Whether one admits it or not, there are risks connected with a well-performing economy. Sustained and significant economic growth over a number of years causes pressures on labour supply, wage inflation and house prices. Unless a balance is found between the opposing dynamics, the long-term threats to the economy will increase.

The president of the Malta Employers’ Association, Dolores Sammut Bonnici, did not mince her words when speaking at their annual general meeting about the pressures she sees building up and that are worrying employers. She explained graphically the primary challenge employers were facing when she said that the thrill of being awarded a new contract is very short-lived when you come face-to-face with the difficult task of recruiting additional staff.

Despite the recent influx of 40,000 foreign workers, businesses are finding it difficult to find the right workers to implement their investment plans. This shortage of staff is leading to wage inflation as employers try to poach experienced workers from elsewhere. When wages rise to a certain level, either because of the scarcity of labour supply or because of wage increase demands by workers to cope with escalating cost of living, a downturn in the economy become inevitable. The employers see a rising tendency of foreign employees in all economic sectors leaving the country after a few months because they consider the cost of staying here to be too high.

They are also worried about the increasing recruitment in the public service, especially just before the last election, as well as the mushrooming number of people employed on a position-of-trust basis in the public sector. The government is not only crowding out the private sector in the labour market but also often engaging such people without any explanation about their credentials, remuneration packages or what they have achieved since they were recuited.

Populist promises to increase fringe benefits for workers in the form of compensation for public holidays that fall on a weekend is another bad strategy that affects workers’ productivity and businesses’ viability. Family-friendly measures have encouraged more women to join the active workforce again but there is a risk that certain decisions only add to employment costs without significantly improving the family environment.

Malta’s open economy faces significant external challenges. The rising price of oil, the legal changes the European Union may implement on fiscal issues and the political risks that could erupt at any time and affect the tourism industry are some of the external dangers we need to manage. Malta must avoid increasing the risk factors by not letting an overheating economy put further pressures on labour and housing costs.

The employers’ association is right to voice its concerns. Its appeal to link labour compensation to productivity and value-added makes good investment sense that will give benefits to the economy in the long-term.

The rising cost of the rented property is another concern that is affecting not only the attractiveness of Malta in the eyes of foreign works but also putting pressure on locals who cannot afford some of the high rents demanded by landlords and property owners.

The government needs to reflect on the signals of an overheating economy made so evident by the Malta Employers’ Association to avoid future economic downturns.

This is a Times of Malta print editorial

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