Malta needs more workers to avoid huge strain on economy

Malta must substantially increase participation in its labour market if it is to avoid unsustainable strains on its economy, according to a new EU study published in Brussels.

Malta’s position is expected to worsen not only due to its aging population, a phenomenon experienced all over Europe, but also due to its already low participation rate in the labour market, particularly among women and older people.

The study, Labour Market Adjusted Dependency Ratio, was funded by the European Commission and conducted by the European Policy Centre (EPC), an influential think-tank in Brussels.

It claims Malta must rapidly encourage more workers to get a job and contribute towards economic growth, as it risks not being able to cope in providing pensions, social benefits and free health care in the near future.

Of the 27 EU member states, Malta, which currently has the lowest employment rate, is among the most vulnerable. The study makes use of a new indicator, the Labour Market Adjusted Dependency Ratio (LMADR) – the number of people who are not in work as a proportion of the total population – to project the situation in 2050.

Malta’s ratio is expected to rise from the current 53.8 per cent – already the highest in the EU – to 62.7 per cent in 2050. The only member states that are projected to be in a worse position are Hungary and Italy.

Although the problem of an aging population is similar across the EU – with fewer workers contributing towards the well-being of older people – Malta, due to its current low employment rate, is more exposed to the strains this situation is expected to put on social security and health-care systems. The EU’s average LMADR currently stands at 47.7 per cent and is expected to reach 56.3 per cent in 2050, more than six per cent less than Malta’s.

“The situation is quite worrying, as it is evident that, if things will not change, the EU member states will not be able to respond to the demographic challenges expected. Malta is obviously in a much worse situation, as its starting point is already quite low when compared to the other members,” an EPC official said.

At 54.9 per cent, Malta’s employment rate in 2010 was almost 10 points lower than the EU average of 64.6 per cent.

To respond to this challenge, the EU has made increasing participation in the labour market one of its main goals for 2020. Member states are obliged to try to increase their participation rates to around 75 per cent by 2020. Malta’s targets are lower, as it is starting from a lower level.

The EPC study says member states need to do more: “Labour market reforms are needed to achieve higher labour force participation, by in­volving the under-represented categories, such as women, migrants and people at risk of exclusion from the labour market. Tools directed at reducing labour market rigidities, such as flexicurity measures, should be supported and encouraged.”