We need a higher National Minimum Wage (1)

“If employers can’t afford wage increases, they’ll cut jobs!” This is the standard line we hear from those who oppose any increases in the National Minimum Wage. It’s a powerful warning, especially in the current economic environment where the Covid pandemic has wiped out at least one year’s economic growth, pushed unemployment up, and brought considerable uncertainty to the business economy and the labour market.  But is this claim valid?

The claim may ring true at present while we still digest the economic consequences of the pandemic. Few economic actors would have any appetite for rocking the boat when the seas haven’t sufficiently calmed. I very much feel that the current climate is simply reinforcing a certain pre-Covid resistance to wage increases in general. However, I do not share the view that any debate on the issue should be shelved.

Let’s examine certain relevant trends.

Are consumers spending less? The seasonal and calendar-adjusted consumer goods index in January 2021 was 126.3 against a low of 108.8 in May 2020. After a four-month downward trend in the wake of the arrival of COVID-19, the index recovered. The gain in Malta’s index mirrored exactly that of the EU. The biggest impact of COVID was on the consumption of durable goods, which has still not completely recovered to pre-COVID levels. Yet both the intermediate goods and manufacturing indices are back to pre-COVID levels.

Of course, the exception to this is the services sector, heavily influenced by the huge setback in tourism. In fact, according to the NSO, although the services turnover index has improved by 14.5 percentage points since its lowest level in the second quarter of last year, it is still a far cry from the levels in the last quarter of 2019 and first quarter of 2021. This is mainly due to the food and accommodation sector, where the index is roughly half what it was pre-COVID.  

What about the impact of COVID on employment? After the inevitable contraction in employment in the second quarter of last year, employment has mostly recovered. In the last quarter of 2020, employment totaled 260,110 persons, just 0.8 percent than the same-quarter level in 2019. Consequently, unemployment increased by some 2,300 persons, whereas economically inactive persons also increased by some 400 persons. 

Not exactly disastrous.  

One might argue, quite justifiably, that our success in mitigating the economic impact of the pandemic is largely due to the Government’s timely and effective interventions. Early in March last year, the Government announced a package of 1.6bn to provide liquidity to struggling businesses through direct support, bank guarantees, soft loans, deferral of tax payments, employment support, and social measures.  Many of these measures have been extended in time and in coverage.

There is no doubt that the pro-active support programme has saved many businesses and jobs, providing a basis for a resumption of economic growth.

As a result, the Government has run up a significant fiscal deficit and raised public debt, reversing the huge improvement in public finances achieved in the period between 2013-2020. In spite of this, the government finances are not in the same dire straits of other EU countries, thanks to the prudent fiscal stance adopted in recent years. There is no doubt that the fiscal cushion has been instrumental.

There is no doubt that the pro-active support programme has saved many businesses and jobs, providing a basis for a resumption of economic growth.

So, whilst one needs to proceed with caution on the wages front, now paradoxically, is the right time to discuss the question of the National Minimum Wage.

Let me put this in a historical context.  

In 2016, the Government and the Social Partners reached an agreement to revise the National Minimum Wage by 6 per week over a three-year period, on top of any cost-of-living adjustments.  It was also agreed to set up a Low Wage Commission to submit recommendations about the minimum wage and other matters every four years, with the first recommendations due in 2023. It must be said that the minimum wage had remained frozen for 27 years. The 2016 agreement was expected to benefit some 4,000 workers.

This welcome agreement, however, fell short of what many considered to be a living wage, and not just for low-paid workers. In fact, Caritas and Graffitti were both vociferous in continuing to press for further improvements. Indeed, they have now gone further by joining the call for a Universal Basic Income, which has been given further impetus by the impact of COVID and its adverse consequences for equality.

It is easy to see why.  

According to Eurostat, the median gross hourly earnings of employees in Malta in 2018 were 9.96 per hour, compared to 13.18 in the EU, ranging from 2.40 in Bulgaria to 27.24 in Denmark. Malta’s hourly rate ranked twelfth in the EU, even if calculated on a Purchasing Power Standard basis. This means that median hourly earnings in Malta have risen by 17.4% over four years, which is fantastic by average EU standards, but woefully low compared to the improvements in some countries such as Slovenia or the Baltics. 

To be continued.

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Jeffrey Abela Wadge
Jeffrey Abela Wadge
3 years ago

Are you sure that the minimum wage in Malta is eur9.96 per hour? I think that it is much less. Correct me if I am wrong. We also need to note the pensioners and their monthly pension which is also very low. Thanks