Poor arguments for a poverty debate

The Malta Chamber of Commerce's reaction to a possible minimum wage increase raises more questions than it answers. There was no reference to a living wage - a wage that enables people to live, and not simply exist.

Describing such a measure as a 'short-sighted approach', the Chamber stressed that wealth creation must precede wealth distribution. If this sequence is reversed, it would expose the country to the risk of experiences such as those of Greece, which "in some cases instituted pay cuts of 20% or higher".

As representatives of the business sector, the Chamber of Commerce is well within its rights to question any changes to the minimum wage structure. It also has a point when it says that the Labour administration is bound by an electoral commitment not to do so beyond the existing cost of living adjustment (COLA) mechanism.

But some of its arguments are debatable, to say the least. Comparisons to Greece do not really hold water: the circumstances that brought Greece and other countries to their knees were not determined by wage issues, but rather by an explosion in national debt (in part thanks to creative accounting by the government). Wages were slashed and jobs lost because businesses lost assets as the banking system imploded. In some cases - e.g., Cyprus - private investors lost a percentage of their capital to compensate for an EU bank bail-out.

Clearly, it would take far more than a modest increase to the minimum wage to induce an economic catastrophe of similar proportions in Malta; and while such factors may arise if (for whatever reason) government changes its economic policies, it is clearly unfair to describe only the very worst-case scenario as an inevitable consequence of a single decision.

More importantly, however, the entire issue must be viewed in the context of a local debate on poverty. This is not an academic, theoretical discussion. There are very clear indicators that poverty is on the increase in Malta, and apart from issues of social justice, this phenomenon may also pose a serious and (in the long term) unsustainable strain on our welfare system.

Eurostat figures released in 2012 suggest that 22.1% of the population is at serious risk of poverty. Of these, 62,000 live below the poverty line. More than half this number is defined as 'seriously materially deprived' - unable, among other things, to meet their most basic needs, including food and rent.

More worryingly, this statistic appears to be steadily increasing year on year. Leaving aside considerations of a purely humanitarian nature, this points towards a serious threat to the sustainability of a welfare state. Already we are faced with an ageing population whose pensions cannot realistically be guaranteed by a labour force that is, at worst, shrinking, and, at best, not growing at anywhere near the same rate.

Increasing social services alone cannot be an answer, for two reasons: one, it would only address the symptom of the disease with providing a cure; and two, the money will have to come from somewhere, and as this can only mean higher taxes, it would effectively translate into less net income for the same bracket that sustains the system.

The alternative is to pass on part of the cost to the private sector, in the form of higher wages. In a sense, this already takes place thanks to COLA, which is shouldered by the employer. But as the aforementioned poverty statistics illustrate, retaining the system in its present form is clearly not enough to reduce poverty levels.

This brings us to the proposal for a minimum wage increase, which has so far been suggested only by NGOs and one political party (AD). But while social policy minister Marie-Louise Coleiro may have hinted that her government is considering a possible increase to the minimum wage, there has so far been no official confirmation.

The Chamber's reaction therefore appears excessive on two counts. By so vehemently opposing what is as yet only a possibility, it betrays an impulse to shoot down the discussion before it even gets off the ground. Moreover, there is an ominous suggestion that the measure might be met with drastic pay-cuts and possibly job losses across the board: "Such an increase will inevitably bring about a domino effect further up the ranks and across the whole economy to the detriment of cost competitiveness."

This is alarmist and, again, unfair. A 2009 study commissioned by the Malta Employers' Association had specifically asked businesses how they would respond to a COLA increase, providing four options: reducing workforce; cutting overtime; increasing prices for consumers; or increasing efficiency. A clear majority replied that they would increase efficiency. The same principle applies to the minimum wage; so if employers feel they can withstand cost-base increases without drastic decisions, why do their representatives argue otherwise?

One is, however, inclined to agree with the Chamber's view that "any measure to address poverty needs to be carefully designed and targeted specifically at supporting, in a sustainable manner, the spending power of the cohort of people who are at the risk of poverty".

But one cannot have a proper discussion on the issue - still less produce a 'carefully designed' mechanism - by simply ruling out from beforehand one of the optional methods to increase spending power.