The tight labour market

One of the most important economic indicators has always been employment. It has been a key issue in the political arena for as long as I remember. The fact that today’s employment situation is very good must have also impacted on voters’ opinions in 2017.

According to the Labour Force Survey, we had over 200,000 persons in employment in September 2017, which is just over 54 per cent of persons aged 15 years and over. This percentage is a full one per cent over that of September 2016.

I believe that in effect there are more than 200,000 persons in employment, as some employment may go unreported. Among those aged 15 years and over, those claiming to be unemployed are 2.3 per cent, down from 2.7 per cent the previous year, while those described as inactive are 43.5 per cent down from 44.2 per cent the previous year.

I have not met one single employer who in the past months has not told me that recruiting and retaining suitable staff is not one of his major business concerns. There is therefore no doubt that in Malta we do have a very tight labour market.

The only way we have been able to sustain economic activity has been through foreign labour. And we all know that foreign employees have come in their droves. They have taken jobs that Maltese employees were reluctant to continue doing. They have also taken jobs that Maltese employees do not have the required expertise for. Some have also taken up jobs for which we have local expertise, for which there is the willingness of Maltese persons to do, but for which there are not enough persons to fill the vacancies available.

Is this increase in the general level of salaries sustainable in all sectors? What happens if there is ever a downturn? Will employees accept a decrease in their salaries?

The tight labour market in its own way reflects a very positive performance, something we should all be pleased with. In this regard, there can be no ifs and buts.

The activity rates denote an even tighter situation. Among those aged 15 to 64 years, those active in the labour market represent 71 per cent of the total. Among the age group 25 to 54 years, the activity rate is up to 83.6 per cent. Although we do not have public data about those aged 25 to 40 years, one would expect that the activity rate with this narrower age groups is even higher, since among women aged 40 years and over, one finds a higher incidence of those who do not return to the labour force after maternity.

Although there can be no ifs and buts about the current positive economic performance (we need to appreciate that we have not had a severe unemployment problem for more than 30 years now), we need to look at the situation in a bifocal manner. We need to have our eyes on the short term without losing sight of the long term.

We cannot let investment opportunities go away, because once they go, they are very often lost forever. As such, foreign workers were a nice way of ensuring that employers find the staff they require. We also had to ensure that we do not lose any of the investment we already had in our country because of a shortage of employees.

On the other hand, how many more employees do we really require? Do we really know the social impact of such a significant increase in the population? Do we have an adequate infrastructure to cope with such an increase?

The very tight labour market situation has also brought about quite significant increases in salaries in a number of areas, also with a resultant impact on the general level of salaries. Is this increase in the general level of salaries sustainable in all sectors? What happens if there is ever a downturn? Will employees accept a decrease in their salaries?

We must appreciate that, as a country, we have been successful in generating employment – hence the tight labour market. We should not take this success for granted, nor should we assume that it will continue forever unless we work hard at maintaining it. We cannot just look at the short term but also need to look at the long term. We must also look at the implications across the whole society of any decisions we take.

We have a fine balancing act to do to manage this tight labour market.

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