How the Covid-19 wage supplement kept poverty at bay

The wage supplement was effective to reduce the risk of poverty during the Covid-19 pandemic, a study by Central Bank of Malta researchers confirms. The measure prevented the poverty rate from increasing by a third during that period.

When the wage supplement scheme was introduced in 2020, at the height of the Covid-19 pandemic, the Opposition had been very critical of it. Opposition spokespersons had argued that the scheme should have been extended to more sectors and they positioned themselves against the flat rate payment of the scheme. They had argued that workers should receive a fixed percentage of their previous income – so that the more they were paid the more they would get.

Instead, the Government had argued in favour of the scheme having a fixed payment set at above the minimum wage and limited to sectors where turnover loss was high. This was thought the best way to keep the impact of the pandemic on poverty limited and at the most affordable cost possible.

A recent study by Central Bank researchers suggests that this strategy was quite effective, with a positive impact of the wage supplement on workers’ incomes. The study notes that, even in the absence of the wage supplement, the Government had support schemes through social services that could have somewhat helped reduce the impact of the pandemic. However, it is very clear that the wage supplement scheme made a huge difference, especially because of how it was designed.

In the absence of the wage supplement, the rate of those at risk of poverty would have reached 22%, or an increase of 5 percentage points. This would have meant a third more than it would have been if the pandemic had not happened. The wage supplement scheme, according to the Central Bank researchers, resulted in the poverty rate being only 18%, meaning that the wage supplement almost completely offset the effect of the pandemic on the poverty rate.

The pandemic would have made the child poverty rate reach 23%, up from 16%. Instead, it only rose to 18%. Among workers, instead of doubling the rate of those at risk of poverty from 5% to 10%, the wage supplement limited the increase to 6%.

Central Bank economists show that, had it not been for the wage supplement, around 5% of workers’ families would have lost about half of their income. Households of those working in the hotel and restaurant industry faced a loss in their disposable income that was less than a third of what they would have lost in the absence of the wage supplement. Among retail workers, income losses were limited to just 7%, from more than 25% had there not been the wage supplement. The scheme also had a significant positive effect among workers in manufacturing, transport, and real estate.

The Central Bank study concludes that “the results suggest that the scheme’s impact across the income spectrum was progressive, in the sense that it shielded the lowest earners relatively more; an outcome which is important from an equity and financial security perspective”.

Photo credit: Car Girl

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