An analysis of wage and labour market flexibility in Malta

Abstract

This study examines wage flexibility in Malta, and attempts to identify the extent to which wage rates are influenced by unemployment. The tested hypothesis is that in Malta wage rates respond to labour market realities. This is done by measuring the speed of wage adjustment by means of econometric tests relating to an aggregate wage equation, based on a disequilibrium labour market model and a Phillips curve wage equation. The main finding of this study is that in Malta wage flexibility is rather restricted. The major impediments to wage flexibility are perceived to be related to collective bargaining and wage indexation.