The government must take the lead in restructuring Malta’s economy by choosing what kind of economic model to adopt over the coming years, according to MEA director-general Joseph Farrugia.

Comparing the government to the conductor of an orchestra, Farrugia said that the “government needs to choose a strategic direction, rather than try to chase everything all at once”.

“We have re-engineered our economy in the past, now it is time to do it again. Businesses in Malta are flexible, there are many success stories of businesses that have diversified over the years.”

In June, Finance Minister Clyde Caruana called for an overhaul of Malta’s economic model, warning that Malta’s dependence on imported labour was set to increase the population to 800,000 over the next decades.

Foreign labour

Farrugia was speaking at the presentation of the findings from a survey amongst employers which revealed that almost a quarter of businesses say that half their workforce is foreign. This figure was 14% in a previous MEA survey held in 2019.

Almost three-quarters of businesses said that employing foreign workers was the way to deal with labour market shortages, a rise of 15 percentage points since 2019.

On the other hand, the share of businesses that said that their response to these shortages was to offer better remuneration only rose by two percentage points to reach 66%.

In general, businesses are facing increasingly higher levels of worker turnover, with two-thirds of businesses saying that workers are citing better pay when changing jobs, while a further third are seeking more flexible working conditions.

More concerningly for businesses, a quarter of employers say that their workers are leaving the private sector to take up a government job,

Wage-price spiral

The survey suggests that Malta might be experiencing a wage-price spiral, according to Farrugia.

A wage-price spiral is a situation in which the higher cost of living leads to workers demanding higher wages which, in turn, forces businesses to up their prices to keep up with costs.

This would mean that inflation in Malta is not only caused by external factors such as increased shipping and importation costs, but also by the internal dynamics of Malta’s labour market.

Over half the respondents to the survey said that the wage inflation in their businesses was greater than the inflation in Malta’s economy over the past two years.

The survey found that businesses are struggling to find enough workers to meet their demands, listing labour market shortages as the top reason behind wage inflation.

Almost two-thirds of employers said that workers at all levels of their company are asking for higher wages, while only 45% said that this was the case in 2019.

When asked what action they were taking to mitigate the impact of higher wages, most employers said that they are raising the price of their services and products to make up for the shortfall.

Nonetheless, less than one in five said that they expected the size of their workforce to decrease over the next five years, with almost 44% saying they expect it to remain the same size as today and a further 38% expecting it to grow.

Almost three-quarters of companies which plan to extend their workforce intend to do so by importing labour.