Wage increases could lead to 1,000 job losses

An increase in next year's wage bill could drive about 1,000 people out of a job if the cost of living adjustment is wholly borne by employers, the head of the employers' association has indicated.

The director general of the Malta Employers' Association, Joe Farrugia expressed his fear yesterday as he called for a strong economic stimulus package in the next Budget.

Wage increases were not the only cost employers had to shoulder, he added, and called for price stabilisation in all government licences and tariffs, including water and electricity rates next year.

The MEA's proposals for the government to foot part of the wage increase, he said, was intended to alleviate the burden on employers and protect the most vulnerable workers.

Cutting income tax to 25 from 35 per cent, although desirable, would not help the most vulnerable, especially during a recession, he said, saying he was "perplexed" by the Union Ħaddiema Magħqudin's Budget proposal.

"If the government forks out part of the wage increase it would help employers stay in business and so automatically protect the jobs of those who are particularly low skilled or work in low value added manufacturing and services," Mr Farrugia said, addressing a business breakfast on competitiveness organised by The Business Weekly.

Looking ahead, Mr Farrugia expressed concern at the revision of the retail price index on which COLA was based. He said that if the wage increase for 2010 was calculated on the new weightings expected to be introduced next year, the cost of living adjustment would have been "much higher" than the €5.80 per week employees were expected to receive under the present mechanism.

Although Mr Farrugia defended a high deficit for 2010, he said the government would face a problem in subsequent years to bring it under control because it was committed to retain systems such as student stipends, free healthcare and public sector wages, which were not sustainable.

About the social pact, he said two weeks before Budget day was "not the right time" to revive a debate on the matter.

"A social pact could be a tool to achieve competitiveness but the experience of the failed attempt in 2004 showed the whole exercise was not how to improve competitiveness but how to retain the status quo," he said, explaining that a social pact had to be bolder in its scope. However, he did call for a "social pact" between the political parties to agree not to promise what they could not deliver and not to offer false hope.

"When politicians promise the unrealistic, the pressure trickles down to the social partners and has an impact on industrial relations," Mr Farrugia said, arguing that Malta had to become a nation of producers rather than a nation of welfare shoppers.

Earlier, the UĦM's Gejtu Vella acknowledged the negative impact the wage increase for 2010 could have on some businesses but insisted COLA had brought about industrial stability and peace.

Even if Malta were the only country with an automatic wage increase mechanism linked to inflation, Mr Vella said the country still ranked at the bottom of the EU list in terms of disposable income.

"Disposable income increased by 1.3 per cent in 2007 but dropped by 2.9 per cent last year, which indicates wages on their own were not the sole reason for lack of competitiveness," he said.

Mr Vella called for stronger industrial democracy, improved workers' rights and profit sharing for employees to be at the heart of any debate on competitiveness.

ksansone@timesofmalta.com