This week, the Chamber of SMEs published the results of the SME Barometer for the first quarter of 2023. The two main concerns of the respondents were employee shortage and inflation.
The 2023 CEO Survey published by the global consultancy firm Gartner mentioned the same two factors as having the most severe impact on the outlook of the business of respondents. One would rightfully ask whether talent/employee shortage and inflation are currently the two elephants in the room.
I would say they are. The challenge lies in the fact that both these issues are multifaceted. I will focus just on our country, as each country and each economic activity is affected by employee shortage and inflation to varying degrees, and not in the same way.
Starting with employee or talent shortage, we need to remind ourselves that this is not a novel issue for Malta. We have been experiencing a shortage in the quantity and, most importantly, the quality of our human resources for several years. We have tried to overcome this through attracting non-Maltese workers. This worked for a while as we were attracting mainly persons from within the EU to perform jobs for which the Maltese really had no competence, such as writing marketing content in various European languages.
As long as we keep trying to rely on cheap labour, we will be missing the wood for the trees
However, that has changed to the extent that a significant majority of non-Maltese workers currently employed here are what are referred to as third-country nationals (that is from outside the EU) and are doing work which has not contributed one iota to the skills base of our country. There are, of course, exceptions.
The cause of concern is that some (or many for that matter) businesses operating in Malta have opted for cheap labour, and instead of contributing to the Maltese economy moving up the value chain, are contributing to its moving down. However, this is only one facet of the issue.
Another facet is Malta’s demographics. Employers ask where the Maltese workers are. A look at the 2021 Census shows that the Maltese population increased by just an average of 700 per year over the previous 10 years. This happened not because more babies were born but because life expectancy has increased.
We have an ageing Maltese population and the size of the working Maltese population is relatively stable. Therefore, the demographics are working against us. Maltese workers are less visible as the size of our population did not keep pace with the number of jobs. In addition, the skills which Maltese employers consider most important for their employees are also among the skills most lacking in our economy.
We do not have just a numbers issue (not enough hands to work) but we also have a quality issue. As long as we keep trying to rely on cheap labour, we will be missing the wood for the trees.
The second main concern is inflation. Even this has a number of facets. Let us keep in mind two important elements in our economy.
First, the government has not increased energy prices; as such, these have not contributed to the increase in inflation as has happened in other countries. Second, we import most of what we consume and we have very little influence on imported inflation.
On the other hand, wage inflation is a serious headache for employers as employee remuneration is reaching levels which can be unsustainable for businesses. This wage inflation is being caused to a certain extent by exorbitant property prices.
Employers are having to pay higher wages because employees cannot afford housing at current wage levels. This is leading to higher prices for services and goods produced domestically for the local market, a sure recipe for economic disaster.
What employee shortage and inflation have led to is an element of uncertainty as demonstrated in the SME Barometer. Sixty-five per cent of respondents believe that Malta needs to rethink the direction in which it is heading and 55 per cent are unsure as to whether they will have an appetite to invest in the coming 12 months.
Again, this is not much different from the Gartner survey I referred to earlier. Their CEO Survey, which was conducted worldwide, led Gartner to describe 2023 as a “pause year”. The global economy and Malta can absorb one “pause year” but not much more than that. As such governments (and Malta is no exception) need to tackle the challenges posed by employee/talent shortage and inflation, the two elephants in the room.