Wage rise expected to be €4.66

Wages are likely to rise by €4.66 a week in 2012 to compensate for cost of living increases this year, The Times has learnt.

The rise is more than four times the €1.16 weekly granted last year in the Budget.

The proposed addition was worked out in terms of a formula based on the retail price index mechanism, which measures the price fluctuations of a number of items and services throughout the year through a system of weighting.

The retail price index for September and October still needs to be factored into the cost of living adjustment calculation mechanism but economists do not predict any substantial changes.

A €4.66 weekly increase – amounting to €242.32 a year – is the second highest cost of living adjustment granted over the past 15 years, the highest being €5.82 for 2010. Last year’s increase was the lowest in the period mentioned, with the €1.75 granted for 2004 being the second lowest.

Sources close to the committee composed of social partners and representatives of the National Statistics Office tasked with monitoring prices, said the RPI throughout the year had all in all been stable. The sources said that despite hikes in the cost of energy, foodstuffs and gas, the price of vegetables, fruit and clothes had fallen, balancing out the effect of the items that had tipped the index.

The COLA for 2010 had brought about mixed reactions among social partners, especially employers and trade unions, with the latter insisting that workers should be compensated for the cost of living increase through the established mechanism that had been used for years.

Various economists have commented in the past that the COLA mechanism was affecting the country’s competitiveness. They argued that the COLA should be pegged to productivity because the present system was increasing production costs but not the production rate. Former Central Bank Governor, Michael Bonello, made similar remarks during his term of office.

During this debate on the €5.82 increase, employers said it was too hefty for them to handle. The Malta Employers’ Association had asked the government to foot half the cost of living allowance paid by the private sector, which it had estimated at about €12 million. It said a survey among its members had revealed that 20 per cent could cut jobs if the cost-of-living adjustment ranged between €5 and €7 weekly in 2010.

Cost of living allowance mechanism study

The Chamber of Commerce, Enterprise and Industry had also complained about the COLA increase saying it was “unsustainable” and would put hundreds of jobs at risk.

But the employers had in the end given in and agreed to pay the full amount after the government stood its ground that the mechanism through which it was derived was the one on which there had been consensus.

The situation was somewhat different last year when the majority of social partners had accepted the figure as the one derived from the pre-agreed mechanism that has been in place for years.

A working group within the Malta Council for Economic and Social Development is currently studying the cost of living allowance mechanism to suggest how to improve the way the cost of living allowance is calculated.