real labour productivity per person is a big problem. While the annual increase in productivity was improving by 2.04% during the period 2005-2015, it deteriorated to just 0.76% between 2015-2025. There are no statistics about the productivity of different categories of people, although I am inclined to go along with the argument that most TCNs perform low-productivity jobs. This seems to support the lobbies arguments.
However, the lobbies shot themselves in the foot when they stated that Maltese workers are no longer seeking many of the roles now performed by TCNs in waitering, delivery services, tile-laying, and cleaning, among others. "There is no domestic queue to draw from and no alternative source," they said.
Those jobs are low-productivity ones, whether they are performed by locals or TCNs. The productivity rate wouldn't have been better had the jobs continued to be performed by locals. On the contrary. there is reason to believe that, had the low-productivity jobs been performed by local workers, the productivity rate would have been even lower.
Key sectors like hospitality, administrative support, construction, and healthcare have become heavily reliant on foreign personnel to maintain basic service delivery. Hadn't we imported labour, who would have performed these jobs, when there are less of us to do so? On top of this, there was an acute shortage of specialised local talent. Foreign professionals have brought pre-packaged, highly technical skillsets to iGaming and Financial Services & FinTech, directly boosting the value-added output per hour.
Having said that, labour productivity is a bit of a misnomer. It is not referring just to the output of a worker using his bare hands. It is also heavily influenced by the extent of technology applied to the production of a good or service (new tools, software, automation, etc), the amount of physical capital (more efficient machinery, equipment, and infrastructure), and human capital itself (better worker skills, training, education, and health). Many of these variables are within the control of employers and entrepreneurs. Indeed, they are the main drivers of them.
The extent to which the private sector has been contributing to fixed capital investment in the country is therefore a major factor in productivity enhancement. Historically, the private sector has been responsible for between 80-85 percent of physical capital investment, while the Government has funded 80% of human and social capital.
Overall, however, the public share of fixed capital formation has declined over time. While in 1980, public investment as a proportion of GDP was almost 14%, by 2025 this ratio had declined to 3.7%. On the other hand, private investment's ratio, which was 16.3% of GDP in 1980 has declined to 13.9% (below the average of around 15.8% throughout the period).
This is the nub of the problem with our economic growth. It is increasingly sustained by consumption and net exports, which generated 60% and 16.2% respectively of GDP growth during the period 2017-2025. Gross fixed capital formation accounted for just 15% of GDP growth. What is even worse is that investment's share of the growth rate has declined from almost 33% during the period 2007-2016. On the other hand, consumption has increased its contribution from 44.4% to 60% of GDP growth.
We are simply not investing enough. In fact, our investment rate has been some three percentage points lower than the EU's rate over the last two decades. Trust the Maltese to throw a party rather than work harder. And whose fault is this? Business must bear it share of the blame, but the government cannot escape its responsibility. It is definitely not investing enough and must also be pro-active in enabling private capital formation. Here, I agree with the business lobbies.
The government is also at fault for its head-long rush to spend money. It is a well-known tenet of macroeconomics that high government spending has what is called a "crowding-out effect." As it spends and borrows more (running a budget deficit), it raises the overall demand for financial capital and discourages companies from financing projects. Crowding out is a major risk when an economy is near full employment and resources are scarce, as we are at the moment.
In the last five years, government recurrent expenditure has averaged 85% of total expenditure. Instead of spending like there's no tomorrow, the government should have been investing more in productivity-enhancing assets (like renewable energy, power distribution, ports, digital networks, and trade skills), making private capital more productive, and raising expected returns from more private investment.
Earlier, I mentioned another criticism being made by employers and business: that GDP growth is being driven by foreign workers. According to an article published in the Central Bank's Quarterly Review (1st quarter 2016), the contribution to potential growth of foreign workers rose from 0.2 percentage points in the pre-accession period (2001-2004) to 0.5 percentage points in the post-accession period (2005-2009). In the following five years (2010 to 2014), despite the doubling of the relative share of foreign workers in total employment, their relative contribution to potential growth is estimated to have risen to just over 0.6 percentage points.
Extrapolating for the almost six-fold rise in the share of foreign workers in the labour force by 2025, the contribution of foreign workers to the growth rate in 2025 would be around 1.2-1.8 p.p. or 24-38 percent of the growth in GDP last year. Foreign workers are undoubtedly contributing an increasing share to GDP growth, by boosting the economy's growth potential and consumption, apart from also contributing significantly to improve the state of public finances in Malta.
In a nutshell, foreign workers have become an important component of the labour force and economic growth, but the claim that they account for the bulk of the expansion is false.