Number of foreign workers could increase by 30,000 in next four years

Maltese nationals only account for a quarter of approximately 10,000 new jobs created each year, Clyde Caruana, economist and chairman of Jobsplus, revealed in an interview that is being published today.

Caruana noted that the increasing employment of foreign nationals is “really and truly because we do not have any other choice”.

He says that if the current rate of economic growth in Malta persists, the island could be looking at an increase of 28,000-30,000 foreign nationals in the next four years.

Caruana explains that such employment of foreign nationals is essential to maintain economic growth required for economic development.

Jobsplus is currently pursuing employing third country nationals and only this week emails are being sent to European non-EU countries seeking to attract employees to Malta.

He also offered his opinion on iGaming companies, pointing out that the news of redundancies did not worry him and was not unheard of in the industry. He added, however, that if hypothetically all Igaming companies, which make up 12% of the economy, were to just pack up and leave, this would have drastic effects.

Caruana explained the continuing problem of income tax avoidance, stressing that before he believed the situation to be frustrating, claiming that now the situation was desperate due to the huge shortage of labour in Malta.

CLYDE CARUANA, economist and Chairman of Jobsplus, spoke to Rebecca Iversen about the challenges in the labour market. He said the country needs to attract foreign workers if it is to maintain economic growth. The interview also delves into the problematic issues of income tax avoidance by employers and Malta's historic all time low in unemployment. Some months ago you said that the economy this year will need some 12,500 foreign workers. Is this an official figure? Which countries will these workers be coming from?

Right now the current number of foreign nationals working in Malta is 42,000. Approximately 30,000 come from EU member states whilst the other 12,000 are third country nationals, mostly from Asia but also eastern European states. Over the past 3 years the net increase in the number of foreigners was 7,000-8,000 a year.

If the current economic growth rate of 6 to 7% is to continue, it is highly likely that we will have to keep on adding the same amount of foreigners on an annual basis. If we are assuming the economy will keep growing at a steady pace, the maths is simple: 7,000 to 8,000 new workers a year adds up to 28,00030,000 foreign workers over the next four years.

The issue is all about numbers. The Maltese population is aging. Fertility has gone down over the past few decades and the number of younger cohorts are simply less when compared to the previous decades. Therefore, with a number of people retiring each year and along with only 2,500 young people entering into the labour market each year, the numbers are not adding up. The economy in terms of net increase is creating 10,000 jobs a year and only 2,500 are young Maltese people thus the residual gap needs to be filled up with foreigners.

There is no skewedness involved in the types of jobs these foreign nationals are taking, in terms of high skills. The case is not that foreigners are taking more higher skilled jobs than lower skilled jobs, in fact they are balanced over all in tiers of occupation.

A demographic report published in November 2017 by Malta’s Employers Association addresses the shift from more Maltese working in public sector, leaving 30 per cent of foreigners working in the private sector. Is this dependence a risk? Are we too dependent on them? How do we ensure that they stay?

Really and truly we do not have any other choice. If the government had to completely lay off all its work force and instead they were all employed within the private sector, it still would not be enough. The economy is simply growing too quickly, and we simply do not have enough people on the island. There are 220,000 people in employment currently- out of these 42,000 or 17 per cent are foreigners and unsurprisingly they will of course take a bulk of the private sector. And even in certain posts in government, they will still employ foreigners for specific specialised jobs. If the economy continues to grow we will have to import foreigners no questions asked. If we don’t the economy will grow at a smaller rate.

Yes, foreigners do not end up staying for long according to our statistics. Out of every 100 foreigners that come 30 of them will end up leaving during the first 12 months and by the third year 70 would have left due to various reasons.

Anticipating social and economic impacts, will the increasing population meet a bump? Will it plateau? Will it continue indefinitely? Is it necessary for economic growth?

We need this current rate of economic growth and it has to last for many more years, for the simple reason that we need the resources being generated from the current economic growth in order to invest more in our economy. Economic growth is not just needed for government to provide child care, old people’s homes etc but we also need economic growth for economic development. Economic development is about leaving one stage of growth and improving and moving onto something else that has more value to produce a better quality of life. In order to make this leap you need the resources, which is why we need to sustain economic growth in the current economic growth rates. To give an example the EU Commission, used to press this government and previous administrations to introduce further reforms on our pension system. These messages are no longer being received because the foreigners we are importing are making up for it due to taxation etc. Now I’m not saying that foreigners are not bringing challenges, by far they are. But if you had to look it at it from a best-cost–benefit approach the benefits outweigh it.

And what about Malta’s physical constraints?

Yes we cannot rely on them indefinitely, at some point or another there is going to be a limiting factor. We still want a safe environment where we all have enough space. We must make sure we do not exceed our threshold however I believe there is still some room left to accommodate some more people but sooner or later we will reach that threshold. Then of course we have to make sure once we get enough resources

from our economic growth, to invest in more skills. For the time being we still need to get more labour supply, we have to keep on improving productivity.

Unemployment is currently as its lowest, however according to household budgets those on the minimum wage are still struggling; due to the rise in rent prices or the cost of living. Why do you think this is happening? What do you believe should the government do?

Yes, except those who have an issue with their police conduct, persons with disability, or other difficulties; we have reached a situation where we have practically full employment, meaning that it is hard to reduce the unemployment level below what it is right now. It is a historical low for Jobsplus with only 2,000, or 4 per cent registered unemployed with us.

I firmly believe that there are challenges, that there is an issue of rent because the population is increasing due to our attraction of foreign workers, and that the demand has increased considerably relative to supply. Now supply will be picking up in the future, prices of homes and price of renting will stabilise but that does not mean it will decline but that it will not continue to increase like it is now. But yes there still is a segment of our population which is struggling to make ends meet because they have to compete in a market where they may have little skills and are not benefitting as much as those who are high skilled.

If we want to improve the welfare of people, we need to improve their skills, what it takes in the labour market is human capital. It is easier said than done but these people cannot be forgotten. While the government lets the private sector operate freely, it is doing so already, it needs to ensure enough resources are redistributed to this segment of society. However, the redistribution of income must not negatively affect the rewards attributed to education and must not create a disincentive to not work. It is up to the government then to help these people but special care must be given where benefits produce dependency. The private sector must be able to freely operate, the social aspect is the responsibility of government.

Whilst tourism, the financial sector, manufacturing and construction remain dominant industries in our economy, one of the new industries the government has focused on is the iGaming industry. Do you believe this to be true? Does Malta need a more diversified economy?

I am a bit sceptical about such an argument simply because the economy is still going strong, the financial sector or the manufacturing sector have all changed and yes, they still fall under the same umbrella, but they are not the same as yesterday because otherwise we wouldn’t be having such economic growth. I am not saying we should not focus on different sectors, attracting new investment in different areas should always be encouraged. However these main areas will always remain dominant. What changes is the output etc.

How dependent is Malta on iGaming companies? And with the news of certain iGaming companies letting go of employees, does this worry you?

If hypothetically all iGaming companies decided to all just lock up and leave, then yes that would leave prominent effects and it is important not to put all our eggs in the same basket. In the past iGaming took up 4 per cent, today it takes up 12 per cent of our GDP which is quite a sizeable number.

Companies now and then will make some of their employees redundant for various reasons. But if we had to look at the sector as a whole the number of employees are still going up, so it does not mean that if there some redundancies this is a symptom which is the norm for all. Every week there are a number of people who are made redundant. Whilst seven years ago 100-80 people were made redundant now on average it is 40. From the information we have received, a good number of those who were made redundant by iGaming companies are being absorbed by other industries and firms - this all quite natural.

Do we have a problem seeking specialised workers and is this why we sometimes depend on foreign nationals? If so is the educational system responding to this? Has University or MCAST changed and started offering specialised courses?

12 years ago, it was true foreigners with more specialised skills were employed, whereas today we have a situation where the composition of the foreign workforce, 40 per cent have high skills and the native population also has 40 per cent with high special skills.

The economy in the future will certainly need more specialised high skilled persons however the number of youths is what they are. The issue is about fertility even if the education system adapts further to specialise we won’t produce enough. We need to have a skill set as wide as possible and people move around to do different jobs so we need to be diverse.

What is the issue with single permits?

If you have to ask employers, they will say it takes an age and it’s quite a bureaucratic process to get third nationals to work for them. At Jobsplus if we can’t find an employer who’s Maltese, and then not from the EU, then we have to look at third nationals; assess and vet them from security reasons with identity Malta, and then the permit is issued. On average this is taking about six-eight weeks, for some employers that is too much and maybe we can reduce this to 4 weeks. However it cannot be shorter than that because we need to respect procedures.

Now in terms of third country nationals we can regulate the market, if we notice that the labour market is slowing down, and we can reduce the number of permits we accept and renewals every year or we can stop issuing permits. That means we have over 25 per cent of the foreign work force in our control, in order to safeguard the interests of native work force.

How problematic is the issue of employers not registering employees for VAT/tax, has the issue become worse or better?

We inspect around 70 people daily. About half of them will not be regularised and we tell employers to regularise them and if they’re third country nationals they will be sent home to their country. The majority are Italians and Spanish and their process is the same as a Maltese worker. In 2016 we booked 3,000 individuals and I believe 2017 will be higher than that. Employers are desperate now. Before I used to say the problem was frustrating now it’s desperate because of the huge shortage of labour. Vacancies left unfilled last year were roughly 2000-3000 even when we import all these foreign workers. Some are taking the risk even when it’s illegal.

Since unemployment is low, what has JobsPlus been doing with its time?

Yes, we have had to reinvent ourselves and rebrand and focus on other things. For example, working for more people who are looking for alternative jobs, looking to improve their employment prospects and trying to facilitate with other countries and other EU states for employers to get more labour supply. In the past week we have emailed many European and non-European Union countries to attract more people to Malta. We are even trying to attract more Italians over here.