Editorial

A survey on the impact of the cost-of-living wage adjustment on employers in times of recession is set to spark fresh debate over COLA, as it is more widely known.

Employers have for long been against the adjustment as they argue it should be tied to productivity. International agencies, as well as the European Central Bank, the International Monetary Fund and, lately, Fitch, the credit rating agency, are also against the arrangement because, they hold, it harms competitiveness.

But the government appears to think otherwise and, indeed, Finance Minister Tonio Fenech has now gone on record saying the system has, in fact, made the island more competitive and helped keep industrial stability.

This has strengthened the trade unions' stand in favour of the arrangement.

Whose position will stand the test of time?

Worried by the results of a survey carried out among its members, the Malta Employers' Association is suggesting that the government pays part of the cost-of-living wage adjustment or grants a tax relief. Its argument is that these are "abnormal conditions" calling for extraordinary action. It suggests that the part paid by the government will only be for the 2010 financial year and that it would be added to the COLA for 2011 if gross domestic product picks up in the second and third quarters of next year. In its view, its proposal would give a slight breather to companies in difficulties, particularly when keeping in mind that the first half of next year is expected to be a critical period. It would help encourage many companies to hold on to their employees until business picks up, thus saving jobs.

Some have already shot the proposal down, arguing it contains a strong element of scaremongering. However, others are more cautious, holding, wisely, that it is hard to generalise as there might indeed be a number of firms that are unable to take any extra costs. The MEA survey shows that 70 per cent of businesses are not in a position to absorb a cost-of-living wage adjustment of between €5 and €7. The association said many jobs might be in peril if the firms were constrained to do so.

According to the Central Bank, unit labour costs accelerated in the first quarter, rising by an annual rate of 4.7 per cent, compared with an annual growth of 3.5 per cent in the previous quarter. This faster rate of growth was due to a 3.2 per cent increase in compensation per employee and a drop of 1.3 per cent in measured labour productivity. However, as it has been well explained by Labour Shadow Finance Minister Charles Mangion, the Bank's unit labour cost figure may not reflect the true picture in that one would have to include the payments made to shipyard workers under the early retirement scheme.

Hopefully, the situation in tourism and in terms of industrial orders from abroad, particularly from countries reporting improved economic performance and forecasts, will get even better. Even so, as competition intensifies, Malta would need to do all it can to improve its competitive edge. If this applies in good times, it does so with greater force when the economy is in recession and when it is expected to remain so at least for the remainder of the year. Ways and means would therefore have to be found to ensure that further wage compensation would not jeopardise the livelihood of workers in firms hit hard by the recession.