Assessing performance

Over the last few months, conditions in many of our export markets have remained less than robust, and yet Malta's labour market has been showing remarkable resilience. There are continuing indications of job-shedding in manufacturing, reflecting both the international situation facing exporters and the restructuring and rationalisation that the more domestically oriented firms are going through.

However, while tourism-related employment is quite stable, the rest of the private economy has generated offsetting employment gains. Despite attempts by critics to portray a different picture, there has been job growth, and it has not been in the public sector.

The NSO has just released the ETC's employment data for the four months between last November to February. One way to process the numbers is to measure the change in a particular month's numbers between one year and the next. You are comparing like with like, and you can draw some accurate comparisons. The latest ETC data confirm the picture painted by the recently released Labour Force Survey.

Let's go back to the employment situation at the end of 2002. Over the 12 months ending last December, total employment as reported by the ETC declined by 589. However, this was due entirely to public sector shrinkage. The private sector expanded its payrolls by 439. Within that number, there was shedding of employment in manufacturing (-429), and relatively small growth in the construction and quarrying business (+95). Within the services sector, there was a small number of job cuts in hotels and catering (-64) but considerable new employment across other services (+772), including wholesale and retail (+238).

The most recent ETC figures show that overall growth continued through February. The changes from 12 months earlier were more favourable. In February, private sector employment was 1,551 higher than the year-ago level. Despite a reduction of 151 in manufacturing employment, consecutive monthly reductions from the year-ago levels appear to be tailing off in that sector. Employment in hotels and catering was virtually flat (+8). Employment in services other than hotels and catering grew by a remarkable 1,542, of which 380 were new jobs in wholesale and retail establishments.

Even though the public sector had cut its payrolls by 1,156, total employment - the so-called gainfully occupied population - rose by 330 over the 12 months ending in February. The private sector employed 63.9 per cent of all the gainfully occupied in February 2002. Over the following 12 months, that ratio rose by one percentage point to 64.9 per cent.

As I have already mentioned, this relatively positive reading of the job situation is confirmed by the findings of the recently issued Labour Force Survey. Additional supporting evidence can be found in recent ETC numbers on unemployment, as well as in the recent GDP data on employment income.

The Labour Force Survey is quarterly, and the most recent one covered the situation at the end of March. While the ETC figures are drawn from its administrative records, the LFS shows the results of the NSO's own quarterly survey of a sample of the population. The LFS is subject to an error that is inherent in its sampling method, while the ETC results are subject to the flaws resulting from the perhaps inconsistent lag in employers' reports to the ETC of employee engagements and terminations.

There are differences in definitions and there are differences also in coverage. The ETC statistics focus on full-timers, while the detailed LFS tables combine full-timers with part-timers. The differences between the findings of the two methods are to be expected. What is important is that the two converge in their broad conclusions: private-sector employment growth despite external pressures on manufacturing and tourism, along with shrinkage in public sector jobs.

ETC-measured unemployment in February dipped to 5.3 per cent, 0.2 percentage points lower than February 2002. While the unemployment rate for the months since is not yet available, the ETC statistics contain data on the number of unemployed persons through April. In March, there were 7,564 unemployed, or 161 fewer than a year before. In April, the unemployed numbered 7,480, or 157 fewer than the previous April.

One aspect of the statistics that deserves to be looked into is the connection between the employment changes and the overall condition of the economy. The mixed nature of the employment picture in 2002 was, at least superficially, in line with the slow growth in the economy: inflation-corrected GDP went up by one per cent in 2002. Continued private sector employment growth in the first quarter may be an indication of the transitory nature of the small dip in the real GDP during that quarter.

The price of diesel

The recent increase in the price of diesel brings up the issue of the now-closer but orderly link between domestic fuel prices and the world market prices at which Malta imports those same fuels. Few would dispute that greater efficiency in the use of energy requires that higher world prices be reflected in domestic fuel prices.

Yet, there is a persistent suggestion that conveniently reappears in certain media each time fuel prices are adjusted. That mendacious suggestion is that the fuel price adjustment system took the place of the type of hedging deals that was the darling under the last Labour government. Equivalently, the suggestion is that to avoid having to pay more for fuel, all Malta has to do is to buy its fuels on the forward market.

It is absurd to think that forward contracts would shelter Malta from the realities of world prices other than for brief periods of time, or that those who agree to sell the forward contracts would be foolish enough to keep entering into loss-making agreements. The gain to one side from a forward arrangement is matched by the loss to the other side, and to aim for and expect ongoing gains is foolish and speculative, and gambling should not be the business of the national importer of oil. If you speculate in oil forwards, you may be ahead of the game some of the time, but to count on a permanent winning streak is foolish. Talk about delusions of a free lunch, and about cheap propaganda!

The European Parliament

This week the European Parliament's committee on economic and monetary affairs in which I take part as one of Malta's observers, had two important dialogue sessions, apart from the normal discussion of various directives and other types of legislation, such as the new Financial Services directive. The latter is quite significant but technical, with many amendments being put in by various MEPs.

The dialogue sessions were with Commissioner Mario Monti, who is responsible for competition, and with Giulio Tremonti, the Italian finance minister who currently chairs the EU's finance ministers' committee (Ecofin). These two sessions were characterised by significant debate, dealing with issues of EU-wide importance.

On competition, many MEPs argued that legislation in this area should be subject to co-decision with parliament. Ironically, it was stated that with Commissioner Monti there was an extremely good working relationship with parliament, the competition directorate often taking on board the views of MEPs in this committee. Commissioner Monti even stated that the position of the committee often strengthened his case with the Council of Ministers. Yet on the issue of co-decision on competition, there is unlikely to be any change since the Convention on the Future of Europe left this area outside the legal jurisdiction of the European Parliament.

The dialogue with Tremonti was equally absorbing. He explained how the Italian Presidency is proposing to stimulate competitiveness by launching a programme to enhance the transport network in the EU, including those in the accession countries. The question of financing this project received considerable attention, with Tremonti suggesting that the European Investment Bank should find ways to finance this growth enhancing project. This will probably be the most crucial part of the programme, in addition to choosing between the various transportation projects already studied by the commission.

I also managed to participate in this debate, and to offer the opinion that with inflation and interest rates at historically low levels, the Italian Presidency's proposal appears well timed and should boost both immediate and long term GDP growth. I also offered some suggestions on how such a programme could be financed, especially given the logical implications of the new international role of the euro. All in all, quite a rewarding session at the European Parliament!