When a country has achieved full employment, further growth can only come from improved productivity or imported labour. However, the knock-on effect of both these tactics puts pressure on wage inflation.
The Maltese economy has become increasingly dependent on imported labour both for high-end specialised jobs and for the less skilled jobs.
This phenomenon has created pressures on the housing market, public and private transport as well as education, health and other public services.
At times of full employment, labour mobility becomes more prevalent, so that some companies that are only marginally competitive risk losing critical persons in the business because they can find better-paid jobs elsewhere.
Expatriate staff have a good part of their salary ring-fenced for accommodation. When accommodation prices rise at a substantial rate, as they have done in the last few years, foreign employees ask for better compensation.
Local entrepreneurs represented by the Malta Chamber of Commerce are concerned that some companies are losing their competitiveness because their labour costs are escalating and because there is a shortage of skilled labour. The solution to this dilemma is not easy.
Employers who are the real job creators would probably want a continuation of the flow of migrant workers both from the EU and elsewhere.
The pressures that are affecting labour costs can only be subdued if certain economic activities that today invariably get the green light from policymakers are slowed down. Put in another way, with the economy overheating, one needs to discourage high-risk and speculative economic activity to dampen down higher wage expectations.
The construction industry, for instance, has a significant knock-on effect on many other economic sectors. Some of these effects are quite negative including the deterioration that the industry brings about in the environment and the transport problems that it creates.
Similarly, the increasing number of tourists, while generating some favourable headline figures, comes at a high cost as more operators try to ride on the bandwagon by opening more restaurants, increase the rent of short-term hired property and poach well-trained hospitality staff from competitors.
The Chamber identified other areas of concern. The worry about the quality of our educational system and the way it is preparing our young people for the workplace of today is particularly critical. Improved productivity can only come if adequate investment is made in technology and people. Only then can wage increases be justified.
The growth of the financial services sector has made the economy more dependable on its success. The knocks on Malta’s reputation as a respectable financial centre were all avoidable if the political will existed to do what was right rather than what was politically convenient. Progress in addressing this issue of reputation is too slow, and a more determined effort is needed to recover lost ground.
It is a fallacy to argue that all growth is good for the country and that long-term planning is futile. All economic activities pass through cycles. Economic cycles rarely if ever coincide with political cycles. When the going is good, policymakers need to reflect on strategies that would cater for a downturn.
The efforts spent on increasing labour productivity are never wasted as ultimately the preservation of sustainable jobs is one of the essential economic targets for both employers and their employees.