Hourly labour costs in Malta increased to €12.30 in 2014 or by 4.2 per cent compared to the figure of €11.78 in 2012, according to a report in the latest Central Bank of Malta Quarterly Review.
The increase was higher than that registered in the eurozone and European Union during the same period but the ratio of hourly labour costs in Malta compared with both economic areas still remained between 40 per cent and 50 per cent in 2014.
The Central Bank said the Maltese economy is quite competitive in terms of costs, and the increase in overall wages since 2012 is a continuation of its diversification away from traditional sectors towards high value added ones, which pay better. The increase, it said, is not to be associated with a deterioration in price competitiveness, but “rather as a natural result of a maturing economy”.
The higher hourly labour costs compared with the eurozone since 2012 were mainly driven by the services sector. However, the increase in hourly costs in domestic manufacturing, at 1.7 per cent, was considerably lower than in the eurozone and Germany, at 3.9 per cent and 5.4 per cent respectively. “This bodes well for the cost competitiveness of the domestic manufacturing base,” the reports says.
The Central Bank said the increase in the labour supply in recent years, driven by reforms targeted to raise the participation rate of females, was well as more foreigners in the workforce, has eased labour shortages in selected sectors and helped to keep wage pressures contained.
The 2012 figures are based on the findings of the Labour Cost Survey 2012, which is carried out every four years by the National Statistics Office, while the 2014 figures are based on a less comprehensive annual update of the four-year survey.
According to the 2012 survey the highest hourly labour costs were recorded in high value added sectors, such as finance and insurance, real estate activities, information and communication technology, transport and storage and the remote gaming sector. In these sectors, labour costs exceeded €15 per hour, with the highest being registered in the financial and insurance sector, at €18.99.
At the other end of the table, labour costs in wholesale and retail, construction, administrative and support services, and the accommodation and food service industry, are on average below €10 per hour. Hourly labour costs in manufacturing at €11.30, are slightly lower than the economy’s average.
According to the Central Bank report, hourly labour costs are directly proportional to the size of the firm. The lowest costs, at €10.33, were seen in firms employing between 10 and 49 workers, while the highest were in firms with more than 1,000 workers, at €15.38. The report says that this could be due to the fact that larger firms are generally more productive than smaller ones, more capital intensive and have a higher investment in new technologies, thereby raising the demand for skilled labour.
Within the EU, labour costs in Malta rank at the lower end of the table, being generally higher than the Baltic and Eastern European countries (less than €9 per hour) but lower than the rest. This is due to an extent to the low share of employers’ social security contributions in total labour costs, which at around eight per cent compares favourably with the eurozone average of 25 per cent.
Labour costs
The hourly labour costs stood at €24.20 in the EU and €29.30 in the eurozone. Denmark tops the list with hourly costs of €40.
Hourly labour costs in Germany are higher than the EU average, and in the manufacturing sector hourly labour costs they are more than three times in Malta. Despite this, Germany has been successful in maintaining the competitive edge of its manufacturing industry, with its share in gross value added remaining broadly unchanged at slightly higher than 22 per cent.
The Central Bank highlighted that on the contrary, manufacturing in Malta has been on a declining trend, falling from 21.4 per cent in 2000 to 10.2 per cent in 2014. “These findings confirm that competitiveness involved both price and non-price elements. The competitiveness of the German manufacturing sector is not due to low wages but rather to the quality of its exports, including the development of new technologies and its ability to drive innovation owing to a highly skilled workforce that, in turn, demands higher labour rates,” it said.
The overall labour costs per hour also include social security contributions, training and other labour-related expenditure.