At a recent EU Council meeting, Employment Minister Dolores Cristina argued in favour of retaining the mandatory cost of living allowance because she contends it guarantees stability. This stance was not fully endorsed by the employers’ association.
The COLA mechanism was set up in 1990 following the trade disputes that mainly involved the General Workers’ Union and several private firms. The disputes originated from the national standard order (Legal Notice 169 of 1989) laying down that employers were not obliged to pay the full increase of €7 as announced in the Budget. In other words, employers were given the option to pay only the difference, if any, between the increases agreed in the collective agreement and the €7.
The trade unions insisted all employers should pay their staff the €7 weekly wage increase over and above any other increases included in the collective agreements.
They maintained the rise announced in the Budget was a cost of living increase mandatory on all employers, irrespective of whether they had signed a collective agreement with a trade union. In the bickering that ensued, the trade dispute between the GWU and Hotel Phoenicia (forming part of Trusthouse Forte Chain) dragged on for months without being resolved. Eventually, in February 1990, Trusthouse Forte announced the closure of the hotel. The feeling that emerged from these disputes was that a more rational approach was needed to solve such issues. The social partners made a formal agreement that wage levels were to be determined by an incomes policy based on the cost of living index. A document was drafted by the Malta Council for Economic Development and submitted to the social partners. Subsequently, a tripartite unit was set up to determine changes in the cost of living and reach consensus on incomes policy under the auspices of the MCED. By the implementation of this policy, the cost of living increase was taken out of the area of contention. Measures involving inflationary compensations in wages were no longer to be surprises spinning out in the annual budgets.
This spirit of compromise epitomised in the income accord (1990-1993) contributed to a more harmonious climate of industrial relations. Although the agreement was not renewed upon its termination, the cooperation that existed in arriving at an annual cost of living compensation has prevailed to this day.
Nevertheless, this wage mechanism has not been viewed very favourably by the employers and campaigns have been conducted aimed at replacing it with a system that links wage increases to productivity. This lobby, which recently has been gathering momentum, is based on the premise that a wage increase adjustable to levels of productivity is more conducive to economic growth and competitiveness. The fault line of this argument is that statistics reveal that the wage increase in Malta, over the past decade, has been moderate. This wage moderation is not a Maltese phenomenon. A 2010 ILO publication on “fair wages” reveals that between 1995 and 2007 there was a decline in wage share, ranging from 0.7 per cent in Lithuania to 6.5 per cent in Spain, in 25 of the 30 European countries (27 EU member states plus Norway, Switzerland and Iceland).
The wage share measures how economic growth is distributed between labour and capital. If the growth in average wages is slower than the growth in GDP per capita, the wage share declines. If, on the contrary, average wages grow faster than GDP, then an increase in the wage share is registered. According to ILO wage data, as perused in the above-mentioned study, between 1995 and 2007 the wage share in Malta declined by 1.9 per cent. This does not necessarily translate into a declining total wage compensation and unfavourable income distribution for labour. It does, however, mean that the increase in GDP generated by high value-added economic activities did not have a trickle-down effect.
Interestingly, in 2008/2009, Malta, like most of the other European countries, registered an increase (0.47 per cent) in the wage share. This was a time when the economies of Europe, grappling with the financial crisis, posted a negative growth in their GDP.
Malta, however, does not seem to be following the same line as the majority of European countries as regards the relativity of the minimum wage to the average wage. Eurostat, complemented by national statistics, as perused in the ILO publication, places Malta among the six European countries in which, between 1995 and 2006, the minimum wage in relation to the average wage registered a decrease. Overall, the drop in Malta was 1.4 per cent. The other five countries are Spain (0.6 per cent), Portugal (2.5 per cent), Romania (6.4 per cent), Greece (8.4 per cent) and Belgium (12 per cent). In all the other European states, an increase in this relativity was registered.
What the foregoing implies is that in spite of COLA, there has not been a surge in wage increases that have set us apart from the European mainland. Overall, as in all the other European countries, the Maltese wage policy has been characterised by moderation. This wage restraint may have slowed down progressive adjustment of average wages, which reflects changes in the composition of the skills of the workers who are contributing to higher value-added activities and, hence, to higher GDP.
Western capital-market economies have thrived and legitimised themselves because they have managed to build a relationship in which a gain on one side is balanced by a corresponding gain on the other. The pertinent question that has to be raised in this debate is whether this balance is being maintained. A zero-sum game in which gains on one side are made at the expense of the other is not conducive to a healthy economy.