Focused on employment

One of the news items of this week is that unemployment in the European Union re­mained at its peak level. The emerging indications are that we are having a form of economic recovery without an accompanying increase in em­ployment. Such contrasting news is probably no news at all, as we have seen weeks in the past six months or so when equity prices have gone up for them to come down again; we have seen investor and consumer sentiment rise, fall and rise again; economies that are posting significant growth rates while other economies are still stagnating.

This is leading to an element of cynicism about the reality or otherwise of the economic recovery. It is making people wonder whether the glass is half full or half empty. It is also leading to some people predicting another recessionary period in the short term, thereby having a double-dip recession.

We have obviously been positively surprised by the boldness of the UK government in its approach to public expenditure, and there are hopes that other countries would follow suit. But irrespective of the strength of economic recovery or the state of public finances, unemployment remains a key issue across the European Union.

There are some countries, such as Malta, that have managed to stave off the spectre of high unemployment but have spent significant resources to safeguard employment. There are others who have been less lucky and have lost jobs. This is a situation that needs to be recognised in this country. The data that have been published so far do show an increase in unemployment (by around one percentage point), but it is still nowhere near the levels that are being experienced by other countries. We have had to pay a price for this, and so we cannot take our employment situation for granted.

Safeguarding jobs has not come at a low cost to anyone. Public funds have been spent to support businesses to keep on investing in Malta, in order to maintain their operations here and to maintain their employment levels. Certain categories of employees have had to accept no or minimal wage increases so that the businesses they are employed with maintain their competitiveness. Certain businesses have had to invest more money to regenerate themselves in the face of dampened demand or stiffer competition. As in other economies, employment is expected to lag behind GDP growth in the coming months, and so it is expected to remain subdued – hence the need not to take our employment situation for granted.

It is within this context that the pre-Budget document published by the government some six weeks ago needs to be viewed. This document is meant to be a consultation tool in preparation for the Budget that should be presented in Parliament in the next two months (Budget Day has not been announced yet). It describes the broad thrust that the government’s fiscal policy will have. In this respect the document is very clear. Although it is important to achieve sustainability in public finances, “it is government’s immediate priority to ensure that policy actions do not undermine the recovery but encourage investment and job creation”.

It is this focus on employment that I find most encouraging. Other economies have chosen other routes in seeking to move out of the recession. They obviously have to deal with realities that are different to ours, so comparisons cannot be made. The high focus on employment in the pre-Budget document does lead one to believe that safeguarding employment will be one of the highlights of the 2011 Budget. Measures to increase labour productivity, investment in education and training, and increasing the participation rate in the labour market, especially among women, are all expected to be addressed in the Budget.

There are many issues that could attract the government’s attention at present and in the immediate future. My hope is that its focus on employment remains intact because this is what our economy needs.

PS: In a letter published in The Times, Karm Farrugia referred to my contribution of August 20, where I wrote that “German economic output increased by 2.2 per cent during the second quarter of this year compared to the previous quarter. This makes it equi-valent to a 9.1 per cent increase a year.” Mr Farrugia queried the figure of 9.1 per cent. I find myself in the embarrassing situation of the student having to contradict his teacher. It may be that I was not clear, but the 9.1 per cent figure is indeed correct.

Germany had a growth of 2.2 per cent in the second quarter of 2010, when compared to the first quarter of 2010. If that performance is repeated in the next three quarters (that is, the economy will grow by 2.2 per cent in each quarter over the previous quarter of the same year), then the growth rate over a 12-month period will be 9.1 per cent. It may be a far-fetched assumption, but it is mathematically correct.