Rich get richer: wealthiest 20% now have 40% of Malta’s total income

The richest 20% in Malta are receiving 4.3 times more disposable income than the poorest 20%, a 0.33 marginal increase over 2005 levels only kept in check thanks to greater redistribution of taxes and social welfare.

A University of Malta study on changes in income inequality in Malta since 2005, has identified the importance of taxes and social transfers, in keeping inequality at bay over the past 16 years. But it also found that education remains the key to enabling people to keep income inequality and dependence at bay.

The study found that had there been no redistribution of direct taxation and social transfers, income inequality in Malta have been more pronounced among the poorest population.

In layman’s terms, inequality has increased over the past 13 years, but state welfare helped slim down the gap between the poor and wealthy.

The authors said that, even without no notable changes, they can see indications that the top 20% earners in Malta are obtaining a higher proportion of income.

Malta: the rich got richer in decade of unprecedented growth

Compared to 2005-2009, social welfare measures have had a “mildly neutralising effect” on inequality, but less so has the tax regime. The authors noted that social transfers provided a “greater safety net” for citizens, but tax reforms have eroded tax progressivity over the years.

Then in  2018, the authors found that the bottom 20% of the population were earning roughly 10% the total income, while the richest 20% enjoyed 37% of total income. In fact, it’s this top 20% that enjoys the highest percentage of Malta’s total income.

The study shows that the size of people’s households, how much tax is redistributed and social benefits, play an important role in stabilising and redistributing income from the richest to the poorest.

The study from the Centre for Labour Studies found modest inequality increasing between 2005 and 2018, but which was mildly neutralised through government intervention.

“Without policy intervention, the imperfectness of the labour market can result in further inequality. So an important implication for policy is to reduce further barriers to economic inclusion, as the benefits of growth can easily become battered by its downsides due to the roles of globalisation, technology and market forces,” authors Gilmour Camilleri and Melchior Vella said in a presentation of their study earlier this week at the University of Malta.

Education and household set-up

The educational attainment of the head-of-household was found to be the most important factor for explaining inequality among households, and its importance has become more pronounced over time. The difference in incomes for heads of households with tertiary education, was “racing away” according to the authors of the study.

Whereas education explained almost 15% of inequality between households during 2005-2009, the rate increased to 25% between 2014-2018, confirming the variances in income of those with university education and other households heads with primary, secondary and upper-secondary education.

Households with more than one income earner, now more commonplace, were also generally considered more financially secure than single-earner households, thanks to the evolving role of each partner – mainly women – in the household.

Concurrently, the number of Maltese individuals living in their parental home until their 30s appears to be rising, as are the number of women engaged in part-time or full-time external employment.

“One may argue that multi-earner households are at an advantage compared to single-earner households. Access to higher income brings about greater purchasing power, more consumer choice, economies of scale, and value to leisure time. Perhaps that is why the household employment structure explained almost 31% of income inequality between 2005-2009,” the authors said.

“However, between 2010 and 2018, this factor lost some of its explanatory power and reached 22% during 2014-2018. Indeed, the data confirms that when adjusting for household size, the relative income of multi-earner households has been converging to single-earner households. It is hard to say what has caused multi-earner households to have relatively less equivalised income than before. However, it indicates that participation in the labour market on its own may not guarantee financial security.”

Interestingly, the findings show that market earnings between occupations explains almost 20% of inequality. As expected, the youngest and oldest workers were the groups with the most unequal earnings.

“Inequality was mostly attributed to differences in the individual’s qualifications, hours worked, occupations, and household employment structure and size,” the authors said, showing that productivity pays more for individual workers. But without state intervention, the imperfectness of the labour market can result in further inequality.

“An important implication for policy is to reduce further barriers to economic inclusion as the benefits of growth can easily become battered by its downsides, especially due to the roles of globalisation, technology and market forces,” the authors said.