Increased minimum wage: the ripple effect

The higher minimum wage will benefit not only those earning that wage but many others too.

A recent study by the Central Bank of Malta indicates that the improvement in the minimum wage will benefit not just those workers who currently earn this wage, but many others as well.

The study focuses on the increase that will be given as from this month and notes that this will lead to a minimum wage of €213.54. This means an increase of almost 11% in a single year, bringing about the biggest increase in the minimum wage’s history.

Research carried out by the Central Bank indicates that only three out of every hundred workers earn the minimum wage. In contrast, around four in ten workers earn between €6.50 and €10.50 per hour, which is between one-and-a-half times and two-and-a half-times the minimum wage. Assuming that the increase in the minimum wage affects only the earners of this wage level, the impact on the average wage would be very small, at 0.04%. However, those earning more than the minimum wage will also see wage increases, to maintain relativity in wages.

The study, based on international literature on the subject, assumes that those in the 10% lowest wage decile get an increase equivalent to that of the minimum wage. Those earning the next 10% of the wage distribution take 80% of the increase, and this continues to gradually decline for all earners up to the average wage. According to this scenario, experts believe that the impact of the rise in the minimum wage would lead to an overall improvement of 0.69% of all wages.

The range of the impact on the level of the average wage is between 0.04% (if one assumes only those on the minimum wage benefit from the increase) and 0.69% (if the increase is also reflected in a rise in the wage of those earning a wage between the minimum wage and the average wage).  In light of the fact that the Central Bank is forecasting a 6% rise in the average wage in 2024, this means that up to a tenth of this increase could be due to the improvement of the minimum wage. So, while some may think that the increase will not affect them, as they earn more than the minimum wage, indirectly there will affected positively.

Financial observers told The Journal that this shows the importance of the Government’s decision to increase the minimum wage over and above the COLA increase. The hard work undertaken together by the government and the other social partners will guarantee that, from this year, Malta will boast of a more just labour market.   

The observers noted that, on the other hand, the dfferent approach taken on this matter by the Opposition, with its Spokesperson on the Economy arguing that the rise in the minimum wage is a burden forced on business and its Leader not attending the signing ceremony of the new social pact that led to the increase of the minimum wage.

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