The Maltese economy continues to surprise the European Commission for its resilience, for its GDP growth rate which again has outpaced that of the euro area, and for its growth in employment, though not enough jobs are being created to offset the rise in the labour supply. In part, this has given rise to higher levels of unemployment.

Fresh investment in the energy sector and in sectors like information and communication, and the arts, entertainment and recreation (three sectors which are expected to grow) may provide further employment opportunities in an economy which is becoming diversified and which requires new direction in its employment policy. In this connection, the recently launched employment policy is intended to provide a new direction and attempts to address some of the structural issues affecting the labour market, especially the mismatches between demand and supply and other inefficiencies.

Proposals aimed at revising the unemployment register are long overdue but addressing economic inefficiencies in the labour market will require both a strategic and coordinated approach across key stakeholders, as well as investment in human resources and ongoing macro and micro-analysis of the economy and international developments. Often in the past, policies aimed at structural adjustment in the labour market lacked a coordinated and coherent approach.

My point is that labour market reform in any way, shape or form needs to dovetail with macroeconomic targets including budget deficit and public debt targets as well as microeconomic objectives, in particular the need to enhance efficiency and competitiveness at enterprise level.

Developments in the labour market are also a reflection of the diversification taking place in the Maltese economy. Some sectors in particular – the information and communication, and the arts, entertainment and recreation, and to a lesser extent the professional, scientific and technical activities sector – are creating far more employment opportunities than manufacturing and the financial and insurance sectors.

This shows the extent of diversification in the Maltese economy and the labour market. Interesting to note that the sectors where more new employment opportunities are being created are those where small-sized enterprises prevail. On the other hand, the manufacturing sector’s share of gross value added continues to fall. This is not surprising and similar trends have taken shape in other eurozone countries. Malta’s employment policy cannot ignore this reality and developments taking place in other sectors, including those where more employment opportunities are being created.

In fact, if employment is to keep up with increasing labour supply, all sectors will need to show signs of resilience and increased levels of efficiency. This will not halt the inevitable course of economic diversification but it will at least weed out activities which are struggling to remain afloat in a highly competitive environment. In this context, the least efficient solution would be to divert human resources from the private to the public sector.

The least efficient solution would be to divert human resources from the private to the public sector

Whereas employment in the public sector remains important to support social and economic objectives (by providing the social and economic infrastructure) it cannot be a solution for inefficiencies or structural problems in the labour market. The focus of Malta’s new employment policy, therefore, needs to be employment in the private sector with the public sector replacing prospective retirees, especially those in key sectors such as health, education, and law and order.

Put differently, focusing on the demand side of the labour market will prove as important as the supply side. The new employment policy will need to ensure that its proposed supply-side measures dovetail with the need for greater efficiency of enterprises on a sector by sector basis, particularly in terms of aligning wages with productivity. That, in my view, will be the biggest challenge.

Philip Von Brockdorff is the head of the Economics Department at the University of Malta.