How Labour changed Malta’s growth into employment. Economist Frans Camilleri writes.

In a previous opinion, I had written about the Labour Government’s stellar performance in achieving unprecedented economic growth over the past decade. Today, I write about a similarly unparalleled accomplishment in the labour force.

The uninitiated might assume that economic growth will necessarily translate into more and better jobs. Not so, and we have the experience of the EU itself in the recent past, which was characterised by jobless growth.  

Of course, economic growth is a prerequisite for increasing productive employment. It is the combined result of increases in employment and increases in labour productivity. However, the pattern or nature of growth matters, too. The impact of economic growth on productive employment creation depends not only on the rate of growth, but also on the efficiency by which growth translates into productive jobs.

The latter depends on a range of factors, such as the sector composition of growth and the capital/labour intensity of growth within the individual sectors. There is usually a need to increase both the number of jobs and the productivity as well as incomes from employment.

Empirical studies highlight that economic growth tends to be positively associated with job creation. Azizur Rahman Khan, Professor of Economics Emeritus at the University of California, found the employment elasticity of GDP growth in developed countries to be 0.42 ─ meaning that each unit growth in GDP creates 0.42 new jobs.

Indicators that measure the ability of an economy to generate sufficient employment opportunities for its population can provide valuable insights into the economy’s overall development performance. These indicators include unemployment rates, employment-to-population ratios, labour force participation rates, and the employment intensity of growth or elasticity of employment with respect to output – this last indicator measures how much employment growth is associated with 1 percentage point of economic growth

A review of employment statistics in Malta for the period between 2009 and 2019 shows that the labour force participation rate rose by 9.6 p.p. in the past seven years compared to 7.5 p.p. in the previous period, closing the gap of 10.8 p.p. against Malta versus the EU in 2007 and transforming it into an advantage of 2.5 p.p. Not only did more people seek to work, but an unprecedented number of people in the population found employment ─ 73.1% in 2019 versus 55% twelve years earlier and 62% six years earlier, giving Malta an advantage of 4.6 p.p. over the EU.

Not only did more people seek to work, but an unprecedented number of people in the population found employment.

The jewel in the crown, though, was the activation of the female population, when thousands of women threw away the shackles of generations and entered the world of paid work. In fact, whereas in 2007 only just over 39% of all women were employed, by 2019 this percentage had gone up to 65.5%, closing the gap with the EU from 37.2 p.p. to a mere 2.4 p.p.

One could call it an economic miracle, but that would be to understate the hard work that went into achieving the goal of transforming growth into employment by the Labour Governments. It involved developing, implementing and monitoring coordinated and context-specific policies and programmes that promote quality job creation through economic diversification and investment strategies, skills development for present and future needs in the labour markets, as well as labour market activation and intermediation that integrate the most vulnerable groups.

The kudos for this were earned clearly and squarely by then PM Muscat and the current Finance Minister, who before becoming minister ran JobsPlus and was instrumental in transforming Malta’s labour policy into a jobs-generation machine. His most important contribution was the introduction of the highly-successful in-work benefit scheme.

His employment policy had three major thrusts: (1) generate employment, (2) increase employability, and (3) make the labour markets more efficient.

The first thrust worked on the demand side of the labour market by creating job opportunities appropriate to the skills of the poor.

The second thrust worked on the supply side of the labour market by increasing employability of the poor through education and vocational training programmes.

The third thrust was to reduce friction in the labour market due to a lack of information and labour mobility through such programmes as job-matching and placement services.

A review of economic development from an employment perspective should therefore assess to what extent economic growth has met the need for more jobs and for higher productivity/incomes. The extent to which economic growth is associated with and driven by a productive transformation is of major importance to the sustainability of economic development in the medium and long term.

During the 13-year period I have studied, labour became more expensive. Nominal unit labour cost increased by 18.5 p.p. between 2016-2012. This high rate of increase thankfully moderated somewhat to 13.8 p.p. between 2013-2019, reducing the threat of making us highly uncompetitive in international trade. But this lower rate was still 7.3 p.p. higher than in the EU.

Under the previous Nationalist Governments, the high rise in labour cost was compounded by a drop in productivity. In fact, labour productivity per person/hour worked fell from 96.3 in 2009 to 92.6 in 2013. By contrast, labour productivity improved back to 96.4 in 2019, which combined with the lower rate of increase in nominal unit labour cost, contributed to a more balanced labour market.

The high economic growth rate and employment creation undoubtedly had a major role in the reduction of the At-Risk-of-Poverty rate and ensured that growth would be both sustainable and inclusive.

During the past 15 years the ILO, UNDP, the OECD, the World Bank and others have carried out considerable analytical work on the growth-employment-poverty nexus.  The World Bank’s 2013 World Development Report, entitled “Jobs”, highlighted the transformational role of employment in terms of rising living standards, greater social cohesion and improved productivity. The UNDP’s 2015 Human Development Report, published under the title “Rethinking Work for Human Development”, established a connection between work (in the broader sense) and human development.

The two Labour Governments used the growth-employment-poverty nexus to lift a higher proportion of workers and families out of poverty. The Opposition lies through its teeth when it talks about poverty in Malta, trying to make us forget the fact that the risk of poverty and social exclusion increased from 19.5% in 2006 to 23.1% in 2012 under PN governments. Labour brought the rate back down to 20.1 in 2019.

There is a saying that goes like “Give a man a fish, you feed him for a day; teach him how to fish, and he will be able to feed himself for the rest of his life.” This is an old cliché, and like all clichés it has an element of wisdom. But it does not go far enough. A fisherman with a simple rod and a boat will not go hungry, but he will still be poor. For him to rise above poverty, he needs steady employment at reasonable wages in a commercial company. Now his daughter might move up the development ladder and go on to become an engineer.

That’s what the Labour Government of the past decade has done.