Cost of living increase should be linked to productivity – employers

The cost-of-living-adjustment should not be granted across the board to everyone but should be linked to productivity, according to employers.

While admitting the wage adjustment mechanism contributes to industrial stability, Malta Employers’ Association director general Joe Farrugia believes this mechanism should be revised and directly related to productivity to serve as an extra incentive.

“Malta is not realising the need to link wage increases to productivity because only this would improve the country’s competitiveness,” he said when contacted for his view on Malta’s insistence at EU level on retaining the COLA.

Malta is one of the last remaining member states with a wage indexation system linked to inflation rather than productivity.

The system has been in place for decades and is supported by trade unions.

Defending Malta’s position, Employment Minister Dolores Cristina told colleagues during an EU council meeting earlier this week Malta was adamant on retaining the wage indexation system because it guaranteed industrial stability.

“We acknowledge increased productivity is a key element of sustainable development. Although we agree unit labour costs should be linked to increased productivity, this does not mean we should do away with our wage indexation mechanism,” she said.

Employers have been insisting on the need to change the COLA mechanism and this was echoed by Central Bank governor Michael Bonello who last year warned the mechanism was having serious consequences on the country’s competiveness.

Mr Farrugia said employers believed the mechanism Malta used was “incorrect, even on a basis of principle”.

“Wage increases are always linked to productivity. In our case, we increase wages according to the price index rather than productivity and it is this which is affecting our competitiveness,” he said.

Financial analyst John Cassar White insists eliminating the COLA mechanism is “not the right solution”. However, he agrees with making changes to the mechanism, linking this to productivity indexes and bringing indicators such as labour costs into the picture.

“Seen in isolation, COLA seems like a drag on our competitiveness but if you see the whole picture it is one of the only few guarantees workers have to protect their interests and it’s not fair to pick on COLA as if this were the only issue affecting our competitiveness,” he said.

Mr Cassar White said productivity did not depend on workers’ wages and lamented inadequate investment by businesses in capital to improve the performance of their workforce.

Bureaucracy, he said, was another drag on competitiveness, adding this was one of the main stumbling blocks businesses had to face to improve their competitiveness.

“We need to look at the whole picture and that’s where the COLA mechanism comes into the equation. It’s not fair to say workers have to make the sacrifice to improve competitiveness. This is why I agree with Malta’s position at EU level that COLA should not be touched but should be looked at within the context of the wider issues stifling the country’s competitiveness,” he said.

In the same vein, the Chamber of Commerce, Enterprise and Industry believes COLA has to be safeguarded as it is an instrument to safeguard workers’ disposable income.

However, director general Kevin Borg says the mechanism has to be reviewed “to ascertain the country’s competitiveness”.

“Otherwise, if wage increases continue to exceed productivity gains, Malta risks becoming uncompetitive in certain sectors. To this end, the Malta Chamber is proposing COLA be indexed to productivity as well as to inflation,” he said.

He explained that COLA should reflect sectoral GDP growth figures to ensure COLA would be linked to the productivity in each sector.

“The Malta Chamber maintains that the country needs to address COLA holistically in the light of labour and other costs facing business.

COLA must certainly be viewed in terms of the pension reform, labour market developments, education and the country’s macro-economic strategy,” he said.