No such thing as ‘perfect’ social justice

Social justice has no place in a ‘liberal’ society, a prominent economist told MaltaToday in response to the disappointment of civil society lobbies who said the agreement signed on Friday by government and social partners to raise the minimum wage by a mere 4.4% by 2019, would not make any tangible difference.

“In an increasingly neoliberal economy there is no such thing as ‘perfect’ social justice,” Dr Philip von Brockdorff, head of the economics department at the University of Malta, said. “On the contrary, since joining the EU, Malta’s social inequalities have worsened.”

That – he said – was what has prompted the European Commission, under pressure from trade unions across the EU, to launch the European Pillar of Social Rights which aims to address the problem of inequalities, social inclusion, and low wages in many EU member states.

The rise in minimum wage will see some 4,000 to 5,000 workers entitled to a mandatory €3 increase per week upon completion of the first year of employment with the same employer, and a further €3 weekly upon completion of the second year.  

The agreement stipulates that in 2018 and 2019, persons on the minimum wage will earn an extra €1 per week in addition to this year’s COLA, the cost of living adjustment. By 2019, therefore, the minimum wage will have been increased by a maximum of €8 per week, or around €416, in addition to the normal COLA.

This is a far cry from what the Campaign for a Decent Minimum Wage (KPMD) was calling for: an increase of 11% over three years – €80 monthly over and above COLA increases. The increase announced this week works out at around 4.4%. 

Charles Miceli, an anti-poverty campaigner, told MaltaToday that although pleased that the had been addressed, the increase agreed upon was not enough, especially because of other market forces, like the price of food and rent. 

“In a way I am satisfied that we came halfway to the targets that the Campaign had established, but this means that we have more work to do to ensure that people earning a minimum wage receive a decent increase that could make a difference in their standard of living.” 

Miceli was quick to acknowledge that even though the Campaign for a Decent Minimum Wage had no intention of rocking the economy too much, it was for that reason that it proposed the 11% increase to be spread over three years.  “The most important aspect of our proposal was social justice,” he said. “We wanted to ensure that the wealth generated was being distributed equally across society.” 

Caritas director Leonid McKay agreed that this agreement could push employers to sack their staff after a year of employment, and warned that workers on definite contracts and part-time workers were particularly at risk.

Caritas director Leonid McKay

McKay was troubled by the fact that the agreement did not address the issue of part-time workers or specify whether they will benefit from the same time-frames, or if this agreement does not affect them at all.

“Don’t get me wrong, I think the fact that all social partners have finally acknowledged the need to review the minimum wage is a positive development,” he told MaltaToday. “I can still recall the skepticism we encountered when we first floated the need to raise the minimum wage five years ago.”

McKay said he felt the debate within the MCESD had been too conditioned by the fear of a knock-on effect on the economy and other wages “The debate was also heavily influenced by competing interests, particularly those of employers and the unions. And unfortunately, civil society is still not adequately represented on a national level.”

While Malta’s inflation rate has stayed relatively low in years, Von Brockdorff expressed concern at the risk of an overheating economy that could continue to erode the purchasing power of minimum wage earners.

“It will be purchasing power that will ultimately prove whether the increase is adequate or not,” he said, saying the staggered increase allows operators to maintain relativity.

“Relativity is important as any distorting effect would have triggered pressures from trade union members covered by a collective agreement to seek increases,” he said. “That would have impacted negatively Malta’s competitiveness.”

In the medium-term, the Low Wages Commission will also propose adjustments to minimum wage by using collective agreements in both private and public sectors as benchmarks.

Von Brockdorff said that while minimum wage rate can help address poverty levels, it’s not the solution by itself. “The active labour market policies have had a positive impact on increasing labour force participation and reducing unemployment.”

Dr Gordon Cordina, the economist who carried out a study for the MCESD on minimum wage, said the method by which the increase will be given would avoid adverse effects on vulnerable enterprises that employ low-wage workers. “A comparison on the basis of simple numbers (11% vs 4.4%) is neither sufficiently holistic nor fair, especially as there should be other measures to combat poverty,” he told MaltaToday.

Gordon Cordina

Apart from increasing the cost of each minimum wage employee in Malta by over €450 per year by 2019, the agreement also increases the average cost of each and every employee in by around €120 per year.

“The total cost to the economy would likely be in the range of €20 million, of which around €3 million would be ascribed to low wage workers, but the relatively small share is due to the fact that minimum wage workers are only around 3% to 4% of total workers,” Cordina said, describing the costs as sustainable and not likely to result in job losses.

Higher amounts, he argued, would have imposed undue burdens on low-wage enterprises and potentially increase the cost of living in Malta.

“The agreement strikes a balance from a holistic viewpoint and on the basis of an informed discussion; it does not resolve all poverty concerns in Malta, and it never had the intention to do so,” Cordina said.