The fear of higher wages

The classified section of The Sunday Times of February 4 contained no fewer than 150 unique vacancies. This means that if a company is advertising for, say technicians, this is counted as one vacancy. Thus the number of jobs on offer was much more than the 150 I have referred to.

The implication of this is fairly clear. There is a vibrant labour market, which is creating a number of jobs; and the fear is that there may not be enough takers. Most employers would tell you that they are facing situations where job vacancies have to remain unfilled because there are not enough skilled people out there to take up these vacancies.

One might think that, although there are unfilled job vacancies, there is still a very large pool of unemployed persons who are looking for jobs and cannot find one. The implication of this statement is that there is a mismatch between the level and nature of skills required by employers and the level and nature of skills being offered by job seekers.

In an economy such as ours, where change and restructuring are forever happening, this is bound to happen; and hopefully training initiatives should address such a mismatch. Moreover, employers have come to learn how to live with this mismatch and provide training to their staff to address it.

The statistics show that the unemployment rate is 6.8 per cent from the 7.1 per cent a year earlier. Malta's performance in the field of job creation has been a positive one, when compared to other EU member states. The information available seems to indicate that the profile of those persons registering as unemployed is evidencing a situation whereby the jobs they are looking for require more than just basic skills, even if there is still a sizable chunk that are seeking what the Employment and Training Corporation as elementary occupations.

However, there is no data published on the actual level of skills of those registering as unemployed and it may well be that what we have is not a mismatch between supply of skills and demand for skills that can be addressed given time. We are rather speaking of a situation that is likely to become permanent.

This is corroborated by the fact that, even in jobs that require a low level of skills, employers are still facing the situation of unfilled vacancies or high job turnover. Thus the mismatch is not as large as we think it is, and the economy may not be able to provide a job for most of those who are unemployed today; not so much because the economy is not creating the right type of jobs, but rather because it is creating jobs that are not suitable for such people.

One of the impacts of this situation, even because the supply of new labour cannot keep up with the number of persons leaving the labour market because they have reached retirement age, is the creation of acute shortages in certain segments of the economy. And the consequence of acute shortages is always an increase in prices, in this case being wages.

We are getting to a situation where wage increases that do not result from cost of living adjustments are outstripping increases in productivity. This is very good news for those employees that are benefiting from such wage increases but bad news for employers and even those employees whose wage increases are limited to a cost of living adjustment plus something small in addition.

Let us take an example. The economy is experiencing a shortage of accountants, because the economy has generated many more jobs in this area and a number of them are also going to work abroad. This has pushed up the wage expectations for such people.

An accountant would ask what is wrong with that. Nothing except that there are companies who are finding the remuneration package that they have to have to pay to accountants as unaffordable, since they would be operating in a segment that is facing shrinking profits. However, they cannot do without an accountant and so have to dig deeper into their pockets and seek to make savings elsewhere.

Savings elsewhere are not that easy to come by as all employers seek to maintain relativity in the wage structure of their enterprise. So a higher salary for the accountant would mean a higher salary for the rest of management and in many cases for the rest of the employees, thus pushing the wage bill to what may be unsustainable levels.

If the issue were restricted just to accountants, one may even think of isolating the problem but, in effect, the issue is hitting persons working in IT, sales and marketing people, highly skilled technical people and other areas.

The end result is that employers are now fearing that as the labour market tightens further, and it is expected to tighten further even if unemployment will remain above the six per cent mark, they will have to continue increasing wages, with the expected negative consequence on the competitiveness of their enterprises.

This is not an easy problem to solve, as each employer wants to retain his talented people, while controlling his costs.

To my mind we should look at the other side of the coin. There can be higher wages and one does not need to fear them, as long as there are gains in productivity and efficiency. Employees and their union representatives should not thwart the employers' efforts to achieve such gains, as it is these gains that make a wage bill sustainable.