As a business advisor I am in constant contact with a myriad of business owners. If there’s one constant, it’s the major headaches with HR. Their wage bills are increasing at a fast pace. Often, they find themselves having to offer steadily increasing wages just to retain their employees – essentially paying more for the same work to ensure staff stay within the business. The labour market is tight and so like any market which has an imbalance between supply and demand, many employers are being squeezed. Many employers also did not have the foresight to invest in digital systems to streamline and automate as much as possible their operations, meaning that certain unattained efficiencies are covered by human resources.
However, all this is not just a matter of perception. The numbers speak loud and clear. As shown below Malta has had the highest increase in Average Wages between 2014 to 2023, following the East European Block Countries, which virtually all (with the exception of Slovenia) started from a much lower average wage level.
However, the average wage is a measure that takes the total wage bill divided by the number of workers. A better measure is the median wage, which takes the middle point in the wage distribution, whereby half the workers earn less and half earn more. As shown below even from a Median Wage perspective, Malta had the greatest increase in Media Wage between 2014 to 2023 after the Eastern European Block Countries, which started from a much lower median wage level (with the exception of Ireland).
Source: Eurostat
However, as the figures above indicate, the gap between the average and median wage in Malta has grown wider. The difference in 2014 stood at around €8.5K annually and this difference stood at around €11K in 2023. When the difference between the median wage and the average wage widens it usually points to growing income inequality, as while the average gets pulled upward by large salaries at the top, the median remains closer to the bulk of workers’ earnings.
Beyond this, one has to see whether this increase in wages is being met or compensated by an increase in labour productivity. Below one can see that labour productivity in Malta between 2014 to 2023 has increased by 13%. So, while average wages increased by 29% and median wages increased by 48%, labour productivity increased by just 13%. This disparity means that wage growth has outpaced productivity improvements. In a healthy economy, as workers become more productive, they generate more value for their employers.
This means that employers can afford to pay higher wages without increasing prices or cutting profits. So, wages tend to rise in line with productivity. On the other hand, if wages increase faster than productivity, it means businesses are paying more per worker, but workers aren’t producing proportionally more output. This will lead to either higher prices (inflation) or lower profit margins and reduced competitiveness.
As shown above the country that had the largest increase in labour productivity in Europe between 2014 to 2023 was Ireland, with a 35% increase in productivity, while as seen above Ireland has a 25% increase in average wages for the same period.
It will become key for Malta’s future economic sustainability to reverse the current trend. Malta cannot remain with a faster increase in wage growth than labour productivity indefinitely. Businesses cannot keep paying higher wages for the same job indefinitely. The same goes for the Public Sector. In addition to attracting new high value-added sectors and expanding existing ones, Malta urgently requires substantial investment in re-skilling, upskilling, and digital transformation to significantly boost efficiency levels. Continuing to do things the way we always have will not produce different results.
