COLA mechanism ‘still serving its purpose’, finance minister says

A mechanism to replace the current the Cost of Living Adjustment (COLA) must be proposed if proposals on COLA review are to be credible, the Finance Ministry

In its latest set of proposals to amend the Employment and Industrial Relations Act, the Malta Employers Association (MEA) once again called for a revision of the COLA mechanism to factor productivity and efficiency levels.

“Any proposal to be credible must propose a mechanism to take the place of the current COLA. The government has not to date received any MCESD approved proposals regarding revisions to the COLA mechanism,” a spokesperson for Finance Minister Edward Scicluna said when contacted by MaltaToday.

“The current system was, way back in 1991, approved by all the social partners. The same consensus must apply to undo it.”

Although the Finance Ministry acknowledged there existed no “correct” mechanism, it argued that Malta’s mechanism was serving its purpose.

“All the countries where the minimum wage is in place have a structure or mechanism of how the minimum wage is increased over time. Our mechanism is an agreed automatic one. Many observers, including the Government believe it has, and still is, serving its purpose,” the spokesman said.

In spite of employers’ continuous lobbying to abolish it, the COLA mechanism may have been one of the factors that made wages in the Maltese private sector stable.

A report on wages submitted by industrial relations expert Saviour Rizzo to the European Industrial Relations Observatory shows that over the last four years, the mean hourly labour cost in Malta went up by 9.3% to €12.30. But this rate remains far below the mean hourly rate of €23 in the EU states, and €28 per hour in the eurozone.

According to Rizzo this means that the mandatory annual wage increase based on the COLA mechanism, about which the European Commission had expressed a measure of alarm, has not caused “a surge in wages in Malta compared to the other European countries.”

Rizzo notes that the lack of collective agreements that are binding on whole industry sectors, as happens in other European countries, means that in spite of the relatively high percentage of unionised workers in Malta, a substantial number of workers do not benefit from wage increases apart from the annual COLA.
“Thus the point made by the Maltese government that COLA may be conducive to the stability of wage settlements may have a high level of validity,” Rizzo concludes.