Minister admits minimum wage earners are at risk of poverty

Social Policy Minister Marie Louise Coleiro Preca admitted that minimum wage earners were at the risk of poverty. She said that the government was looking into the matter and would be addressing it in the coming months. Coleiro Preca insisted that far from being a myth, poverty remains very much a reality of contemporary life.

Speaking on Monday's edition of Reporter, presented by Saviour Balzan, she said that social justice was at the centre of the Labour Party's agenda and insisted that she had no issue with the Labour government's vision of securing social justice through economic growth.

Coleiro Preca said that over the decades, the world evolved and so did the Labour Party, which opened itself to liberal values and accepted new realities.

However, synonymous with social justice, Coleiro Preca described herself as the "voice of the voiceless" and stressed that the lack of policies during previous legislatures produced a new class of vulnerable persons.

The Malta Employers' Association supports the idea of a national minimum wage insofar as it is set a level that does not keep people out of employment.

MEA Director General Joseph Farrugia said that the MEA has never spoken out against the minimum wage, and even in its presentations on the reform of the cost of living adjustment (COLA) has always maintained that the minimum wage should always be adjusted by COLA, even if the COLA is not applicable to all income groups.

"The issue of whether to support the minimum wage or otherwise centres around calibration. It has to be set at a level which does not disincentivise the generation and retention of jobs. This is the main reason why it can be subjected to periodical adjustment, as happens in the case of Malta through the COLA mechanism which provides for an annual upwards adjustment, and as has happened in Greece, which has seen it necessary to reduce the minimum wage by 22% as part of the austerity measures to combat the impact of the recession."

Speaking to MaltaToday, Farrugia argued that the minimum wage could be explained as a means of job refusal. It establishes a standard, which draws a line between jobs that are acceptable and those that are not.

"In the case of Malta, jobs which yield a productivity of less than €160 plus other costs of employment are either not accepted by both employers and employees or else, in some cases, are performed in the informal economy. In reducing the minimum wages, countries like Greece and Portugal are openly stating that they would like to attract jobs whose productivity is less than that of the level set before the downward revision. They have, in effect, recalibrated the minimum wage to reflect the situation on the labour market in the interest of enterprise and of job seekers."

"For these reasons MEA's position is that the minimum wage should be altered only on the basis of the COLA mechanism, yet government policies should focus on reducing the number of persons on the minimum wage as far as possible.

Increasing the minimum wage outright can result in the loss of low value added jobs that might be the source of income to many individuals and families and thus drive them further into poverty and unemployment."

Farrugia said that another point worth mentioning is that, given that many people on a minimum wage jobs (basic pay, not gross income) are in the cleaning and security sectors, MEA has campaigned for government to ensure that the rate at which it awards tenders in these sectors is sufficient for employers to be able to afford to pay higher wages. It recommended that government should set a minimum rate of €7.50 to achieve this objective. This position was also supported by the General Workers' Union.

"In conclusion, simply raising the minimum wage may be counterproductive. The main objective should be to reduce the number of persons in minimum wage jobs, which can be achieved through the policy measures outlined above," Farrugia said.

The Malta Chamber of Commerce, Enterprise and Industry certainly does not agree with an increase in the minimum wage as a solution to address poverty.

"Any measure to address poverty, in fact, needs to be carefully designed and focused to specifically address and support the spending power of the disadvantaged people amongst us," Director General, Kevin J. Borg said.

When asked by MaltaToday, Borg said that the Malta Chamber strongly maintains that wages are a function of productivity and not of spending power. "It is unrealistic to assume that the minimum wage can be altered in isolation.

"An increase in the minimum wage will inevitably bring about a domino effect further up the ranks and across the whole economy to the detriment of cost competitiveness."

The Malta Chamber has consistently stressed that wealth creation must precede wealth distribution and this sequence must not be reversed, as it would expose the country to the risk of having less resources to re-distribute.

"Besides wages, the safety net that safeguards people from poverty is sustained by the productive side of the economy that contributes taxes and social security contributions.

This productive side must never be weakened, as this could bring about unnecessary risks to the country's social security system," the Director General of the Malta Chamber of Commerce, Enterprise and Industry said.