‘The economy cannot do without foreign workers’
Vanessa Macdonald gets a snapshot of the employment situation from JobsPlus head Clyde Caruana, as job creation continues to spiral upwards
When Clyde Caruana took over what was the Employment and Training Corporation in April 2014, there were 7,291 people registering as unemployed. There are now 1,800.
And the nature of work has changed as markedly as the name of the government agency, now JobsPlus.
Of the unemployed, the majority – 1,400 – is what economists call the ‘frictionally unemployed’: those who are in between jobs or on the way to jobs, leaving only 400 who are pragmatically speaking not employable for various reasons.
“We have to deal with many more employers than we did in 2014. Then there was a pool of people looking for work; now we are in a situation where employers need to honour contracts and they have serious concerns as they cannot find enough people,” Mr Caruana admitted.
In classic economic theory, this gap between demand and supply would drive up wages – and it is only the open flow of foreigners which is keeping this in check by shifting supply up.
“If we were to keep the supply curve more rigid, then yes, we would see wage inflation which would have repercussions on our competitiveness, and a cascading effect on the whole labour market,” he said.
Job creation continuing
The number of jobs created is spiralling, with 11,000 being added in 2016, 12,000 in 2017 and 13,000 last year. And another 13,000 will be added this year.
“I have been forecasting for the past two years that job creation would plateau and yet there is still no indication that this has happened,” he said.
“Every month we visit about 150 large employers and survey their expectations for the next 12 months and 65 per cent of them say – very consistently – that they are likely to expand their business operations.”
This growth would never be possible if there were no foreigners to take up vacancies, now that the local labour force has pretty much dried up.
At the end of 2018, there were 55,000 foreign workers on the island, up from 43,000 the previous year.
Analysis of the figures reveals interesting trends. For example, as the recession in Europe eased, fewer people from member states were driven to find jobs abroad, and employers started to look further afield. At present, over two-thirds of foreign workers (68 per cent) are EU nationals but this is declining as a percentage, while that of third-country nationals is increasing steadily.
This has put tremendous pressure on JobsPlus. However, the agency is taking 10 days to handle work permit applications, at Mr Caruana’s insistence that the pending caseload should never go over 1,000.
“Our job is to make sure that the administration of the work permits is done as fast as possible, and in fact, many times the delay is caused because we are waiting for documentation from abroad,” he said.
One risk might be that the speed with which they are administering the applications might mean overlooking abuse, but Mr Caruana is adamant that there are various checks in place, both by JobsPlus and by the police.
It would be unreasonable – and perhaps verging on madness – to say that we could close our doors to foreign workers
There are also checks which indirectly translate into fiscal enforcement of the applicant: “One thing we do is match the number of applications to the activity of the company. If a restaurant declares that it has 40 covers, or a construction company wants more labourers, then we know how many people are justified.”
Bottlenecks in housing, education
The rapid growth of the economy in such a short span of time has led to bottlenecks in the supply of housing and education. He insisted that the issues are being dealt with, although he acknowledged that some efforts need to be accelerated. A school to cope with the demand for expatriate children has not yet materialised, for example.
“These bottlenecks could hinder economic growth,” he admitted.
However, he shed light on some other interesting trends: 80 per cent of the foreign workers coming here are single and aged 30-31 on average, with 45 per cent of them being female.
“This means most of them don’t have families and it is highly likely that they are very mobile. So they spend not more than two or three years here – for the experience – and then move again,” he explained, saying that this actually works in Malta’s favour.
“This has its pros as, at the end of the day, the workers do not put substantial pressure on the Maltese welfare model, as they do not intend to settle here, will not need educational services, health services or pensions.
“On the other hand, it has a significant impact on productivity, which affects employers who have to train their replacements, at considerable cost.”
One other aspect of having so many singles is the mismatch with the traditional housing market, with demand being for smaller units.
“There was a dramatic increase in the property market and in rents. But that has been, bit by bit, stabilising as supply is catching up with demand,” he reassured, pointing out that the new stock was the result of development decisions taken two years ago.
“There are two markets: for locals, who are likely to have a family; and foreigners who will not need two or three bedrooms; one or two would be enough and thesize would be far smaller than what a Maltese family would accept. We need to acknowledge that the market is segmented,” he urged.
There are two other aspects of the workforce that have changed in tandem with economic growth: the female participation rate and the influx of migrants.
The former is a success story, with the rate increasing dramatically over the past decade. The older cohort of women may still feature very little in the workplace but as they move out of the working age category, they are being replaced by the younger cohorts, where the picture is very different.
“I estimate that in the next four to five years, Malta will reach the EU average for female participation. It is encouraging that in the 25-29 age group, we have the highest female employment rate in the EU, even higher than in Scandinavia. And it is likely that the 30-34 age group will soon also top the rankings.”
And what about migrants? With such demand for labour, is Malta maximising their potential in the workforce?
Mr Caruana revealed that there were only some 3,000 migrants here – the rest having probably left for the mainland. JobsPlus is collaborating with the Department of Social Security to ensure that they can sustain themselves in a legal manner.
“Most of them are in legal employment, but about 1,000 are going to be targeted to make sure that they move from benefits into employment through training in basic skills… with some enforcement!” he said.
With such demand for third country nationals, you would expect more Africans to come here through regular channels but the reality is that employers tend to opt for Eastern Europeans and Asians.
Mr Caruana hesitated to make sure he chose his words carefully: “There are embassies which would handle their applications, and there are no other obstacles to getting a single permit. It is not xenophobia, far from it, but just that employers want to be able to relate to the work ethics which vary from nationality to nationality – a very important factor for employers.”
Mr Caruana speaks in a calm and measured way but there is one aspect that makes his face take on a more determined cast: if people want their standard ofliving to be maintained – and to converge with that of people in France and Germany – then the economy has to keep growing. And for the economy to keep growing, it needs more foreigners, even though this may bring congestion, traffic and housing problems.
“I am quite aware that many people focus on the cost of the influx with respect to the environment and so on, and there will be an impact.
“What we need to do is seek ways that do the least possible harm to the environment.
“If we want to retire at 65 or less, to keep the welfare support and have more, the only solution is more economic growth,” he said, drumming each point home with his fingers.
What if the day came when the island was declared ‘full up’? Of course, the most effective way to throttle economic growth would be to slow down the influx of workers, something which Mr Caruana controls.
He looks aghast at the suggestion: “If there were political direction, I suppose it could be done.
“Is there a magic number that Malta can absorb? Of course you cannot add 12,000 people indefinitely. But I would say that by and large, the current economic growth rate will continue for around three to four years more, and that by then the economy will cool down to a still impressive four per cent annual growth.
I estimate that in the next four to five years, Malta will reach the EU average for female participation
“If we want wages to increase, if we want more in-work benefits, or higher children’s allowance, or the extension of child care services… All these things come at a cost. Take child care: the cost five years ago was less than €5 million. Today, it has shot up to over €20 million. From where is that money coming? From the taxes relating to those who are working.
“One of the problems that we have – which is mentioned by both sides of the House – is that pensions are still low, as very often in the past there was only one bread winner. If we want to increase pensions, the money has to come from somewhere and it can only come from higher income from taxes through further economic growth – if we are to avoid increasing the tax rates for some parts of the population, on which there is political consensus.
“We have a choice: we can stop or slow down the economic growth rate, but then we cannot have more welfare as someone needs to foot the bill.
“And to the naysayers, it will never happen that there will be some sort of calamity and all the foreigners would leave. The 55,000 will stay in absolute terms – even if it changes.
“In two years’ time, the third highest source of income for Maltese families will be domestic rental income (after employment and pensions), overtaking income from interest on deposits.
“And there are more people on the property ladder – or getting onto it – than we might assume, because of the low interest rates – which are likely to remain low in the foreseeable future,” he said, when asked about whether property owners were limited to upper segments of society.
He comes back to the point he wants to emphasise, again tapping with his fingers as he talks: “We cannot do without foreign workers. It does not make sense at all. As we speak, 45 per cent of employers have at least one foreign worker.
“They have become so ingrained into our economic system that it would be unreasonable – and perhaps verging on madness – to say that we could close our doors to foreign workers. The moment we do that, there will be serious repercussions for many people: imagine if you have a company with full order books that cannot fill a third of its vacancies! What would it do?
“Of course there are challenges, but it would be far easier to tackle those challenges than it would be to say that we could do without foreign workers!”