Chamber calls for revision of wage adjustment mechanism

The Chamber of Commerce, Enterprise and Industry is calling for a revision in the cost of living adjustment mechanism, linking it to productivity rather than keeping the present “basic and inflexible” method.

This stand mirrors what Central Bank governor Michael Bonello had said last year that the present mechanism was having serious consequences on the country’s competiveness.

Even financial analyst John Cassar White agreed with tweaking the mechanism, linking this to productivity indexes and bringing indicators such as labour costs into the picture.

While the discussion on changing the mechanism continues, social partners contacted by The Times, except for the General Workers’ Union, appear to have accepted the €1.16 wage increase due to be announced in the forthcoming Budget as a fact emanating from a mechanism endorsed over the years.

The GWU said it was studying the effect such a low cost of living compensation would have on families.

An increase of €5.82 was granted for this year. The only time the wage adjustment had been as low as that being proposed for 2011 in the past few years was in 2004 when it was set at €1.75.

The Chamber believes changing the mechanism was “a priority”. “The Chamber has long been calling for a review of the mechanism. COLA must remain an instrument to compensate workers for inflation but it must also ascertain Malta’s competitiveness,” director general Kevin Borg said.

He said the mechanism was “basic and inflexible”, adding that the calculation should reflect sectorial GDP growth figures to ensure COLA paid in all sectors would be linked to the productivity of that particular sector. Such a system would not only link the adjustment to productivity but would also be in line with what that particular sector could afford.

Moreover, Mr Borg also proposed that COLA be tax-neutral, paid as an allowance and treated as a social benefit.

“The law governing COLA already makes provisions for mitigating factors to kick in when the economy is experiencing exceptional circumstances. But the law does not define these exceptional circumstances nor does it define what mitigating measures can be taken,” he explained.

This year, he said, the economy faced exceptional circumstances and COLA still had to be paid “with no commensurate mitigating factors by way of labour-flexibility arrangements”.

He said the Chamber had accepted the €5.82 COLA adjustment for this year “with the promise that the mechanism would be reviewed before the 2011 Budget”. However, no decision to review the system had been made.

Mr Borg said COLA could not be viewed in isolation. Besides increased costs and the maximum pensionable income ceiling on which employers and employees paid their contribution, there could be other factors and Budget measures that might inflate labour costs and impact competitiveness, he said.

Mr Cassar White said COLA was a mathematical calculation based on retail prices, which only took a snapshot of what was actually happening. He said the mechanism should change to take other aspects into consideration, such as productivity and the effect on competitiveness.

“Government-induced costs, bureaucracy and the lack of capital investment in areas such as technology and training by businesses are all making Malta uncompetitive. Social partners should come together to improve competitiveness,” he said.

Asked about the €1.16 figure being mentioned, Mr Cassar White said this was a result of the mechanism that had been in use for years. “If it was good in the past you cannot argue about it now,” he said.

On the same lines, the Malta Employers’ Association’s director general, Joe Farrugia said the figure was a computation and not something social partners could negotiate.

He said there was a working group within the Malta Council for Economic and Social Development which was looking into changing the mechanism but added there was no agreement on the way forward.

When asked about protests by employers last year when the same mechanism estimated workers were owed a weekly increase of €5.82, Mr Farrugia pointed out the MEA had not objected to granting the amount but argued that businesses needed help at the time. “Despite this argument... employers still honoured their commitments and all employees received their compensation,” he said.

Union Ħaddiema Magħqudin general secretary Gejtu Vella similarly said €1.16 was the result of the computation of the established mechanism and the union accepted it as a reflection of price fluctuations. Asked whether he thought the mechanism should change, he said that, like everything in life, there was always room for improvement.

The president of the Malta Hotels and Restaurants Association, George Micallef said his association did not have an official stand on the matter as it still had to discuss it internally. However, he said the MHRA had anticipated that COLA this year would be significantly less than last year’s as the inflation rate had dropped substantially.

Asked whether the mechanism established to calculate the cost of living adjustment should change, Mr Micallef said: “The mechanism we have in place seems to be working.”