The media have recently been reporting how Malta’s minimum wage is below the EU average and that the minimum wage rise in Malta is the lowest in Europe. They prompted a resumption of the discussions we had some two years ago, sparked by a Caritas study on living conditions in Malta.
In April 2017, the social partners signed a national agreement on the minimum wage, whereby they agreed certain revisions to the minimum wage, which effectively raised it by €6 per week by 2019, and also agreed that the weekly COLA (cost of living adjustment) would be supplemented by an amount of €2 per week by 2019.
The social partners also agreed that they would set up a Low Wage Commission by 2020 to establish an effective mechanism to determine whether the minimum wage would require further revision, taking into consideration trends in the price level and increases in selective collective agreement for employees in low level grades. The first recommendations of the Commission would be made in 2023 and be repeated every four years.
It is worth recalling the principles enunciated by the social partners that changes in the minimum wage by themselves would not realistically resolve the risk of poverty of many families, including pensioners; wage levels should be determined taking into account productivity and competitiveness; collective bargaining structures were not the most appropriate mechanism to address poverty; and specific measures to alleviate poverty should not destabilise the labour market.
National minimum wages continue to vary considerably between the different member states of the EU. The first group includes Luxembourg, France, the Netherlands, Ireland, Belgium, Germany and the UK, countries where the hourly minimum wage is above €9, ranging from €8.85 in the UK to €11.97 in Luxembourg. To put their minimum wages into context, these countries’ GDP per capita in purchasing power parity (PPP) varied between 105 per cent and 253 per cent respectively of the EU average (these are 2017 figures).
A low minimum wage tends to penalise women more than men
Malta is part of an intermediate group of three countries (including Spain and Slovenia) with a minimum weekly wage level of between €4 and €8 per hour, ranging from €4.4 in Malta to €5.45 in Spain. Their GDP per capita in purchasing power standards (PPS) was 96 per cent, 92 per cent and 76 per cent respectively of the EU average.
The third intermediate group, and the largest one at that, comprises 11 countries with a minimum hourly wage of between €2 and €4 per week, ranging from €1.72 in Bulgaria to €3.61 in Portugal. Their GDP per capita in PPS was between 49 per cent and 89 per cent of the EU average.
Therefore, there’s nothing to be surprised about the fact that Malta’s minimum wage is below the EU average, since the average is conditioned by the larger per capita GDP of the richer countries.
Moreover, if the minimum wage comparison is conducted in terms of PPP, thus taking into account price differences, the gap between countries becomes considerably smaller. Thus, whereas Luxembourg’s minimum wage is 2.73 times higher than Malta’s in euros, it is only 1.8 times higher in PPS, whereas Spain’s minimum wage factor comes down from 1.39 to parity with Malta.
These comparisons are shown in the top chart.
A useful analysis is to compare minimum wages to average earnings in the country. The minimum wage earned in Malta (2017 levels, before the minimum wage was raised) was 48 per cent of the average earnings in the country, higher than any of the countries at the extremes of each group mentioned above (figures for Bulgaria were not available).
But, a more tenable yardstick by which to compare minimum wages is to draw on the so-called Katz Index, which measures the relative value of the minimum wage in terms of its relationship to actual earnings in a country. This is done by relating them to median earnings, thus ensuring that the comparison is unaffected by extremely high or low values. This comparison shows that minimum wages as a percentage of median earnings in Malta in 2017 was 55.1 per cent, again higher than in any of the countries mentioned except for Portugal.
This does not mean that the minimum wage would necessarily be adequate. The OECD puts the low-pay threshold at 60 per cent of the median wage. Under this yardstick, Malta’s minimum wage in 2017 was below the threshold by €782 per annum, but a comparison of Katz values in the EU shows that 22 out of 26 countries had minimum wages below the threshold. In fact, in 16 countries, minimum wages did not even reach 50 per cent of the median wage.
A worrying aspect of minimum wage developments in Malta is that the Katz Index started declining in 2015, whereas that in the EU has continued to go up, even though relatively slowly. Having said that, while the Katz average for the EU was 50.6 per cent in 2017, Malta’s was over 55 per cent (see second chart).
This shows that Malta’s minimum wage is not an outlier in EU relative terms, given the country’s stage of economic development. In fact, one could argue that it is at the better end, relatively speaking. But there is no doubt that the social partners need to start taking a serious look at developments, and I would tend to agree that further improvements in the minimum wage are desirable.
Although the number of people on the minimum wage in Malta is not high (some 4,000 people in 2017), these and the people who depend on them are those who are the most vulnerable to the risk of poverty, apart from the fact that a low minimum wage tends to penalise women more than men.
Frans Camilleri is an economist and former journalist.