The hidden costs associated with foreign workers

Silvan Mifsud is director of Advisory at EMCS Tax & Advisory. Mr Mifsud is also a council member of The Malta Chamber

Foreign labour can provide various benefits to businesses and economies, such as cost savings, skills diversification and workforce flexibility. However, there are also costs associated with employing foreign labour that businesses and societies should consider. Some of these costs are rather obvious such as language and cultural barriers and integration. They also put significant strain on the country’s resources and infrastructure. However, in my opinion, the most significant cost is often overlooked and relates to the long-term progress and strategic vision of the country.

As we all know, Malta is a small island in the Mediterranean, with extremely high population density and limited natural resources making us rely a lot on tourism which compounds the population issues. Given the above, Malta’s strategic direction should focus on the increase in productivity and the uptake of new, more efficient technologies.

However, I believe that we are limiting our chances of achieving these goals by relying so much on foreign labour. Allow me to explain. Although there are no proper statistics, it is no secret that the majority of foreign workers occupy low end jobs and are compensated with relatively low wages. As a result, local businesses are finding it easier to recruit foreign workers than invest in new technology. This also leads to secondary effects which results in more employment being created to service the added demand for basic items, but let’s not complicate things and leave this point for another article.

The other point I made above relates to productivity. In very simple terms, productivity relates to the value added each employee produced to the country. As one would expect productivity per worker increases the more knowledgeable and experienced the worker is. Statistics show that turnover for foreign workers is higher than turnover for local workers. This is emphasised more by the statistics relating to population.

In 2021 and 2022, the total foreign population amounted to 102k and 123k respectively. This change was derived from an immigration figure of 33k and an emigration figure of 12k. In 2021, total foreign workers amounted to 78k or 76% of the total foreign population. The 2022 employment figures are not yet published but if we assume that the same percentages as 2021 hold in 2022, the total foreign workforce amounted to just under 94k. This means that the increase in workers between 2021 and 2022 amounted to 16k but total new workers amounted to 25k as around 9k foreign workers left the island. Therefore, out of the current foreign workforce (94k), more than 25k have been employed in Malta for less than a year which amounts to 27%. This is an extremely high percentage as it would be very difficult for a business and the country in general to increase its productivity if it has to constantly replace its workers with less experienced ones.   

To make a comparison between locals and foreigners, in 2022, 12% of all foreigners left the country in comparison to only 0.2% of locals. Finally, I would like to conclude that foreign labour has been pivotal to Malta’s economic growth, however, we need to change our economic model as it is not sustainable in the long run particularly when taking into consideration the long-term objectives of this country.