Employers protest against mandatory cost of living allowance

In their protests about the mandatory wage increase to be announced as part of the budget for 2010, the employer organisations have called for a review of how this increase is to be given to workers. In response, the government and trade unions were uncompromising, thus rejecting the employers’ demands. The issue is due to be discussed at the Malta Council for Economic and Social Development.

Since 1990, when an incomes policy was agreed between the social partners, a Cost of Living Allowance (COLA) increase, based on the Retail Price Index (RPI), has been announced in every budget speech. This increase, being mandatory, is given to all workers.

Employer proposals to lessen impact of wage increase

Due to the high rate of inflation registered between January and September 2009, the wage increase to be announced in the budget for 2010 is estimated to be relatively high (€5 to €7 a week). The employer organisations contended that such a wage spiral would have negative effects on the competitiveness of the Maltese economy, which may subsequently result in job losses. During the pre-budget consultations with the Minister of Finance, Tonio Fenech, the employers made proposals to mitigate the effect of this wage increase. In the first instance, they suggested that the increase should only be given to low-income workers.

In a survey conducted among the members of the Malta Employers’ Association (MEA), 74% of respondents stated that they are not in a position to absorb the COLA increase for 2010, whereas 21% stated that they would have to reduce their current workforce as a result of the increase. In light of these findings, MEA proposed that the government should subsidise the COLA increase. Assuming that the increase would be €5.80 a week, MEA proposed that €3.50 would be paid by the employer and €2.30 by the government. This mechanism will be on a one-off basis, for 2010 only. The €2.30 will be added to the COLA for 2011, provided that the economy registers a positive gross domestic product (GDP) growth during the third quarter of 2010.

Government rejects employer proposals

Minister Fenech recalled that, in the past, there had been cases where the COLA increase was given in advance. Given the government’s difficult revenue position, he stated that he could not comply with the MEA proposal as this would entail allocating €12 million out of the government’s budget. In his opinion, such funds would be better utilised to help ailing industries and offer schemes with the aim of creating jobs. The minister also stated that COLA has contributed to the prevalent harmonious industrial relations in Malta, as it tends to make trade unions more moderate and cautious in their demands for wage increases. In an interview reported in a local newspaper (The Times, 3 September 2009), Minister Fenech was quoted as saying that ‘we should move away from the mentality that to become competitive we must have the lowest wages in the world’.

Trade unions support government position

This uncompromising position by Minister Fenech was sustained by the Maltese trade unionists who argued that, as a mechanism that helps workers to maintain the purchasing power of their wages, the COLA system should not be altered. The secretaries general of the General Workers’ Union (GWU) and Union of United Workers (Union Haddiema Maghqudin, UHM), whose membership comprises about 80% of Maltese trade union members, warned of serious consequences should the government opt out of the COLA mechanism in the next budget. They have both insisted that the COLA increase be given in full to all workers. The UHM General Secretary, Gejtu Vella, stated that ‘whatever happens in the market, there will be a contingency for employees – that is what has been agreed upon’. On the other hand, the GWU General Secretary, Tony Zarb, called for a revision of the RPI weighting mechanism so that this index would reflect the changes in the consumption patterns of Maltese society.

Commentary

In the wake of the financial crisis, the Maltese government has adopted a policy of absorbing, on a temporary basis, part of the wage bill of companies facing serious problems in an effort to cope with the adverse effects of the economic recession. This move may have induced the employers to propose to the government to stagger the wage increase over two years and at the same time shoulder part of the burden of this increase. Overall, real wage growth in Malta has been modest and similar to that of most European countries, although Malta has very often registered higher inflation. However, the latest Central Bank of Malta Quarterly Reviews reveal that, in the last quarter of 2008 and the first quarter of 2009, the increase registered in Malta’s unit labour cost has been more pronounced than in the eurozone as a whole. The compensation per employee is outweighing labour productivity. In view of this, the employers might have expected the government and trade unions to be more sympathetic to their requests.

The issue is due to be discussed at the Malta Council for Economic and Social Development (MCESD), the national tripartite institution for social dialogue. Judging by the stand taken by government and trade unions, achieving a compromise that would come close to the employers’ requests is very unlikely.

Saviour Rizzo, Centre of Labour Studies

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