Increasing minimum wage would be a start

On Tuesday, Caritas once again urged the government to increase the minimum wage, after a study by the Church organisation laid bare how some families cannot keep up with even the most basic costs of living.

Unfortunately, for a country which talks so much about the need to combat poverty, actual discussion on the subject of Malta’s salary regime has so far been stunted. All talk of the ‘living wage’ (so popular before the last election) has meanwhile evaporated, with both major parties now seemingly content with the status quo. 

But with poverty on the rise, and the gap between rich and poor getting wider, the reality is that the issue can no longer realistically be ignored. Malta cannot continue to look the other way, as a new and increasingly fragile substratum of people slides into poverty.

There is evidence that the minimum wage is too low to guarantee an adequate standard of living. Caritas’ study found that a couple with two children requires a minimum of €11,466 a year to live a decent life, while a single parent with two children requires €9,197 and an elderly couple on a pension requires €6,527.

Food was the most significant cost – accounting for €6,211 out of the first family’s budget, €4,604 out of the second family’s budget, and €2,945 out of that of the retired couple. It must be noted that the price of food has shot up by around 16% since the last time Caritas conducted a similar study in 2011.

The study was based on the assumption that the low-income earners live in social housing, are Pink Card holders, and receive the maximum of state subsidies and benefits applicable to them – including food and medicine aid and energy rebates. It also assumes that the people are healthy, that they make use of public health, education and transport services, and that their leisure activities are free.

The essential costs taken into calculation were housing, food, clothing, personal care, health, education, leisure, transport, household goods and laundry, internet and mobile phones. 

They do not include “frills” such as holidays, alcohol, book purchases, club memberships, donations, tobacco, car maintenance costs, pocket money, hi-fi equipment, newspapers, pet costs, games and toys, watches, insurance cover and gifts.  

All the same, the results strongly suggest that Malta’s generally positive economic performance masks an inconvenient reality: the benefits are not trickling down to the lowest income brackets, and while the cost of living is increasing at a steady pace, the minimum wage has never been adjusted since it was first introduced in 1971.

“We won’t venture an estimation as to how much the minimum wage should increase by, but the study clearly shows that some families with one breadwinner on the minimum wage cannot meet everyday expenses,” Caritas director Leonid McKay told a press conference. “Ideally the minimum wage should increase gradually over a three year period.” 

Understandably enough, it is an issue to be approached with caution. The Malta Employers’ Association and the Chamber of Commerce have both pronounced themselves against any increase for the moment: arguing that Malta’s economy might not be able to withstand any serious shocks to the system.

Their concerns are broadly reflected in the positions of the two parties. The Nationalist opposition recently called for a hike in salaries, yet stopped short of demanding an increase to minimum wage. The Labour government has also repeatedly waved the issue aside, with Prime Minister Joseph Muscat arguing that raising the minimum wage would be “irresponsible”.

While understanding the prudence in these positions, it must be said that government and opposition alike seem to be overlooking economic arguments in favour of increasing the minimum wage. Such an increase would ultimately boost the economy, as people will use the extra money to consume relatively basic items.

Such arguments are raised in other countries too: including some where the lowest income earners enjoy a better general standard of living than in Malta. 

More than 600 leading economists, among them Nobel laureates, have made a similar plea to US President Barack Obama. The economists pointed out that increases in the minimum wage have little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labour market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

Ultimately, the problem of low pay structures requires much more than a slight increase to minimum wage, but it would be a start in the struggle against inequality. So far, successive governments have argued that the Cost of Living Adjustment is enough, but Caritas conducted a study which showed that the yardstick used is flawed. 

Whether it is the minimum wage that needs to be increased, or the COLA mechanism that needs to be recalibrated, is at this point a purely academic question.  According to Caritas’ calculations, a person on minimum wage clearly cannot enjoy a decent standard of living.

This should be the only starting point of the discussion.