Two leading economists have warned that raising the minimum wage will not address cases of acute poverty flagged by the 2016 Caritas report, as more often than not those in poverty do not have a job.
The warning was sounded by economists Gordon Cordina and Lino Briguglio during a half-day conference organised by the Malta Council for Economic and Social Development to discuss the government's plan to raise the minimum wage.
Prof. Cordina pointed out that the poverty threshold in the Caritas report was lower and much stricter than the national benchmark used in official studies like those of the National Statistics Office.
For example in the Caritas report the poverty threshold for a family of four was €11,446 a year while in government studies this was €19,531. Consequently, under the Caritas model the number of households in absolute poverty was 3,200, the vast majority of whom were not in employment but relying on social assistance.
However, when in Prof. Cordina's study this Caritas benchmark was widened to 150 per cent of the original threshold, it transpired that a minimum wage increase would have a significant positive impact after all. In this case, 13,606 households would fall under this revised poverty line, two thirds of whom are in employment.
In his study, Prof. Cordina said that a minimum wage raise should be accompanied by a series of mitigation measures to safeguard competitiveness, an evaluation on its impact on the fiscal deficit, and a long-term "future-proof" Cost of Living Allowance mechanism.
Moreover, he also called for the setting up of a low wage advisory committee under the MCESD, to give recommendations to the government.
In the second presentation, delivered by Prof. Briguglio, social partners were told that in recent years the disparity between low and high income earners widened.
He added that the advent of new economic activities like remote gaming and the financial services sector was set to pronounce this trend even further.
While expressing himself in favour of raising the minimum wage, he said that this should be calculated as a percentage of the average national wage.
However, there should be a mechanism so that an automatic top-up would be triggered if this level was not reached with the COLA.
Prof. Briguglio also called for the re-calculation of the base wage, for the first time since 1990 and a fresh household budgetary survey based on a modern lifestyle. He also echoed the suggestion made by Prof. Cordina for the setting up of a minimum wage advisory committee, saying existing statistical tools were not entirely reliable.
On a positive note, he remarked that when compared to other EU member states, the minimum wage in Malta was still ranked in the top-middle half.
Civil Liberties Minister Helena Dalli, who made the opening address, said that this event would serve to lay the foundations for the upcoming talks on the minimum wage increase with social partners, which are scheduled at the start of next year.
However, she pointed out that the recommendations made in the studies did not necessarily reflect the views of the MCESD members.
"After achieving robust economic growth in line with its objectives, this government is now focusing its energies on how to support the most vulnerable and the minimum wage increase one such measure," she remarked.
In a statement the MCESD said any minimum wage increase must safeguard competitiveness, especially of vulnerable sectors, and must be accompanied by complimentary measures targeting poverty.
More over social partners agreed that any “extraordinary” raise had to be based on existing mechanisms.
The council will present its proposals to the government by the end of February.