Floating in mid-air on an AI trajectory of disruption

In the post-independence period, Malta’s economy was heavily reliant on the British military presence, particularly the Malta Dockyard, a naval base with multiple ship-repair facilities. This was the island’s largest employer, with thousands of jobs tied to British Empire and NATO operations. At its peak, it was overstaffed, loss-making, and outdated.

In the mid-1970s, fears of mass unemployment were real, with predictions reaching up to 25% in some scenarios. Given the island’s small size, limited natural resources, and lack of economic diversification, a strong push for job creation became sine qua non. This began with export-oriented manufacturing in textiles, electronics, tobacco products and footwear. The state played a major role through nationalisations, public works, harbour investments and Freeport infrastructure, while private-sector investment also proved essential.

Services eventually became the dominant sector, including financial services, iGaming, aviation, information technology, professional services and tuna ranching for export. Tourism, leveraging Malta’s Mediterranean climate and rich heritage, has over the past sixty-five years contributed significantly to economic growth, attracting more than four million visitors annually.

The fly in the ointment is modern AI technology.

AI can eliminate certain jobs, but it also raises productivity, increases incomes for other groups and stimulates new demand. That demand creates new industries, occupations and employment opportunities. Foreign workers now account for approximately 28–30% of the workforce. By 2024–25, more than 135,000 foreign workers, many in low-wage and unskilled occupations, were on payrolls, with thousands of work permits issued annually through licensed private employment agencies.

On a positive note, Malta has experienced technological disruption since the early 1980s that has created entirely new job categories. Yet, with the advent of increasingly dominant AI technologies, surveys suggest that nearly one in five American workers believe AI or automation is likely to replace them.

It is not only ordinary workers who are concerned. Dario Amodei of Anthropic has warned that AI could push unemployment rates to between 10% and 20%. Bill Gates, co-founder of Microsoft, has stated that in an AI-driven world people will not be needed for “most things”. Sam Altman of OpenAI, while increasingly emphasising AI as a tool to augment rather than replace people, still acknowledges the likelihood of disruption and significant job transitions.

Economists, however, are far less pessimistic. They are generally sceptical of the “lump of labour fallacy”, which assumes that the labour market is static and that jobs lost to technology are permanently lost. This remains one of the central ideas underpinning technological change and creative destruction in economics. The theory suggests that total employment can recover over time, although not everyone benefits equally.

Technological change reallocates labour rather than eliminating it. While automation displaces workers in certain occupations, it simultaneously raises productivity and incomes elsewhere. Through wider economic adjustments, employment can potentially be redistributed across the economy.

A typical example from the mid-1970s was the emergence of CMT (Cut, Make and Trim) textile factories. These employed thousands of unskilled women operating sewing machines to manufacture garments for export to Europe. More recently, the introduction of gaming companies attracted a rapidly expanding cluster of businesses and vacancies that today offer highly competitive salaries.

The digital revolution also reduced traditional clerical jobs in the private sector, although many workers found employment in the public sector, which today employs approximately 56,180 people. The aviation sector represents another success story. More recently, Malta established the MDIA, a public-sector agency specialising in emerging fields such as artificial intelligence, blockchain technology and cryptocurrencies.

The argument that AI will disrupt employment prospects by 2035 is theoretically valid. However, this does not mean that every displaced worker will easily find alternative employment, nor that the transition will be painless. Some redundancies could potentially be absorbed through compressed working-week arrangements. Furthermore, particularly in a small island state, not all new jobs are equal in terms of pay, security or quality.

Malta has weathered numerous business cycles, yet experience teaches us that technological change tends to reallocate labour rather than eliminate it. While automation displaces workers in some occupations, it can also create opportunities elsewhere. The closure of the drydocks, which at their peak employed around 13,000 highly trained technical workers, remains a reminder of the social costs that can accompany structural change. Yet during almost a century of naval and maritime operations, productivity gains also translated into higher incomes for dock workers, who were nostalgically referred to as the “aristocracy of the proletariat”.

In conclusion, the past decade has witnessed not only job restructuring but also growing social pressures. These include housing affordability challenges, pollution from internal combustion engine vehicles, infrastructure strain, marine pollution, weak social integration of third-country nationals, daily traffic congestion, summer blackouts and a spiralling cost of living, partly mitigated through state subsidies.

Against the backdrop of recent conflicts in Ukraine, the Middle East and tensions involving Iran, these disruptions contribute to an atmosphere of growing uncertainty. The recently elected Labour government has promised policies aimed at easing these pressures, including annual bonuses to help households cope with rising living costs, lower personal taxation, improved pensions, the proposed construction of a light rail system, additional green spaces for families and measures intended to address Malta’s persistently low fertility rate.

George M Mangion is a Senior Partner at PKF Malta