Unit labour costs, wages and productivity in Malta : a sectoral and cross-country analysis

Abstract

ULC growth in Malta averaged 2.2% per annum between 2010 and 2014. International institutions have recently expressed concern that this increase, the highest among EU economies, could eventually lead to a loss in price competitiveness. Macro-economic indicators, including GDP, Balance of Payments and employment, however, do not indicate a loss in competitiveness. A closer look at the two main components of ULCs – compensation per employee and labour productivity – reveals that developments in ULCs were not driven by excessive wage increases but rather by a slowdown in productivity. The note focuses on the following four broad questions: (i) Is Malta’s ULC growth out of synch given its economic performance? (ii) Is ULC growth excessive given the structural changes in the Maltese economy? (iii) What do firm-level surveys tell us about the sectoral and structural characteristics behind productivity in Malta after the crisis? and (iv) How do domestic wages, both economy-side and sectoral, compare vis-à-vis other European countries?