The private and public sectors

A recent NSO release contains a wealth of information on job market developments in the last several months as well as on the longer-term picture, particularly on the growing importance of the private sector in employment generation.

Private enterprise accounts for a rising share of Malta's employment. Ignoring temporary employment, the ratio of private sector to public sector employment has grown from 1.63:1 in December 1997 to 1.86:1 in December 2002. The private sector is now responsible for around 64 per cent of all employment. In the debate about the means towards greater productivity and about the road to fiscal consolidation, the achievements of the recent past should not be ignored.

There are two sides to the equation. Public-sector fiscal discipline and consolidation releases the resources needed for private sector expansion. At the same time, for social stability to be maintained at a time of fiscal restraint, the private sector has to continue to generate needed economic growth.

Table 1 displays the year-end employment numbers since 1997. From around 50,000 in 1997 and 1998, the number of public sector jobs has gradually fallen to around 48,000. At the end of 2002, public sector jobs numbered 47,556, 2,707 fewer than in 1997.

The decline was the result of privatisation and other measures for a more efficient public sector. The locomotive for job growth across the economy was the private sector, where employment moved up from around 82,000 to over 88,000.

The bulk of new private-sector employment was in services, where jobs grew from around 45,000 to around 50,000, peaking at 50,528 in 2002. Employment in hotels and catering was stable at around 9,000. End-year figures reached 9,260 in 2000, with an easing off towards 9,000 in the aftermath of the September 11 events. Other employment growth was scattered across various areas of the services sector.

Outside the services sector, manufacturing is a pillar of economic growth. What is remarkable is the stability of manufacturing employment. Over the period, it fluctuated around the 29,000 mark. The numbers mask the magnitude of improvements in the productivity of the average manufacturing employee.

While the size of the workforce has remained unchanged, output and export exploded in the wake of productivity gains, generated by substantial investment and a fundamental and ongoing restructuring.

The evidence from the last several months, presented in the same NSO release, points in the same direction. The most recent employment figures are for last January, when public sector employment was around 800 below January 2002. Shrinkage was spread across the public sector, including government departments (-405), the independent statutory bodies (-329) and companies where government is the majority shareholder (-119).

Private sector businesses provided the offsetting employment growth. Within the private sector, two areas are particularly sensitive to external developments, manufacturing and tourism. Employment in hotels and catering was running at the level of the previous January, down by just 19.

Looking at each of the last few months and measuring the change from a year earlier, one notices a gradual tailing off in employment shrinkage in that sector. For example, in October employment in that sector had been off by 2386 from the previous October. Yet, as I have just mentioned, in January, employment in this sector was practically at the same level as a year before.

Manufacturing employment was almost 200 below the year-ago level. While redundancy is painful for the individuals and firms involved, the relatively small decline is quite remarkable given that both parts of the manufacturing sector have faced challenging, difficult times.

Export-dependent firms have had to absorb the effects of the worldwide recession, while the more home-market-oriented firms have begun the process of restructuring themselves into a condition where they too can compete in more open markets.

Overall private sector employment was up by just over 900 from last year, with employment growth spread over a number of sectors. These include the wholesale and retail industries, in which employment grew by 337, as well as construction and quarrying, where payrolls went up by 95.

Prospects

The Central Bank revised downward its forecast of economic growth, in line partly with ongoing weakness in the international economy. In the last few days, the Central Bank reduced a key interest rate by a quarter of a percentage point, to 3.5 per cent.

Such measures inevitably involve a balancing of the risks arising from alternative actions or inaction. Yet, a number of critical considerations make this a safe and prudent move, including the weak state of international demand for Malta's exports, reduced interest rates abroad, and low inflation at home. Most importantly, the Central Bank operates with added credibility now that, nationally, the EU membership issue has been resolved.

These are delicate times when the right policy measures are even more essential for economic stability. The international environment remains unsettled in the aftermath of the war in Iraq. The drop in the value of the US dollar does not help the competitiveness of the European economies. On the other hand, that same depreciation, along with the recent tax reductions in the US, may invigorate the American economy, helping to provide the pull needed by global economy.

Domestically, various recent indicators provide the grounds for guarded optimism. The job market continues to manifest resiliency. Until December, the monthly unemployment numbers were running above the year-ago levels. Since then, they have been below. Unemployment in April, the latest month for which data are available, was 157 below April 2002. Inflation continues to slow down, and practically vanished in April. Prices in April were just 0.034 per cent higher than a year earlier.

A new source of information is the NSO's release on "main industrial groupings", covering short-term indicators of the quarrying, manufacturing and energy sectors. Data are collected from sampled enterprises. The results for the first quarter of this year provided a mixed reading. Yet it was encouraging to note that the sensitive sector 32, a leading exporter of electronic items, showed a number of positive indicators. Its first-quarter turnover was up 6.2 per cent on a year earlier, while its employment was 3.7 per cent higher.