One of the landmark decisions by the government was the launch in 2014 of ‘Making Work Pay’, consisting of an active labour market policy, complemented by a tapering of the social benefits scheme.
The policy sought to transform the labour market in the country.
The challenge was even bigger in the case of Gozo with its deeper insularity, often limiting economic prospects and employment opportunities. The policies have had a resounding success in Malta but could the same be said for Gozo?
Well, now we have a study by Kurt Sant, a senior economist within the Economic Analysis Department of the Central Bank of Malta, who is a graduate from the University of Malta and Vrije Universiteit Amsterdam.
The study and the research he conducted are set out in a paper under the title ‘Enhancing Employment Opportunities for Gozitans: The Impact of Active Labour Market Policies’, which has been published in the journal Perspettivi.
Sant points to Gozo’s inherent geographical and connectivity constraints which present significant challenges for its residents, including impediments to employment such as limited opportunities on the island itself and high transport costs if certain jobs are located on the main island of Malta. In fact, statistics for the 2000-2019 period show that employment in Gozo grew by 1.5% less than the national average.
Following the launch of ‘Making Work Pay’, the labour market in Malta experienced considerable transformation.
Solid and consistent economic growth, together with an increase in net migration, pushed unemployment levels to historic lows. This, coupled with a rise in female participation, meant the labour supply increased notwithstanding an ageing population.
The situation was much more complicated in Gozo for the reasons mentioned before.
Sant’s study fulfils two aims. Firstly, it analyses the impact that the Tapering of Benefits (ToB) scheme had on the job-finding rate amongst Gozitans, tests whether it was successful in bringing Gozitan jobseekers closer to the labour market, and analyses the extent to which the existing poverty trap was diluted.
Secondly, it analyses the impact that the ToB scheme had on the chances of Gozitans successfully retaining employment once an individual previously on unemployment assistance, social assistance or social assistance for single unmarried parents found a job.
The study spans from 2004 (Malta’s entry into the EU) to 2019 (chosen as the endpoint to mitigate any potential influence from the COVID-19 pandemic on the labour market).
Apart from a rigorous data transformation to align the data in accordance with the empirical framework employed, the study used so-called survival models to study a wide variety of issues such as job duration, benefit duration or unemployment duration, among others.
In the study, Sant describes the highly technical cox regressions (a statistical method to analyse the effect of several variables on the time to an event) and calculations of so-called hazard ratios (the probability of the said event happening), used by him to obtain the results.
The first set of cox regressions show that before the ToB scheme was in place, foreigners on benefits had a 27.9% higher probability of finding a job when compared to Maltese beneficiaries.
The scheme appears to have improved the incentive for Gozitans to seek employment- Frans Camilleri
On the other hand, the results clearly show that Gozitan beneficiaries were initially at a disadvantage.
In fact, compared to Maltese counterparts, Gozitan social assistance beneficiaries had a 12.9% lower probability of finding employment.
However, upon augmenting the ToB effect into the cox regression, it became evident that the ToB scheme significantly influenced job-finding rates of Gozitans.
Specifically, individuals in Gozo receiving different kinds of social assistance experienced a 23.4% higher improvement in their job-finding rate when compared to their Maltese counterparts.
Further cox regressions also show that once Gozitan beneficiaries managed to find a job, their chance of experiencing a job-termination and re-entering benefits was 22.4% less than the probability of Maltese individuals.
On the other hand, foreigners continued to exhibit high job-termination rates, even after the ToB scheme was in place.
Based on survival models and cox proportional hazard models, the main conclusion of the study is that without the ToB scheme, Gozitans would have a 12.9% lower probability of finding a job, when compared to their Maltese counterparts.
However, once the ToB scheme is in place, Gozitan workers experience a great improvement from the scheme, not only in terms of job-finding rates but also in terms of their job duration. Hence, the ToB scheme appears to have improved the incentive for Gozitans to seek employment, even if such employment is located in Malta.
In view of these results, Sant concludes that the ToB scheme was very successful in bringing Gozitan jobseekers closer to the labour market by eliminating, or at least diluting, the poverty trap and leading to stable employment. The CBM economist also makes a number of observations on policy and recommendations as to its improvement.
He emphasises that the measures already taken must not be maintained on a stand-alone basis if they are to achieve the fully intended target of overcoming the poverty trap for society at large in both Malta and Gozo.
Policy should aim to provide a more holistic approach, hence achieving the intended targets for all sections of society which, in turn, reduces their benefit dependency and improves the overall outlook of the Gozitan labour market, and consequently, the Maltese economy at large.
Sant notes that the government has already achieved a measure of success by the setting up of the Gozo Innovation Hub, the introduction of tax incentives for businesses, as well as the Gozo Teleworking Scheme, among various others.
But he also recommends that future labour market policy targeted at Gozitans should consider this finding and continue its pursuit in overcoming the specific obstacles faced by Gozitans in finding employment.