In last week’s contribution, I wrote about the negative economic externalities of construction. I quoted publicly available data which says that construction contributed less than five per cent to the gross value added in our country.
Real estate, which I described as the speculative arm of construction, contributes just over six per cent to gross value added. This was in 2021, when the contribution of the tourism sector was lower than pre-coronavirus, and manufacturing was hampered by supply chain disruptions.
As such, the contribution of these two sectors should have been higher since two of our key economic pillars had their growth hampered.
In a previous contribution, I had also shown, again through publicly available data, that the increase in property prices has outstripped the increase in average wages by a significant amount and had also outstripped the average rate of inflation.
I here present a table. What is the insight that one obtains from these numbers?
The contribution of the construction sector to gross value added increased from 3.8 per cent in 2017 to 4.4 per cent in 2021. The contribution of the real estate sector to gross value added shrunk from 6.2 per cent to 6.1 per cent in these four years. Given the importance that these two sectors are given when one speaks of the Maltese economy, these numbers definitely show that our economy does not depend on these two sectors.
We now come to the question posed by the title of this week’s contribution. The answer is best provided by analysing the data on employee compensation. In 2017, employee compensation amounted to 42 per cent of the gross domestic product at market prices. In 2021, it amounted to 48 per cent. This would indicate that during the coronavirus pandemic, employers have sought to eat away at their profits while safeguarding wages.
Employee compensation in the construction sector contributed three per cent to total employee compensation. This increased to 3.7 per cent in 2021. Employee compensation in the real estate sector contributed to 0.5 per cent to total employee compensation. This increased to 0.6 per cent in 2021. One can immediately note that employee compensation in these two sectors make a contribution to our economy which is even proportionately lower than these sectors as a whole. This would indicate that the beneficiaries of the activity in these sectors are not the workers but whoever takes the surplus/profits at the end of the year.
The profits are going to the speculators
This becomes even more evident when one compares employee compensation to gross value added. Employee compensation in the construction sector made a contribution of 1.8 per cent to gross value added, while the real estate sector made a contribution of just 0.3 per cent. Therefore, while these sectors as a whole contribute 4.4 per cent and 6.1 per cent respectively to gross value added, the share of employee compensation is proportionately much lower than average.
The balance is taken up by profits, and this is why I described the real estate sector as the speculative arm of the construction sector. The profits are going to the speculators.
When one considers the social costs we are being burdened with by the construction and the real estate sector, the minimal contribution of these sectors to the economy and the supernormal profits being generated, one asks whether all this is worth it.
In my opinion, the answer is a definite ‘no’, and we need to have a clear understanding of what the country really needs in terms of building development and plan for that.