Inflation eats up Maltese ‘real’ minimum wage as it declines by 3%

Malta is one of seven EU countries which have a “significant decline” in their real minimum wage rate amidst increase in the cost of living, an annual review of minimum wages in the European Union carried out by the European Foundation for the Improvement of Living, and Working Conditions (Eurofound) reveals.

While the minimum wage in Malta increased by 1% between January 2021 and January 2022, thanks to the Cost Of Living Adjustment (COLA) in the last budget, in real terms minimum-wage earners experienced a 3% drop in income when inflation is taken into account.

Real wages – what money can actually buy in terms of goods and services – are calculated as nominal minimum wages, deflated by national price indexes.

The Eurofound report this year provides a more pessimistic picture of changes in minimum wages. Countries are divided into three groups, based on the trend in the real minimum wage rate – a group of six countries where real rates have increased, eight that saw a modest decline, and seven with a “significant decline” in real income of 3% or over.

At 1%, the statutory increase in the minimum wage in Malta was the second lowest among the 21 EU countries which have a minimum wage mechanism.

Moreover, in gross terms Portugal’s minimum wage, which increased by 6% between 2021 and 2022, has now overtaken Malta’s. While Maltese minimum-wage earners saw their real income decline by 3%, Portuguese workers have seen their income increase by 2% when inflation is taken into account.

The decrease in the real purchasing power of Maltese workers took place despite Malta having had the third lowest increase in its cost of living in the same period.

Since the minimum wage in countries like Malta is pegged to the cost of living and is adjusted on an annual basis, the report predicts that this automatic update “will produce much higher increases in the statutory rates if inflation trends persist”.

In fact, in countries where wages are adjusted regularly and not on an annual basis, workers are already benefiting from wage increases. These include two upgrades of 2% to the Belgium statutory rate in March and May 2022 due to indexation mechanisms, while the Greek minimum wage was increased by over 7% in May 2022 as a result of inflation concerns. In France, a further automatic increase in the statutory minimum wage (2% increase, €25 per month) is shortly expected due to rising inflation.

The report shows that based on the Gini index, Malta experienced the largest increase in wage inequality between 2017 and 2019 in contrast to Spain, which experienced the sharpest reduction in the gap between high income and low income workers. The Gini index measures income inequality.

The reduction in wage inequality in Spain is attributed to the hike in the Spanish minimum wage in 2019, which “resulted in a remarkable increase in wage levels at the bottom of the wage distribution and in a significant reduction in wage inequality.”

Malta set up its new Low Wage Commission with social partners in 2017, with a remit to create a new mechanism for adjusting the minimum wage and issuing recommendations to the government. It will make its first recommendations in 2023.

But the Eurofound report also notes that despite the Maltese government’s claim that it wants to ensure a decent income for everyone in Malta, it “appears to be hesitant to act in this regard”. For example, in November 2021, the government revealed that it had decided not to publish a report on a basic living income that it had commissioned in 2020, stating that it would be used only as an ‘internal working document’.

In the last budget speech, Finance Minister Clyde Caruana, acknowledged the need to raise the minimum wage ‘to have a good standard of living’. The minister declared that, in order to keep businesses competitive, an increase in the minimum wage needs to be balanced by decreasing companies’ income tax.   Malta is also considering reforming its indexation mechanism, partly to take stark rises in inflation into account.

The report also refers to the rapid increase in courier work, especially in the food-delivery sector with over 1,200 non-EU nationals working with food-courier platforms being employed on ‘illegal work contracts’. “The problem appears to stem from the fact that, while according to Malta’s employment laws, third-country nationals must be employed on a full-time contract, these workers were being recruited as self-employed people, and potentially being subjected to zero-hours contracts.”