A blanket cost-of-living wage increase could compromise jobs and threaten the country's competitive edge, the president of the Chamber of Commerce and Industry has warned.
Helga Ellul joined other voices from the business community and said if wages were increased across the board, irrespective of produc-tivity levels, it could lead to job losses.
The legally binding wage increase, which is based on the previous year's rate of inflation, is estimated to be as high as €7 per week for 2010 according to current indications, well above the trend of the past few years.
Unions are, however, sceptical of any change that would deprive employees of wage increases to make up for the erosion in purchasing power they exp-erienced throughout this year.
The issue was raised by Malta Employers' Association director general Joe Farrugia last week during a business breakfast in the presence of Finance Minister Tonio Fenech. He reiterated his concern in a Talking Point that appeared in yesterday's The Times.
Mr Farrugia proposed linking wage increases to productivity indexes, or else granting the wage increase only to minimum wage earners. Another option he sugg-ested was to refrain from granting the increase to employees who were covered by collective agreements that contemplated wage increases.
Mr Fenech had acknowledged the concern but stopped short of committing himself to changing the system, insisting it was a matter for the Malta Council for Economic and Social Devel-opment to discuss.
Ms Ellul said the issue required "serious attention" from policy-makers and social partners within a framework that provided basic social guarantees, while diverting resources towards more productive, job-creating applic-ations.
"Failure on these counts would produce the perverse effect of unemployment for workers whose incomes the Cola system was intended to protect in the first place," she said.
Ms Ellul pointed out that since 2006 the rate of increase in wages had already "significantly" surpassed that in productivity, particularly last year. This increased the unit labour cost in general to the detriment of the country's competitiveness, she said.
Legislators are caught between a rock and a hard place in determining the best way forward.
General Workers' Union general secretary Tony Zarb asked the government to declare that the cost-of-living increase would continue to be given to "everyone and in full".
Mr Zarb, speaking during a general conference of one of the union's sections, said employer organisations should be courageous enough to ask the government to relieve them of the burdens that have been introduced rather than weaken workers' conditions of employment.
Similar sentiments were expressed by Union Ħaddiema Magħqudin general secretary Gejtu Vella, who insisted it was unfair on workers to be expected to forfeit the Cola increase after first suffering expenses because of the higher water and electricity bills.
Mr Vella said it was the utility bills that contributed primarily to the above normal inflation rate, which was now prompting the €7 per week wage increase.
Business analyst John Cassar White summed up the dilemma: "If viewed from a purely economic perspective we would remove the blanket provision to safeguard competitiveness. However, there are also social considerations to make since the wage increases help employees maintain their standard of living. People have been experiencing an erosion in their spending power and this cannot be taken lightly."
He acknowledged that com-petitiveness was at risk but said this was not necessarily the fault of unions or employees.
Competitiveness also depended on the level of investment put into the company, the country's ability to have a multi-skilled labour force and also the strength of the euro against the dollar, which had a negative impact on companies that exported in dollars.
Mr Cassar White reiterated Mr Vella's concern about inflation.
"Government must determine what the reasons for the significantly above average inflation are since this is causing pressure on wages. In April, Malta's inflation stood above three per cent when the eurozone inflation went into negative territory. Something is wrong," Mr Cassar White said.
Economist Lawrence Zammit said the current Cola mechanism had been agreed upon between employers, unions and the government and any change had to come about through another agreement between all interested parties.
He said some companies would be able to afford the statutory wage increase, however, others would find it hard unless jobs were put on the line.
"I believe that in those particular cases where companies do not afford the increase, employers and employees should together take all the necessary steps to safeguard jobs first and foremost," Mr Zammit said, advocating a micro-managed approach to the problem.
ksansone@timesofmalta.com