A correct interpretation of labour cost data

This analysis of the Eurostat news release in the local media is completely incorrect and involves its wholesale misinterpretation.

A lot has been made of an article issued on the Eurostat website titled ‘Hourly labour costs ranged from €9 to €54 in the EU’. This has been misconstrued by some local media as indicating that Maltese wages are lower than in most other EU countries and also that Malta is the only country where wages have not improved since 2016.

This analysis is completely incorrect and involves the wholesale misinterpretation of the Eurostat news release. The data, in fact, do not capture wages but, as Eurostat indicates with a link on the same article, it includes employers’ social security contributions and other taxes, training costs, and other expenditure by employers incurred when employing staff (including recruitment costs).

In an article explaining further its wages and labour cost data, Eurostat states that in some countries non-wage costs constitute over 30% of labour costs, for instance in Sweden and France, while “the lowest shares were recorded for Malta (1.4%), Romania (5%), and Lithuania (5.4%)”. 

When one looks at gross earnings, Eurostat doesn’t rank Malta with the lowest wages. In fact, when one looks at the latest available median gross hourly earnings published by Eurostat, these are comparable to those in Italy, rather than being half those in Italy as quoted incorrectly in a local media article.

Given that Maltese employees face the second-lowest employment taxes, this translates in net earnings that are significant. In fact, the net earnings of Maltese workers are the 12th highest  in the euro area. Eurostat data indicate that the net earnings of a single person without children earning 50% of the average wage rose from €9,558 in 2016 to €10,548 in 2022, or an increase of 10%. A two-earner household, both on average earnings with two children, saw their net earnings rise from €35,402 to €39,333, or by 11%. So again, the data published by Eurostat are not in line with the claims made in the local press.

To get an idea of the level of local wages, one needs only to refer to the latest Labour Force Survey (LFS), which states that the monthly basic pay (does not include allowances, bonus, etc) at the end of 2023  was €1,837. In the end of 2016 the same survey had indicated that the average basic wage was €17,670 per annum, or €1,473 per month. So, according to the LFS, the average basic wage rose by 25% since 2016.

Other indicators of wages, such as compensation per employee data published by the European Commission show that, between 2015 and 2019, there was an annual increase of 4.9%, a decline of 0.8% in 2020, an increase of 4.4% in 2021, 3.1% in 2022, and 3.9% in 2023. So, cumulatively, since 2016 there was an increase of about 30%.

The National minimum wage has risen to €213.54 per week this year, from €168.01 per week in 2016, an increase of 27%. This suggests that the improvement for those at the bottom of the wage distribution was, in percentage terms, similar to that experienced by those at the average of the wage distribution.

The Retail Price Index rose by 19% since 2016, and so real wage growth over the period 2016-2023 was positive, with nominal wages rising much faster than inflation.

As regards more recent trends, the latest Business Dialogue published by the Central Bank of Malta shows that nearly 60% of firms surveyed indicated they had increased wages by more than 5% last year, and an even higher percentage are expecting to increase them by the same percentage this year.

It should be kept in mind that throughout the same period, while taxes have risen across Europe, in Malta there was no increase in taxation. Moreover Government has improved the in-work benefit and the tapering of social benefits, leading to higher net earnings for those on lower incomes, besides the direct increase in the minimum wage. Government has also helped those on lower incomes through the introduction of the additional mechanism against inflation. Parents are also benefitting from higher children’s allowances and will soon receive the first payment of the new allowance for those parents with children who remain in full-time education after the obligatory age.

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