How Malta turned the tables on the labour market

As our economy continues to grow we will continue being asked to answer new difficult questions and meet tough challenges which we, as a country, must rise up to

Social assistance expenditure as a percentage of GDP improved from 0.94 per cent in 2014 to 0.45 per cent in 2018
Social assistance expenditure as a percentage of GDP improved from 0.94 per cent in 2014 to 0.45 per cent in 2018

The future of the welfare system has divided many nations over the past decades, with the division mostly being the political left and right viewpoints of it.

The ‘third way’ school of political thought tries to merge the two, removing the dysfunction associated with the bureaucratic, dependency and passive element which may arise from it, while maintaining a no nonsense approach to the economic and fiscal side.

The ‘centrist’ approach builds a leaner welfare system where you do not just have the carrot, but the carrot and the stick. It removes the culture of dependence and passivity of it, while having in-built incentives to bring in positive outcomes and turn inactivity into activity, into the world of work.

In Malta this journey began by aligning the social and political stakeholders just before the 2013 general election through an agreement where all sides subscribed to a number of measures which would reconstruct the labour market, as well as help incentivise economic growth. At the time our country wasn’t doing terribly badly when compared to the rest of Europe, but a way forward for stronger growth was desperately needed. The Maltese economy at the time was resting heavily on a small number of key sectors such as gaming and tourism, while other historically important sectors, such as manufacturing, were declining.

The local labour market had a lot of untapped potential – primarily the female workforce having high levels of inactivity. This was happening despite the fact that female education levels, especially at tertiary level, were improving exponentially. At the time the female participation rate in the job market was one of the lowest rates in Europe.

We also had a structure of passive welfare – people that were dependent on the welfare system but were not seeing it as a temporary safety net, as one would hope it would be, but as a long-term arrangement.

The National Employment Policy of the Labour government paved the way for the first structural changes in the economy and the labour market, through the introduction of the free childcare scheme and the tapering of social benefits among other important reforms. In the budget of that year the in-work benefit helped bridge the gap for low-income individuals and make it even more attractive to step up to the plate and enter the labour market.

Think of a parent of a one-year-old child on social benefits. This individual, in one fell swoop, faced a situation whereby social benefits were not going to be there ad infinitum. However, there were important positives in the new alternative choice: childcare, which can cost up to €500 per month, has now become free of charge.

In the scenario where the individual had low skills, and ended up finding a low paying job, the in-work benefit would kick in (assuming both parents are now working) and mitigate the issue of entering in a low-paying job. So in a way there was a reshaping of the welfare model to create a mechanism whereby those who could work and were impeded from doing so, because of childcare costs or because they were being deterred due to low income, were now in a much better position. Those who were registering for work had to pull all the stops to make sure they were indeed looking for work and not just riding along. ‘Making work pay’ was, and still is, the mantra.

At the same time those who were genuine and needed help and social assistance have been given the help they needed, and in most areas that financial help increased too.

Cutting social benefits without a plan or a strategy would’ve resulted in rising poverty and many other social problems. Through these reforms what happened was that thousands of inactive individuals have now become active and joined the labour market, increasing the productivity of the country and giving them the opportunity to build a self-sustaining and better future.

As our economy continues to grow we will continue being asked to answer new difficult questions and meet tough challenges which we, as a country, must rise up to

In fact, between 2014 and 2018, the number of individuals on social benefits decreased by almost 20% while the unemployment rate went down by over 75%. In this period, the expenditure on social assistance decreased from €79.6 million to €55.5 million euros. Crucially, Social assistance expenditure as a percentage of GDP improved from 0.94 per cent in 2014 to 0.45 per cent in 2018. This shows that these measures not only helped decrease the cost of social assistance but has also played a role in jumpstarting a subdued economy.

We did not reinvent the wheel in all this. There were similar policies over the past 25 years in the UK and Germany.

Maximising the economic potential of individuals and building a fair social welfare system can go hand in hand, and this was proved true not only in these countries, but also in Malta. There were other important reforms that helped achieve our goals, and perhaps one of the most important social justice reforms in the previous legislature was the re-activation of laws which opened opportunities for people with disabilities.

I think one of the proudest achievements of this Government, but also of this country, is the fact that in five years we have doubled the number of persons with disabilities who are working – from 1,797 persons in 2013 to over 3,500 in 2018. This goes beyond productivity and economic calculations, but it is about social justice, hope and doing what is right.

This is by no means the end of the story where we all live happily ever after. As our economy continues to grow we will continue being asked to answer new difficult questions and meet tough challenges which we, as a country, must rise up to. It is also part of the cycle of growth and modernisation, and something which we must address to make sure our growth is sustainable and wealth is equally distributed. However the past six years have been nothing short of a success story, and the fact that others countries are looking at the policies we’ve introduced just goes to show the depth of these achievements.

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