Unit labour costs are rising faster in Malta than in the eurozone, according to the latest Quarterly Review published by the Central Bank, prompting concern among employers’ associations.

In the final quarter of 2012, Malta’s labour costs rose by 3.5 per cent, and then rose again by 3.1 per cent in the first quarter of 2013.

During the first quarter, the eurozone unit labour costs only rose by 1.7 per cent. And according to early estimates from the OECD, they fell – for the first time since the end of 2011 – by 0.3 per cent.

The OECD reported that unit labour costs fell or stabilised in a number of eurozone countries, such as Italy, France, Portugal, Spain and Germany.

Contacted by Times Business, the Malta Employers’ Association stressed that the ability to sustain increasing unit labour costs – in both absolute and relative terms – depended on the competitiveness of enterprises and the country as a whole.

“MEA has persistently cautioned against an automatic wage increase mechanism as we have in Malta, and our view has been echoed by international institutions such as the IMF. In the pre-budget document there is a clear reference and a table which shows that labour costs are outpacing productivity. The question is how long can this be sustained before unemployment starts picking up due to a fall in competitiveness,” director general Joe Farrugia said.

MEA has cautioned against automatic wage increases

The Malta Chamber of Commerce, Industry and Enterprise also expressed concern.

“Currently the Unit Labour Cost Index for Malta is at 123 (111.88 for EU 27 and 112 for Germany). The rate of increase in Malta has been noticeably steeper than the overall index for the EU 27, indicating an erosion of Malta’s competiveness. This is of course a cause for concern.

“In fact between 2001 and 2012, the average growth rate of the ULC for Malta was 2.9 per cent compared to 0.8 per cent for Germany and 1.3 per cent for EU27. Compensation per employee increased faster than in the eurozone, in particular during the years following EU accession.

“Indicators suggest that loss of cost competitiveness was more due to weak productivity growth than to increasing labour costs. Over 2001-2012, labour productivity per person employed grew by only around 0.3 per cent per annum in Malta (EU 0.8 per cent, EA 0.6 per cent). The situation is worse in terms of hours worked: Malta 0.3 per cent, EU 1.2 per cent, EA 0.9 per cent,” director general Kevin Borg said.

There is one other aspect to factor into this rising cost scenario: the success of the financial services and igaming sector. Lawrence Zammit of Misco explained: “When manufacturing was such an important economic sector, labour costs were a very important consideration.

“In the financial services and igaming sectors, the attraction of Malta is not based on the labour costs: these companies are not coming to Malta seeking lower salaries. In fact, there is very little differential between what is paid in Malta and what they would pay for the same job overseas for locally-recruited staff.

“Of course this also has an impact on overall competitiveness as it causes problems for local companies like banks who are competing for the same employees and could be forced to raise their wage offering.”