Pros and cons of employee retention

The fact that unemployment in Malta did not skyrocket the way it did in other countries meant the island risked losing competitiveness in the recovery process, according to leading economist Gordon Cordina.

Malta was definitely in a recession but, compared to other countries, its impact had been "softened" by a number of factors. But these could end up acting as double-edged swords, he told a business breakfast yesterday.

In other countries, workers were expendable and companies in crisis were downsizing but in Malta, because of a lack of skilled workers, companies were choosing to lose out on profits in order to hold on to their employees.

"If you sack a bunch of workers abroad and your company recovers, you will not have a problem to get them back when you need them again. But here it's harder to do that, so you risk losing your employees for good."

So while companies abroad would have saved money they could later invest once the recovery process began, Maltese companies would not have that competitive edge, he said.

On the plus side, Malta's economy was not suffering from the damaging multiplier effects of unemployment other countries were facing.

Dr Cordina said other countries were passing through a process of "creative destruction" by which companies were streamlined and made more efficient through innovation, research and development. In the long term there had to be fewer operators but these would be leaner and better.

He explained that even the government had to ensure the measures it took in the short term did not hinder the recovery process in the longer term. The size of the deficit was not as important as the way the money was being spent. Investment had to be focused on reducing the need for social services by encouraging employment and education.

Dr Cordina said the business confidence monitor survey, carried out monthly by the Chamber of Commerce, Enterprise and Industry, was showing growth and improvement in the second quarter of this year. But there was no real reason to believe the situation would translate into real growth. He said it was more likely for this to be attributed to psychological reasons. "After six months of shock, when you realise you've survived, you feel more optimistic," he said.

He warned that the upcoming budget would be a very difficult one because there were so many factors that had to be balanced out. While sacrifices should be made, all government measures proposed should ensure everyone could benefit. "We have a long, hot summer ahead of us to discuss what decisions we need to make to prepare ourselves for recovery."

cperegin@timesofmalta.com