A worker at Actavis’ pharmaceutical plant. Photo: Jason BorgA report by the Central Bank of Malta should dispel oft-expressed concerns that the unit labour costs in Malta are making the islands uncompetitive.
CBM senior research economist Brian Micallef has found that the developments in unit labour costs were not excessive.
“Since before the crisis, pronounced structural changes have occurred in the economy, with diversification of its economic base and a shift from traditional industries towards higher-value-added activities, mostly in the services sector.
“ULC growth in Malta is broadly comparable to Finland, which has registered a broadly comparable decline in the share of manufacturing industry.
“That said, Maltese industry has improved its competitiveness over the last 15 years, whereas there was a slight deterioration in Finland’s,” the report said.
Malta’s ULCs grew by an average of 2.2 per cent between 2010 and 2014, the highest increase in the EU – but productivity contracted by 0.3 per cent on average, compared with the eurozone increase of 0.9 per cent.
The report also quoted from the Wage Dynamics Network survey, which said – in stark contrast to official statistics – that increases in costs between 2010 and 2013 were matched by gains in labour productivity – with 25 per cent of firms reporting that they had exceeded it.
“This could be, to a certain extent, the result of the difficulty of accurately measuring output in an increasingly service-oriented economy,” Mr Micallef wrote.
The key to understanding these results is to look at the shift from traditional industries to higher-value-added activities – mostly services.
By 2014 Malta’s share of services was one of the highest in the EU, in line with that in the UK and Ireland. This coincided with the largest drop in manufacturing gross value-added, matched only by Finland’s.
At sectoral level, the gap between hourly costs in Malta and the European average varied
However, while Malta increased its services sector, Finland did not, the report says.
“This may explain why Malta’s economic indicators, unlike Finland’s, still showed a positive macro-economic narrative in spite of the drop in the import-ance of manufacturing,” it said.
Malta’s manufacturing ULC in 2014 was 17 per cent below its 2000 level, whereas in Finland’s it was three per cent above.
With the exception of Bulgaria and Romania, the lowest labour costs per hour were recorded in the Baltic countries – less than €9 per hour – and the highest in Scandinavian and core European economies – from €30 to slightly higher than €40. In 2014 average hourly labour costs stood at €24.60 in the EU and €29.20 in the eurozone.
Labour costs in Malta, at €12.30 per hour in 2014, rank at the lower end of the table, generally higher than in the Baltic and Eastern European countries but lower than in most other eurozone economies.
“This information suggests the Maltese economy is quite competitive in terms of labour costs compared with other eurozone countries, even maintaining its cost competitiveness despite the reduction in labour costs in stressed countries since the financial crisis.”
At sectoral level, the gap between hourly costs in Malta and the European average varied. In the accommodation and food service industry, costs stood at 53 per cent in 2012, reflecting the lowest gap in costs. Costs in the professional, scientific and technical services sectors were just 36 per cent of the European average.