Competitiveness beyond COLA

The COLA is back on the national agenda. The cost-of-living adjustment is the measured compensation to all workers to make good for inflation recorded during the previous 12 months and is derived from an agreement between the social partners. The COLA has undeniably contributed to industrial peace and economic stability, both important elements in sustaining economic competitiveness. Social tensions have been restrained. Lobbyists and movers advocating against the awarding of the COLA should not ignore this essential factor.

I sincerely hope that those advocating against the COLA are not looking for lost money under a lamppost because that is where there is light, as it is not necessarily where the money was lost.

A report on pay developments by the European Foundation for the Improvement of Living and Working Conditions has placed Malta, for two consecutive years, at the very bottom of the list of all the European Union Member States, with an average two per cent wage increase in 2007 and a 1.8 per cent average wage increase for 2008.

Furthermore, the same report reveals that when workers' pay increases are adjusted for inflation for both years, Malta placed at the very bottom of the list again, with an average wage increase of 1.3 per cent for 2007 and an erosion of -2.9 per cent in 2008.

In my view, the time is opportune for some fresh thinking on the subject of economic growth and competitiveness. Competitiveness, economic growth, productivity, employment, wage increases, improved conditions of work and the protection of the social security safety net are all key issues that the social partners address vigorously - mostly in the two months prior to the announcement of the national budget. This year it is different.

While it is understandable to expect that the COLA mechanism restores workers' purchasing power, it is also reasonable to expect, in turn, that higher labour costs may adversely affect trade competitiveness. It is this line of argument that motivates much of the debate regarding the effects of the COLA on trade competitiveness from the employers' quarters. However, I need to stress that the COLA is only one component in an array of issues that impact on competitiveness.

Concern about the effects of the COLA on trade competitiveness has grown due to the negative economic and financial worldwide recession.

It would be a fruitful exercise for policy makers, economists, politicians and trade unions to find new ways to improve Malta's competitiveness and the standard of living but the COLA alone cannot be held responsible for the shortcomings in our competitiveness placing.

There is an analogy between a properly functioning economy and a well-oiled machine. The economic machine has a number of parts that are interconnected and need to work together.

Likewise, if our economy is to grow at the maximum possible rate, it must have in place a number of characteristics: good governance; rule of law; a highly skilled work force; independent and effective regulatory institutions and the reduction of any unnecessary bureaucracy to mention a few.

Competitiveness ratings and economic growth figures have to be monitored constantly. Having said that, we have to ensure that Malta attracts companies with high value-added rather than the low-skilled labour-intensive companies in which low salaries are offered and a small wage increase may encourage the bosses to relocate their business to another country.

At this stage, the three issues which the UHM would put forward to help Malta sustain the competitive edge are stronger industrial democracy, improved workers' rights and workers' profit sharing - all associated with higher economic performance while promoting social stability, equity and fairness.

gvella@uhm.org.mt

Mr Vella is secretary general of the Union Ħaddiema Magħqudin