ANALYSIS | Living on the bare minimum (wage)

The difference between the minimum wage and unemployment benefits - which is marginal - does not motivate the unemployed to take up a job in the formal economy. 

This was the conclusion of a report compiled by the University's Centre for Labour Studies for the European Industrial Relations Observatory (EIRO) in 2009.

"Low-skilled persons often find it more advantageous to register as unemployed in order to get the benefits and, at times, engage in undeclared work to supplement the benefits". 

A case scenario drawn up in the Revised European Social Charter, submitted by the Maltese government in November 2008, shows that the difference in the weekly income amounts to merely €14.64 between a family with two adults and two children that is on benefits and a household on the minimum wage (base year 2007). 

'When one considers the expenses incurred in going to work and the missed income from any possible undeclared work, it is evident that the incentive to take up work in the formal economy is low in Malta,' another report by the Centre of Labour Studies concludes.

The Caritas Report

Presently, a couple with two children needs an income of €10,634 to survive, according to a study carried out by Caritas. This means that if this family lives on the minimum wage of a sole breadwinner,  it is €2,413 short of its minimum requirements.

The study sets the essential annual budget at €10,634 for two adults and two children, €8,581 for a lone parent with two children and €6,328 for an elderly couple.

Caritas Malta carried out a study to find the minimum budget for a decent standard of living based on the cost of a basket of essential items. Excluded from this basket were items like insurance covers, books, tobacco, and alcohol pocket money for children, gifts, fines, toys and use of a car.

The report used the minimum estimated cost of eight items: food, clothing, personal care, health, household goods, maintenance and services, education and leisure, transport and housing.

Researchers compared their findings with the at-risk-of-poverty threshold (regarded as 60% of the average income) published in Statistics on Income and Living Conditions (SILC) by the Malta National Office of Statistics (NSO). 

According to the study, 15.1% of the population do not have the budget to maintain a decent standard of living. To counter this, the report recommended raising the minimum wage from €158 to €180 for a 40-hour week.

The study concludes that a minimum wage of €180 per week which would translate into a take-home pay of €8,936 would "considerably shorten the distance" between wages and the report's calculation of a minimum budget for a decent living standard.

"Uplifting the statutory minimum wage is bound to lower the number of those at risk of poverty."

According to the study, this measure would have a beneficial multiplier effect on the economy, as poorer people would spend more.

But this argument was rebutted by the Malta Employers Association, which warned that the determination of wages should be linked to productivity and not to a basket of goods. 

"Simply raising the minimum wage carries the risks that the labour market will be destabilised, that it could lead to a loss of jobs and could work against the interests of the vulnerable groups which the measure will be supposed to help."

Impact of utility bills

The Caritas study shows that utility bills represent less than 6% of the annual consumption bill of a family composed of two adults and two children and just 5.4% of that of a single parent family.  On the other hand, the same study recommends a 14% increase in the minimum wage.  This means that even if utility bills are sharply reduced - as suggested by Labour leader Joseph Muscat - this won't suffice to make up for the kind of wage increase recommended in the Caritas report. The report shows that the major part of the minimum expense (52.3%) of a family goes to food. According to the study, low-income families annually spend more money on public transport (€728) than on utility bills (€630).

A declining breed?

The number of full timers earning a minimum wage minimum fell drastically from 6,799 persons in 2000 to 2,250 in 2004. No recent official data are available to check if this declining trend has continued. Neither does the figure include part-timers who earn a minimum wage from their sole job.

In fact, a recent report issued by the Malta Employers Association puts the number of those on the minimum wage at 9,000.

According to the MEA, the low number of employees on the minimum wage in Malta suggests that many such jobs are transitory. Security companies, for example, accept that most employees in this sector do not intend to make a career out of their job and tend to move on once they find a better paying alternative. 

"Employers who engage people on the minimum wage cannot expect loyalty, but these low paid jobs also enable many persons to make the essential transition from unemployed status to employment, which makes it easier for them to access better paying jobs".

According to report by industrial relations experts Saviour Rizzo and Manwel Debono compiled for EIRO in 2009, it is likely that the proportion of workers on minimum wages has remained relatively stable over the past years, following a decrease in the proportion of lower paid categories of workers in elementary occupations and plant and machine operators, and an increase in the proportion of sales persons who also have low wages.

In 2011 the government introduced a training scheme for workers earning the minimum wage.  In return for attending a training course, these workers were offered €25 a week. Surprisingly, only eight workers accepted the offer.

How Malta compares

According to Eurostat, the minimum wage in Malta in 2005 was equivalent to 51% of the average monthly gross earnings in industry and services.

The figure is one of the highest among EU Member States. Eurostat data also indicate that in 2005, Malta had second lowest proportion of workers receiving a minimum wage at 1.5% (after Spain which had 0.8%). 

An EIRO study on wage formation in Malta shows that 'between 2003 and 2007, the minimum wage amounted to about 55% of the average wage in Malta'.  

Malta's minimum wage at just under €682 per calendar month is higher than approximate levels found in Spain. Portugal (€566), Slovakia (€327) have lower levels. However, in Greece (€740) and Cyprus (€840) - close neighbours to Malta - the rate is slightly higher. Greece has recently reduced the minimum wage.

In other northern European countries, the National minimum wage is considerably higher, at over €1,000 per month in Luxembourg (€1,801), Ireland (€1,462), Belgium (€1,444), The Netherlands (€1,447), France (€1,398). Germany does not have a National minimum wage - but has sectorial minimum wages for different kinds of jobs.

A history of the minimum wage

Malta has a national minimum wage, which is topped up every year by the aforementioned COLA. The Labour government introduced the minimum wage in the mid-1970s. 

Thanks to COLA adjustments, it has increased from €76.59 in 1990 to €158.11 in 2012, an increase of 106%.

But in the past decade, the minimum wage has only increased by 21% from €119.68 in 2002 to €158.11 in 2012. The minimum wage per hour in the retail sector amounts to just €4.90. A slightly lower rate applies to under 18-year-olds.

The law specifies 'part-time employees shall be paid pro rata at an hourly rate not below the national minimum wage'.  Besides, it also states that 'where any Wages Council Wage Regulation Order applies to any employee, the wages payable to such employee shall not be less than those laid down by such Wages Council Wage Regulation Order, adjusted for cost of living'.