Joseph Farrugia this morning touched on the responsibilities employers have towards their employees as he noted the importance of redistribution of wealth to ensure market access for those on lower incomes.
However, he believes an increased minimum wage is not the right way to effect this, saying that this would increase barriers to entry for certain sectors.
Mr Farrugia was speaking at a conference on living income hosted by the Anti-Poverty Forum. The keynote speaker was Minister within the Office of the Prime Minister (OPM) Carmelo Abela, who highlighted the Government’s commitment to fighting poverty.
Minister Abela cited a European Commission report that found that 37 per cent of the Maltese population would be at risk of poverty without the various Government assistance schemes in place. Currently the figure stands at 17 per cent.
“However,” the Minister said, “to address poverty we need to look at other aspects of families’ needs, apart from health, education and other social protection. I’m talking about good food, utilities, shelter, clothes – and these can only be gained through a good steady income.”
Mr Abela last September commissioned Professor Joseph Falzon from the Faculty of Economics, Management and Accountancy at the University of Malta to write a report on the feasibility and effects of a living income.
The report is expected to be published early next year.
The Minister said the Government can only consider such schemes thanks to the strong economic performance of the country.
“A living income ensures that people can live a decent life, not hover just above the poverty line,” he said. “A living income will increase the purchasing power of individuals.”
Mr Farrugia continued on the same line, saying that those on low incomes cannot participate in the market, which serves those who can pay.
“The distribution of wealth, globally, is wrong. The vast majority of wealth is concentrated in a small sector, while the vast majority of people have little purchasing power. Therefore, they cannot access markets, and the market does not serve their needs.”
“How then do we establish just remuneration for the work an individual is doing?” he continued. “Wages depend on many factors. If there’s high unemployment, it leads to a stagnation in wages. If, conversely, there’s a lack of supply, wages tend to rise.”
Mr Farrugia also noted that wages tend to differ significantly by sector, saying that as a sector grows and expands, wages in that sector tend to be higher than in others, even for those doing similar work.
“A receptionist in a cleaning company, for example, is likely to earn less than a receptionist in a financial services company.”
“I’m mentioning this to point out the complexities of the labour market,” he said.
He then continued by defining the role of the employer in the employer-employee relationship.
“First, the employer must recognise the value of their employees. Nowadays, employers who don’t do this face a revolving door of staff. As employees lose motivation, they don’t give the full value of their hours of work, leading to lower productivity.”
“So in the field of industrial relations, the value of recognising the value of workers is a well-developed concept,” he said.
“Then,” he continued, “employers are obliged to pay for the value of work done by their employees.”
He pointed to prior situations where wages were kept relatively equal in an artificial manner to maintain equality between pay grades, noting that this had led to good, qualified workers being given lower remuneration than they deserved.
Mr Farrugia commented, “This was evidently taken to the extreme.”
“So with which criteria would a living income be calculated?” he asked. “On family income? On a sectoral level? On a geographical level? Many cities have such a high cost of living that one cannot work out a living wage based on a whole country’s median wage.”
He said the progressive income tax is an effective measure to redistribute wealth from those who earn more to those who earn less, citing it as a good example of Government intervention.
“We need to look at the distribution of income, and Government has the main role in that regard,” he said.
Turning to the minimum wage, he was less laudatory, saying that although the mechanism is important, it can lead to distortions in the market.
“Certain big players would no doubt enjoy an increase in the minimum wage,” he said, “but it would increasing the barriers to entry for competition. This could lead to worse outcomes and higher prices for consumers.”
How would a living income be calculated, and what could it look like?
André Bonello, speaking for the Anti-Poverty Forum, explained how a living income would be calculated.
“We must get the terms right,” he said. “It is important to note that we are talking about a living income, not a living wage, as a living wage does not incorporate those who do not work.”
Mr Bonello added that a basket of the essential goods necessary for a decent standard of living must be calculated, saying it would be composed of food, clothing, housing, education, mobility and social participation.
“This will determine how much people need to live decently in society,” he said.
“As society progresses, the base gets left behind in many ways, including in access to financial tools that meet their needs. COVID-19 has meanwhile shown that governments around the world have struggled to deliver cash.”
Digital cash directly aimed at this sector would address both challenges, he said.
“Malta and other smaller countries could be at the forefront of this by building a proposal for digital cash mounted on smartphones or cards to meet its special sector needs.”
He concluded by arguing that all persons should have an income that allows them to adequately meet their needs, saying that this would impact their families’ as well as their own wellbeing.
Malta Employers Association Director General Joseph Farrugia