Whenever Lara goes to the supermarket, her heart sinks as she walks along the aisles and scans items for the cheaper prices. Like many others, she is counting the pennies.
She was not this price-conscious a few years ago. She would just pick the brands she and her family were used to, without taking note of cost.
But things are different now because “everything has shot up in price”. She does not work at the moment, as she is caring for her two children. Her husband’s salary was once enough. Now it is now stretched to the limit.
“I definitely feel the financial strain. I feel my heart sink every time I go to the supermarket and when something extra comes along, such as an appliance that needs to be replaced, I wonder whether we really need it,” said Lara (not her real name).
“I’ve stopped buying anything extra for myself so that I make sure my kids have everything they need and can continue to do extracurriculars…
“The other day my son asked me if we were poor, because I say ‘no’ to a lot of things or explain that we cannot afford that right now.”
Rachel, a single mother who also asked to go by a pseudonym said she too was feeling the pinch. “I’m being careful in that I buy mostly what I need and I try to use up what I have before replenishing my pantry and fridge. I need clothes but will buy what I really need and am sure to wear. I avoid shopping at convenience shops because supermarkets are cheaper... At the pharmacy I noticed that many are switching to generic medication,” she said.
A recent study by the University of Malta’s Faculty for Social Well-being showed that financial problems are the most stressful to the Maltese.
While food inflation dipped by 1.2 per cent between January and February, as a government scheme to cut prices of up to 400 food items by 15 per cent came into effect, food prices remain 5.5 per cent higher than they were a year ago.
In the face of all these rising costs, wages are not keeping pace. New EU data show that Maltese workers earn less per hour than those in all but four EU countries. They make just €14.2 per hour before tax, less than half the EU-wide average of €31.8.
This followed an economic outlook report for Malta carried out by KPMG which showed that wage increases over the last two years were entirely eaten up by rapid inflation, essentially leaving workers worse off in terms of purchasing power and rendering average real wages stagnant since 2018.
Why the wage stagnation?
Economist Kirsten Cutajar Miller explains that the general trend is for take-home pay to increase year on year. This is typically done to compensate for higher consumer prices and, perhaps more importantly, for the employer to demonstrate effort, improvement and progression at the place of work.
Malta is more vulnerable to inflationary pressures- Joe Farrugia
Historically, Malta’s annual average real wages have grown more than the inflation rate. Yet, during 2022 and 2023, higher-than-norm inflation rates ate up the entirety of the increases in nominal wages, resulting in wage stagnation.
Cutajar Miller explained that various tiers of the Maltese labour market experienced different wage growths, with the largest group, the lower-income and lower-skilled workers, facing the brunt.
“This is particularly so as this section of people is less able to bring improved value to their daily work. Without improvements in labour productivity, employers are unable to justify improved wages beyond COLA. Unlocking greater wages thereby implies unleashing greater productivity from within each worker by working smarter, not harder.
“What improves productivity? For Malta to kick-start mass productivity gains, we need to re-engineer our economy to one based on more value-adding sectors than the current mix. The new mix of sectors shall require improved skills and talent, which will attract higher salaries and be accompanied by modern technologies,” she said.
Wages should reflect value
Joe Farrugia, from the Malta Employers’ Association, agreed, saying: “We need to shift our thinking from looking at wages as an entitlement to one which is dependent on what we produce. That is the only way through which we can have an increase in real wages.”
He noted that the Eurostat data looked at gross earnings, and countries have different tax regimes which affect the net income to employees. The comparison was also limited to companies that employ more than 10 employees.
“However, in spite of such reservations, there is no question that inflation has had a negative impact on real wages, in spite of the fact that in Malta we do have, unlike many other countries, an indexation system through the COLA mechanism. The minimum wage has also been increased in agreement between the social partners.
“Malta is more vulnerable to inflationary pressures than other economies. Our water is produced through energy, and we have a worsening food security situation, as our produce is declining and our population is expanding.
“The reality is that wages can only increase through value-added output, and many sectors in which jobs are being generated are labour-intensive and with low value added,” he said.