How has the Maltese economy been doing, shorn of rhetoric? Does the segmentation at times discussed here, suggesting an economy split into at least two main sectors running at different speed stand up to critical analysis? Prof. Joseph Falzon of the Department of Banking and Finance at the University has produced an analysis of the productive sectors of the Maltese economy and a comparison with EU member states which answers these and quite a number of other questions, including whether we are losing competitiveness.
The first of the study analyses the 15 productive sectors of the Maltese economy between 1995 and 2009. The second compares each economic sector with that of each of the EU 27 member states.
The paper dissects the real gross value added and its components (real employees’ compensation and real operating surplus), together with employment for each sector during the 1995 - 2009 period. Real gross value added per full-time equivalent (the productivity ratio), employee compensation per full-time equivalent and profits per worker are derived.
Prof. Falzon confirms that some of the traditional economic sectors (manufacturing, wholesale and retail, hotels and restaurants, and transport and communication) that account for a substantial share of total employment (44.5 per cent) are going through difficult economic times. On the other hand, smaller sectors in terms of total employment (20.2 per cent), (financial intermediation, personal services and business activities) have been growing fast.
Segmentation is not only evident in terms of sectors, but also in regard to periods. Between 1995 and 2009, the Maltese economy added 27,835 (net) full-time job equivalents, growing at an annual real rate of 1.3 per cent. Real growth averaged 6.2 per cent annually between 1995 and 2000, but only 0.9 per cent per year between 2001 and 2009. Due to this uneven growth, real gross value added per FTE increased by €4,618 or 26.7 per cent between 1995 and 2000, but did not grow during the second decade. Consequently, real wages per fulltime job equivalent increased by 28.5 per cent from 1995 to 2001 (from €8,726 to €11,219), but remained static between 2001 and 2009.
This conclusion emphasises the importance of having up-to-date records of shares in the GDP and income distribution.
Segmentation in the job sectors was also clearly evident. Manufacturing lost 9,600 jobs (29.6 per cent) between 1995 and 2009. Real gross value added per FTE has been declining in wholesale and retail and in hotels and restaurants since 1999, and in transport and communication since 2001.
On the other hand, the number of FTE jobs in financial intermediation, business activities (including accountants, lawyers, real estate) and personal services (including E-gaming) almost doubled in 15 years, from 17,500 in 1995 to 34,250 in 2009. All three sectors witnessed explosive growth (especially since 2004) in their total real gross value added produced. The three sectors had the highest gross value added per FTE in 2009 amongst all the 15 productive sectors of the Maltese economy.
This shows that the objective of modernising the economy is being achieved. Yet the study also shows that when we compare the sectors of the Maltese economy to the EU27, manufacturing is still the best sector after e-gaming. Economic policy should include careful care of the traditional sectors, which still employ the majority of workers.
The second part of the paper looks at the unit labour cost of each economic sector relative to each of the EU states. Between 2000 and 2007, the unit labour cost of several sectors of the Maltese economy increased more than other countries in the EU 27. This implies that Malta is losing its labour competiveness.
The unit labour cost in manufacturing increased by 33 per cent compared to 14 per cent in EU 27; hotels and restaurants by 36 per cent (EU 27 11 per cent); wholesale and retail by 44 per cent (EU 27 14 per cent); transport and communication by 18 per cent (EU 27 10 per cent); business activities increased by 75 per cent (EU 27 24 per cent); financial intermediation 77 per cent (EU 27 two per cent). Conversely personal services decreased by 33 per cent against an EU increase of 26 per cent, due to the hike in real value added per worker in the e-gaming sector.
The paper ranks gross value added per worker for each sector for all EU 27 member states in 2007, and compensation per worker and operating surplus per worker. The study says that the EU 27 states are segmented into three categories: the core most competitive and rich continental Europe (with the highest gross value added and wages per hour worked), the peripheral Mediterranean member states (with the middle gross value added and wages per hour worked), and the least competitive Eastern European countries.
For many sectors of the economy Malta ranks with the lowest among the six Mediterranean EU member countries (Italy, Spain, Portugal, Malta, Cyprus and Greece) in terms of productivity, worker compensation, and operating surplus per worker.
Malta ranks fifth in the group in terms of gross value added per hour worked in 2007. Manufacturing ranks fourth, business activities fifth. In all the other sectors (including financial intermediation) Malta ranks sixth. Personal services ranked first (and second in all EU 27 countries) due to the high gross value added per hour of the e-gaming sector in Malta.
The study contains much food for thought for policy makers. It should not simply end up on the web page of the Malta Institute of Management, where it can be viewed in full. It calls for policy revision and action.