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Malta: Wage formation

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Whereas the minimum wage in Malta is set by law, wages are often regulated by collective agreements at enterprise level. All wages are topped up by a mandatory annual wage increase based on the inflation rate. Workers in the IT sector are among the most highly paid categories of workers. Industrial disputes in Malta normally revolve around wage issues. The General Workers’ Union has organised several campaigns against illegal and unethical wage practices. Unions are concerned that inflation is rising higher than the annual cost of living increase, thus diminishing the purchasing power of workers.

1. Systems of wage formation

a) Please briefly describe the main systems of wage formation in your country (when relevant please distinguish between private-public sector). For example:

  • is the system underpinned by legislation or collective bargaining, a mixture of both, or other factors, such as the labour market?
  • who are the main actors?
  • do state bodies play a role in wage setting?

The system of wage formation includes elements of both legislation and collective bargaining. Legislation stipulates the minimum wages through the National Minimum Wage National Standard Order and various Wage Regulation Orders for specific sectors. Besides, a mandatory Cost of Living Allowance (COLA) based on the inflation of the previous 12 months as calculated by the Retail Price Index (RPI), is added every year to all the wages including the minimum wage. The RPI Management Board is composed of a chairperson, the Director of the National Statistics Office (NSO) (ex-officio member), two government representatives, two representatives of industry (one from the General Retailers and Traders Union and another one from the Federation of Industry), and two workers' union representatives (one from the Confederation of Malta Trade Unions and another one from the General Workers’ Union)

Around half of all employees are covered by collective agreements. The main actors in collective bargaining are trade unions and employers. Employers’ Associations are not normally involved in collective bargaining. The government is a main employer in Malta. It has a Collective Bargaining Unit (CBU) which is involved in the negotiations of collective agreements on behalf of the government departments and other government-run or -owned enterprises. The CBU was set up to assist in the wage containment in the public sector, as part of the government’s policy to control public expenditure. Its remit is to ensure that the financial benefits negotiated in the collective agreements are set within the parameters set by the Minister of Finance.

b) If collective bargaining is the main determinant, what is the main level at which this takes place (national, sectoral, and/or company level)? Where relevant, please refer to other European Foundation studies that you have written in this context. Where collective bargaining fails, what is the role of labour market institutions (i.e. labour court, labour commission)? Provide an example if relevant.

Collective bargaining in Malta takes place at company level. Maltese legislation establishes and caters for voluntary settlement of disputes through mediation and conciliation. The Employment and Industrial Relations Act (EIRA, 2002) makes provisions for the appointment of a conciliation panel of not less than five persons to serve as conciliators in trade disputes. Where a trade dispute exists or is apprehended, the parties to the dispute may agree to refer the dispute to (a) the Director of the Department of Industrial and Employment Relations (DIER) or (b) a conciliator who may be chosen by the same parties to the dispute in agreement with each other. If no such agreement is reached between the parties, the director chooses a conciliator from amongst the conciliation panel. If the appointed conciliator reports a deadlock, the matter is referred to the minister responsible for employment who may choose one of the following two options: (i) appoint a court of inquiry to inquire the causes and circumstances of the dispute; (ii) on an application by both parties, refer such trade dispute to the Industrial Tribunal.

c) Monitoring. What monitoring of collective bargaining is carried out (if any)? Who carries this out? (Joint /Tripartite body at national/sectoral level)? How does it do this? Are there any studies or surveys?

The Central Bank of Malta (CBM) and the Economic Policy Division (EPD) within the Ministry of Finance, the Economy and Investment monitor collectively agreed wage developments and regularly include such data in their reports. Monitoring is done be examining samples of collective agreements. Social partners are not involved in such exercise.

To-date, other aspects of collective agreements have rarely been studied. In 2003, Montebello made an analysis of 80 collective agreements in a study entitled: Trends in collective bargaining in Malta: 1998-2003. Recently, the DIER in collaboration with the Centre for Labour Studies embarked on a project through which a quantitative analysis of all recent collective agreements is underway. All collective agreements signed in Malta should be submitted to the DIER, which renders it an ideal location for their monitoring. This process should lead to regular reports highlighting trends in collective agreements.

2. Wage developments

a) Please briefly describe any major overall wage development trends over the past five years (refer to previous EIRO updates where appropriate)

According to the NSO, between December 2003 and the last quarter of 2007, the average wage rate increased by 12%, from €11,731 in 2003 to €13,090 in 2007. The average wage in the manufacturing sector increased by 16%. The increase in the unit labour cost, induced by the wage increases negotiated through collective bargaining may have contributed to a number firms operating in Malta relocating to other countries with lower labour cost. Indeed, during the past five years, many firms in the textile sector closed shop in Malta.

This surge in unit labour cost was not felt in the hotels and restaurants sector. Indeed, wages in this sector increased by only 2%. Looking at specific occupations, it is interesting to note that the average wage of legislators, senior officials and managers increased by 17%, the average wage of professionals by 20%, and the average wage of plant and machine operators and assemblers increased by another 20%. On the other hand, the wages of sales persons and shop workers decreased by 1% and the wages of persons in elementary occupations only increased by 3% between 2003 and 2007.

b) What developments have there been regarding equal pay between men and women in your country? Is this an issue for debate?

NSO statistics reveal that the gender pay gap diminished from 5.5% in 2002 to 2.5% in 2006. This is by far the lowest gender pay gap among all the EU member countries. The gender pay gap is considerably low in the public sector when compared to the private sector. The gender pay gap in the manufacturing sector is higher than that in the services sector. A report by the National Commission for the Promotion of Equality (NCPE) reveals that in line with other EU countries, the largest gender pay gaps in Malta relate to the better paid occupations. On the other hand, a large reduction in gender pay gap occurred among plant and machine operators and assemblers in recent years.

Equal pay between men and women does not tend to be a topical issue in Malta. The public agenda focuses more on the low participation rate of females in employment. This priority is reflected in government employment policy documents such as the National Reform Programme. Having said that, the NCPE has been promoting the idea of equal pay for equal work over the past years through it various activities and publications.

c) Please briefly describe the main recent sectoral agreements and outcomes in terms of pay

There are no sectoral agreements in Malta. Collective bargaining is carried out at company level.

d) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

No statistical evidence is available.

e) Recent main actions/strikes /protests on wages

Industrial disputes in Malta normally revolve around wage issues. The following are three disputes which started in April 2008.

The General Workers’ Union (GWU), Malta’s largest trade union was at loggerheads with ST Microelectronics, Malta’s largest private employer and leading exporter, over unpaid bonuses and wage increases agreed in the collective agreement. While the union managed to get the compensation it was seeking for the employees, the issue shed light into the dire situation of the company’s manufacturing plant in Malta. The union and the government agreed to work together to safeguard the over 2000 jobs at St Microelectronics, which, at the moment, appear to be at risk.

The Malta Union of Teachers (MUT) ordered over 300 teachers at the Malta College of Arts, Science and Technology (MCAST) to strike for two hours. This industrial action was prompted by the alleged foot dragging of the MCAST management in the bargaining process leading to a new collective agreement. The main issues included the career progress of teachers and the payment for work carried out after office hours. As no breakthroughs occurred, in May, the MUT ordered further industrial action by instructing the MCAST teachers not to do any other work apart from teaching. Subsequently, an independent mediator was appointed to help sort the differences between the parties, which, to-date have not yet been settled.

The Malta Union of Midwives and Nurses (MUMN) threatened industrial action which would affect all hospitals and health centres in Malta. The dispute concerned an allowance increase of about €582 agreed in the collective agreement signed in October 2007. The issue broke out when nurses and midwives were told that the instalment due in April was not going to be delivered. The MUMN was concerned that the workers would not receive the whole allowance by the end of the year, as only two instalments had been paid so far. Two weeks later, the industrial dispute was called off, after meetings with government officials lead to an agreement that the rest of the increase, amounting to around €437, would be paid in another two instalments, one in July and another in December.

f) What are the main social partners’ views on wage developments in your country?

Employers’ associations have been continuously demanding that wage increase in the private sector be regulated by economic demand and linked to productivity. The trade unions tend to have more bargaining power in the public than in the private sector. The increasing wage costs contribute heavily to the overall expenses of the public sector. Throughout the years, organisations in the private sector have often had to increase wages in order to retain key persons who might have otherwise moved to the pubic sector. In this regard, employers’ associations have recommended the capping of wages in the public sector. This request formed part of a failed social pact proposal pushed forward in 2004. The growing difficulties stemming from the increasing price of petroleum and the expanding Asian industries, is revamping the need of a social pact. Employers’ associations view flexible employment and wage developments as beneficial to businesses. For instance, the Malta Employers’ Association (MEA) believes that definite contracts with individual pay agreements are being effectively used in professional services. According to MEA, project based contracts guarantee employers of the provision of the services required for the duration of the agreement, while professionals benefit from higher wages and a greater variety of work experiences.

Some unions like the Airline Pilots Association (ALPA) and the Medical Association of Malta (MAM), representing professional workers who are being lured to seek employment abroad where wages are much higher, have seen that their bargaining power is on a stronger base. Capitalising on the shortage of personnel in these sectors caused by migration, they have managed to achieve hefty wage increases in recent collective agreements. On the other hand, in the private sector, where firms are concerned about their competitiveness, the trade unions have to be very moderate in their demands about wages.

The GWU is concerned about particular trends in wage practices. For instance, the union revealed the trend among some shop owners employing salespersons on condition that they receive half their wages in kind. According to the GWU, while these shop owners are ignoring the provisions of law which state that wages are to be paid only in currency, the involved employees are reluctant to report their case or to join a trade union for fear of being sacked. In 2006, the GWU campaigned against the exploitation of young graduates, such as law graduates, who are being paid the minimum wage on the pretext of inexperience. In 2007, the union launched a campaign called www.contractsofemployment.info to educate employees who have individual contracts about their employment rights, including their wages.

3. Minimum wages

In this section, we are aiming to update information from the previous study on the minimum wage (http://www.eurofound.europa.eu/eiro/2005/07/study/index.htm)

a) Does your country have a national minimum wage?

*If yes: b) How is it defined? How is it set and uprated? Do you have any data as to its level and coverage rates?

*Il no: c) Are there minimum wages (sectoral, regional) covering a major part of the workforce?

Malta has a national minimum wage which is topped up every year by the previously-mentioned COLA.

The law specifies that “part-time employees shall be paid pro rata at an hourly rate not below the national minimum wage”. Besides, it also states that “Where any Wages Council Wage Regulation Order applies to any employee, the wages payable to such employee shall not be less than those laid down by such Wages Council Wage Regulation Order, adjusted for cost of living”. In 2008, the national minimum wage stands at €142.5 per week or approximately €7410 per annum. Lower rates apply for workers younger than 17 years and for those aged between 17 and 18 years.

According to Eurostat, the minimum wage in Malta in 2005 was equivalent to 51% of the average monthly gross earnings in industry and services. The figure is one of the highest among EU member states. Eurostat data also indicate that in 2005, Malta had second lowest proportion of workers receiving a minimum wage at 1.5% (after Spain which had 0.8%). While more recent statistics are unavailable, it is likely that the proportion of workers on minimum wages has remained relatively stable since then, following a decrease in the proportion of lower paid categories of workers in elementary occupations and plant and machine operators, and an increase in the proportion of sales persons who also have low wages.

d) What are the views of the social partners and the government on the minimum wage(s)?

The government and social partners in Malta agree that minimum wages play an important social role in the Maltese society. The disagreements are related to the annual cost of living increases. The MEA and the FOI contend that, given the current global conditions and the vulnerability of Maltese industries, the government should stop the practice of granting automatic cost of living increases in the annual national budgets. Employers stress that wage increases should only reflect productivity, and any increases that are over and above the productivity levels of the economy jeopardise the economic viability of firms, and in the process make Malta’s economy uncompetitive. The COLA should apply only to the lowest wage earners, to ensure that they are provided with a minimum standard of living. According to employers, all other wage increases should be negotiated through collective bargaining and take into account the competitiveness and productivity of particular organisations.

On their part, the unions are concerned that the inflation rate is rising much faster than the COLA and argue that the purchasing power of minimum wage earners is diminishing every year. The fears relating to inflation have exacerbated in recent months due to Malta’s adoption of the Euro currency on 1 January 2008. In order to try to limit the effect of the currency change over, the UHM set up a price watch campaign surveying a list of different products. The campaign ends in May 2008. The unions oppose the employers’ proposals to stop giving COLA across the board.

e) Is the minimum wage a subject for debate in your country?

As explained in the answer for the previous question, the debate tends more to be associated to the COLA rather than the minimum wage.

f) Do you have any data on the minimum wage in relation to average wages, how it interacts with the tax system and any effects it is having on employment?

Between 2003 and 2007, the minimum wage accounted to about 55% of the average wage in Malta. The difference between the minimum wage and unemployment benefits, which is marginal, does not motivate the unemployed to take up a job in the formal economy. Low skilled persons often find it more advantageous to register as unemployed in order to get the benefits and, at times, engage in undeclared work to supplement the benefits. Workers on minimum wage do not pay income tax as this wage is below the threshold at which income is taxed.

4. Wage formation within the IT sector

Please describe in detail the wage formation process in the IT sector in your country.

  • I] Please give the main features of the sector

a) Importance of the sector in the economy

The sector contributes to about 7.06% to the Gross Value Added of the Maltese economy (€325,601,000 and €4,611,552,000 respectively) (NSO).

b) % of the workforce in the sector

8,166 workers, that is, around 5% of all employed persons worked in the IT sector in 2007. About two thirds of them are men. Besides, two thirds of the persons working in the IT sector are aged between 15 and 34 years (NSO).

c) Main pay-related characteristics, such as: low pay, differences in pay between men and women and/or older and young workers, wage drift;

In 2007, on average, the workers in this sector earned €14,640, making them among the most highly paid categories of workers in Malta (NSO). Females working in IT earn around 27% less than Males. Besides, IT workers aged between 35 and 44 years are better paid than the rest of their peers.

  • II] Describe the main characteristics of the sector pay decision process

a) Is the wage formation process in this sector shaped by institutions? If there is a collective bargaining process, how does it work? Eg:

  • at sector level only;
  • at sector level, which then provides a framework for company level;
  • at company level only

Who are the main actors?

It is unclear how much of the wage formation is determined by collective bargaining and how much is based on personal contracts. As specified earlier, collective bargaining in Malta is carried out at company level. The wages of most IT personnel in the public sector and in the large organisations in the private sector tend to be determined by collective agreements. The main actors in these cases are the trade unions and the employers. However, workers in small private IT providers (which appear to be on the increase), tend to be non-unionised. In these cases, wages are determined by individual contracts between the professional and the employer.

b) Specific issues : upward pressures on pay such as wage competition between firms, the effects of a tight labour market, and using pay as an attraction and retention tool, the effects of migration on pay, the effects of the presence of multi-national firms within a sector and whether comparisons have been made between the pay offered by multinationals and local companies

A study about the demand and supply of ICT skills in Malta revealed that service providers are facing difficulty to recruit workers in specialised areas, in particular, qualified developers and technical workers with advanced hardware knowledge. This inevitably leads to greater wage competition between firms who constantly try to obtain the best workers. IT professionals appear to change jobs faster than other workers, often in search of better pay packages. Service providers acknowledge that certified workers are seeking lucrative opportunities abroad, resulting in brain drain in the sector. At the same time, many ICT companies offer their services abroad, especially in other EU countries, and can thus give higher pay packages to their employees than some other Maltese companies.

  • III] Analysis on trends and views of the actors

a) Are there any major differences between this sector and the rest of the economy in terms of wage formation?

This sector is expanding rapidly, encouraged, among others, by the government policies aimed at facilitating the economic transition from traditional labour intensive industries to greater value-added high-tech businesses. The increasing number of graduates with IT skills is not matching the demand. The ensuing shortages put pressure on employers to lure the best human resources by offering higher wages. The influence of the unions in terms of wage formation in the sector does not seem to be manifest. For example, the unions are finding it difficult to affect wage formation and other employment conditions within the expanding call centres and internet betting companies, which in their nature, have a high turnover of employees. Workers in eGaming and call centres are still not covered by a Wage Regulation Order which regulates their wages, and most are not covered by collective agreements.

b) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

The trend among IT service providers is to attain higher quality work by using less but more qualified technical workers. This trend is inevitably leading to greater individualisation of pay packets.

c) What are the main views of the social partners in this sector on wage formation?

Since most of these workers are still not unionised, the trade unions have not been vocal about the conditions of workers in this sector. Workers in this sector tend to be very mobile. This sense of mobility acts as a disincentive to unionise.

d) Are there any positions of the authorities on the sector’s wage policy?

The Maltese government does not have any particular position on the sector’s wages.

5 Views of the national centre

The dual labour market consisting of two widely differentiated wages, has become manifest in Malta. One of the topics discussed during the meeting among the social partners held on occasion of Labour Day was the presence of precarious jobs in the Maltese labour market. There is a fear among the trade union movement that the influx of irregular migrants is lowering wages and in the process increasing precariousness. On the other hand the increase in food prices and fuel as well as the restructuring exercise, often entailing downsizing, being undertaken by several firms operating in the manufacturing sector in Malta are bringing much more to the fore the vulnerability of the Maltese economy. It is in this context that a new call has been made to reinvigorate the social pact. The main focus of such a pact would be on moderation of wages. Naturally the unions are wary of such deal as it may entail too great a sacrifice for workers at a time when certain categories of workers have managed to strike a very good deal. They fear that this would lead to further wage differentials. The trends in wage bargaining have shown that establishing a level playing field in wages policy is very difficult. Lately the MEA has suggested that collective bargaining should be conducted on a sectoral basis. This suggestion constitutes a shift of opinion, as hitherto, this association has always held that collective bargaining at enterprise level is ideal for the Maltese economy. What may have brought about a change of opinion is that establishing a more level playing field in wages policy might be healthier for the economy. That might also lead to the elimination of COLA, since collective agreement at sectoral level would mean that the majority of workers would benefit from a wage increase agreed in the collective agreement. There would thus be fewer workers complaining about lack of equity.

Manwel Debono and Saviour Rizzo, Centre for Labour Studies

Page last updated: 31 March, 2009
About this document
  • ID: MT0808019Q
  • Author: Manwel Debono and Saviour Rizzo
  • Institution: Centre for Labour Studies
  • Country: Malta
  • Language: EN
  • Publication date: 31-03-2009