The Maltese Wage Supplement scheme was more generous and far more successful than similar schemes in the rest of Europe according to an economic analysis conducted by senior economists for TheJournal.mt.
With the onset of the COVID-19 pandemic, the Maltese Government introduced the Wage Supplement scheme to protect employment in the private sector. This scheme has covered about half of private sector employees in Malta, with coverage in some sectors being close to 100%.
Outlays on the COVID Wage Supplement programme amounted to nearly half a billion Euro, which helped sustain employment income in the affected sectors.
Despite the pandemic, data published by Eurostat indicate that employment in Malta in wholesale and retail, transportation, accommodation, and food services amounted to 67,460 individuals in 2020, up from 66,400 in 2019. In the Euro area during the same period, employment in the same sectors fell by 1.7 million, or by 3%. The worst affected countries were Estonia with a drop of 8.5%, Spain with a decline of 8.1% and Bulgaria, where 6.5% of employees in the sector were fired.
These overall statistics indicate clearly that compared to the schemes provided in other EU countries, the Maltese scheme was more successful in protecting incomes and jobs in the affected sectors. This was the result of the particular design of the scheme, which differed greatly from those in other countries.
Official data indicate that the compensation of employees in wholesale and retail, transportation, accommodation, and food services amounted to €1.1 billion in 2020, or just 6% lower than in 2019, which was a record year for these sectors. By contrast, Eurostat data indicate that wages of salaries of workers in these sectors fell by 19.3% in Spain, whereas in Cyprus there was a fall of 16% and a 15% decline in Italy.
The main advantages of the Malta wage supplement
The key difference between the Maltese scheme and nearly all similar schemes in the EU and beyond was that in other countries the subsidy was given only under certain conditions, namely that employees are not given work. For instance, in Belgium if a workplace must partially or fully close because of COVID-19 (e.g. due to a lack of materials or clients, the workplace is infected or mandatory closure has been ordered by the Belgian authorities), the employer can put its employee(s) on temporary unemployment. During this period, employees would not receive a salary from the employer but would be considered as temporarily unemployed and receive benefits. In the French scheme, employers reduce working time for employees to a minimum of 40% of normal hours and Government then reimburses 60% of the remuneration of the number of hours not being employed.
Compared to the schemes provided in other EU countries, the Maltese scheme was more successful in protecting incomes and jobs in the affected sectors.
Under the Maltese scheme, employers are not asked to reduce working hours or to keep employees at home. The benefit is given to all employees of applicable firms irrespective of whether or not these employees are being called in to work. This creates an incentive for employers to utilise their workers rather than keeping them at home. Economic literature indicates that the greatest economic impact of unemployment is that persons who stay at home reduce their skills and their employability suffers the longer they stay inactive.
The second key difference between the Maltese scheme and that in other EU countries is that the Maltese scheme is a flat rate scheme, whereas other schemes are proportional ones, where the State pays a proportion of somebody’s wage up to a maximum ceiling. For instance, in Italy non-executive employees receive 80% of their former salary up to €1,300 gross. In Spain the Government pays 70% of the salary for the first six months and then pays 50% thereafter (with a cap of around €1,400).
The tables above show the benefit that would be paid to workers previously earning €800 and €1100 per month. The Maltese scheme protects the income of the low-income workers completely whereas in other countries the ratio ranges between 50% to 80%. For someone that previously earned €1100 (roughly the average amount earned in the affected sectors), the Maltese scheme provides a cover of nearly three quarters of the wage, assuming that employers opt not to supplement the Government benefit. If they instead follow the commitments given in the social pact of 2020, the whole wage would be covered. By contrast for many workers in Europe the wage subsidy would not provide a return that is higher than €800.
The Maltese scheme therefore has two main advantages. It does not require employers to keep their workers not working or working partial hours, and therefore does not risk placing employees in a state of semi-unemployment. Moreover, by being skewed in favour of low-income workers, it gives a stronger incentive to employers to retain them. This is particularly important as in past recessions it was low-income workers who would tend to be made redundant, as employers would prefer to use their limited revenue to support the payment of wages of their more skilled employees.