The COLA - Trick or Treat?
Halloween is a secular festival. It is characterised by children’s parties, teenagers in gruesome costumes and others believed to engage in macabre spiritual activities.
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Halloween is an old tradition aimed at warding off roaming ghosts, though Catholic theologians have a different perspective. Halloween’s trick-or-treat hardly features on my radar, but the minimum wage does.
With the first signs of a general election looming on the horizon, political parties have started to position themselves to combat for every vote. Nothing will be left to chance. Whatever the outcome, I retain that political power is a huge responsibility and this should not be claimed through malicious manoeuvres and empty promises.
The recent past has showed that the desire for power was such that the electorate was led to believe that a new power station was necessary to address most of the economic ills for both low-income earners and entrepreneurs. A new middleclass was to emerge from the ruins of world-wide economic woes, which had squeezed dry the pockets of many. With the benefit of hindsight, three and a half years later, we can draw our own conclusions.
Statistics show that Malta is experiencing one of the best unemployment records and robust GDP growth. Notwithstanding these achievements, the number of people in real danger of falling into the poverty trap is growing. Why? Something is seriously wrong. Evidently the distribution of the generated wealth is not being fairly distributed and the economy is creating more low-paid employment opportunities than value-added ones.
This has pushed on the national agenda the augmentation of the minimum wage beyond the COLA. According to the 2017 Budget, come 1 January 2017, the national minimum wage would increase by a weekly €1.75, bringing it to €169.76 per week. The Deputy Prime Minister Mr Louis Grech will be heading a series of meetings with the social partners and other interested groups on the issue of the minimum wage. The COLA is measured on the Retail Price Index according to formulae agreed between the social partners, decades ago. The COLA is not awarded to improve the standard of living; if anything, it restores the purchasing power which was eroded due to higher prices in the previous 12 months.
This announcement was immediately followed by fourteen organisations demanding a 3.5% increase in the minimum wage for three consecutive years, in addition to the yearly COLA. Since then, the proposal has gained support from other organisations. Without causing alarm, it is appropriate to have a look at its implications before we set forth with the recommendation.
Some easy multiplications and additions on the back of an envelope should help us understand the wider implications.
According to that proposed, the minimum wage would increase by €19.00 weekly by the end of the third year. This increase does not include the COLA for the three years. Taking a conservative assumption the COLA for these three years would increase substantially due to inflation, then the minimum wage would have increased by €25/€27 weekly at the end of the three years. In effect, this means that by the third year the annual increase in the minimum wage would approximate €1,300. If on the receiving end, then this could be perceived as a ‘treat’. But the vulnerable should not be ‘tricked’ with bogus wage increases, purportedly aimed to improve the standard of living of those living on the minimum wage, but inevitably eroded because of price hikes.
But taken on board, this increase would have to be given to all workers across the board to ensure wage relativity between one grade and another. Without doubt, trade unions will mark time to put forward wage increase claims on behalf of their members to ensure that wage and salary relativity is maintained. Whenever such relativity is disturbed, industrial tensions between employers and workers often ensue, resulting in industrial strife.
In addition to these concerns, wage increases would also trigger increases in a good number of pensions, which in itself is also positive. But the question which begs an answer is: Can the national coffers support such pension increases? If yes, then by all means. But if this is solely a political partisan ‘treat’, then shame on those who, to retain power, would resort to such political ‘tricks’.
I will not deal with Malta’s competitiveness and other related issues; entrepreneurs do that best. Perhaps Government will break the news that the living-wage is in the offing for the benefit of low-income workers and their dependants, unless this is just a political ‘trick’.