Malta: the country with the least labour market slack in the Euro area

Last week Eurostat published its latest data on the labour market slack in the EU. This indicator was created by the European statistical agency in response to the COVID economic shock. In fact, statisticians were noting that due to the nature of wage supplement schemes, many employees were not being fired but were being kept and employed for very few hours, to benefit from subsidies.

Thus besides including unemployed persons, this statistic includes workers who want to work more hours, people who are available for work but who are not actively looking for work, and those who are looking for work but who are not immediately available for it. This labour slack variable thus captures all the unmet demand for employment, or the under-employment of labour resources.

Malta already scores well when one looks at the unemployment rate – the traditional measure used in this area. In fact, the latest figures show Malta with an unemployment rate of 3.7%, the joint second lowest in the Euro area, with Germany, with only the Netherlands having a lower rate. However when using the comprehensive statistic of labour market slack, Malta goes to first place.

Malta only has a rate of 6.3%, as against 8.9% in second-placed Germany. The Netherlands, which score so well in terms of the unemployment rate, are revealed as being heavily under-employed, with a labour market slack of 16%, close to the Euro area average. The main reason for this is that the Netherlands has a large proportion of its work force (nearly 7%) who are not working as many hours as they wish.

By contrast Malta has a relatively low proportion of its workforce (1.7%) who would prefer to be employed for more hours. This proportion is half the Euro area average, and nearly a quarter of that in the Netherlands.

Turning to those who would like to work but who are not seeking employment, who in economic literature are referred to as the discouraged workers, in Malta this amounts to less than 1%, as against 13% in Italy, and 5% across the Euro area. Economic theory suggests that when job opportunities are scarce and employment conditions are bad, many jobseekers do not actively seek employment but instead rely on benefits or family support. Malta and Finland are the only two countries in the Euro area where this effect has not increased since the pandemic started.

Looking at labour slack as a whole, Malta was the only country in the Euro area where this remained unchanged despite the pandemic. Across the Euro area as a whole between 2020 Q1 and 2021 Q1 there was an increase of 3.4 million persons with an unmet need for employment, marking a rise of 13%. 1.3 million of this increase was observed in Italy, where the labour slack rose by 22%. In percentage terms, the worst affected was Slovenia with an increase of 73%, followed by the Netherlands (66%), and Ireland (50%).

While Malta’s unemployment rate is one half the average unemployment rate in the Euro area, our labour market slack rate is one third the average across the Euro area. This confirms that the impact of the pandemic on the Maltese labour market was well contained, and was much better than that across Europe.

A prime reason for this was that the economic support policies that were put in place were not constructed in a way as to push firms to lower hours worked. For instance, in many continental countries for a firm to be awarded a wage supplement, this depended on it employing a worker for less hours.

Another reason for the success of Malta’s economic policies were that they created new employment opportunities. Schemes like the vouchers, the decision to never completely lock down certan industries like manufacturing and construction, and continued Government infrastructure projects led many to continue seeking employment rather than becoming discourage workers dependent on benefits.

While some may argue that having low labour slack means that firms face labour shortages, this issue is much easier to resolve than having thousands of persons who have lost hope in getting employed and becoming a lost generation.

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