Issue link: https://maltatoday.uberflip.com/i/1224129
2 maltatoday | SUNDAY • 22 MARCH 2020 NEWS WE need to bite the bullet. I am not a politician, but as an academic I have a moral obligation to help shape policy and public opinion. So: perhaps I can dare say this… Malta's economy now faces a critical juncture. Up until a few weeks ago, em- ployers were still concerned with the lack of local, skilled human resources. Now, overall demand in most sectors is down; tourism is in free-fall; sales of cer- tain products are down 80-90%. This sit- uation is likely to last at least for another three months, probably longer. The current danger is for businesses to issue mass redundancies and contribute to mass unemployment. And the foreign workforce that has kept our economy going of late will then have no choice but to leave. While it may appear inevitable in the short run, this approach would, in my opinion, be the wrong strategy, and undermine Malta's long-term competi- tiveness. The local economy needs to be ready to pick up the slack and get back to full capacity when the COVID-19 pandemic has taken its course. To pro- tect our competitive edge, employers need to protect and hold on to their em- ployees. But they may need help from the gov- ernment and all of us to do so. We may need to show collective solidarity with employees in the private sector, and whose jobs are mostly in peril. Which is why some drastic measures may be necessary (additional to those already announced by government). There would be short-term pain, yes; but long-term gain. Here are some 'broad brush' sugges- tions, whose details would need to be worked out by government in collabo- ration with representatives of industry, workers and employers. The measures could kick in with effect, say, from 1 April and for an initial period of three months, subject to evaluation and pos- sible extension. 1. No redundancies. 2. A reduction of 20% in all wages and salaries (inclusive of all cash bonuses and allowances) for all employees in Malta on a contract of service and earn- ing €20,000 or more per annum. The exceptions would be employees in the health sector and any other deemed 'es- sential' service grades. 3. All employees to shift to a 3-day week (with their regular working hours reduced by 40%). 4. Government to refund 10% of the wages and salaries of private sector em- ployees working on reduced hours. 5. Employees aged 59 or over to be of- fered early retirement packages. In this way, we all give our share to help transition this crisis while safeguarding our ability to 'bounce back' into action when that time comes. And it will. Prof. Godfrey Baldacchino is Pro Rector and Professor of Sociology at the Univer- sity of Malta. This opinion was first pub- lished on Facebook Coronavirus could be Malta's Government must bite the bullet if we want to bounce back MATTHEW VELLA MALTA will very likely experi- ence its own 'great depression', banking and finance expert Prof. Joe Falzon, of the University of Malta, has warned of the corona- virus crisis that almost shut down the island's economy. In calculations of the scale of unemployment that might occur in Malta unless government does not step in with substantial wage relief, Prof. Falzon estimates that 55,000 people could potentially be laid off or experience drastic reductions in their salaries: 33% of all persons employed in the private sector (164,436), and 26% of all gainfully employed in Malta (212,046). "Malta, like most of the western world, is very likely to experience another great depression. A 26% decline in employment and in- come implies that our GDP will shrink from €13.2 billion to €9.7 billion in 2020 – three billion euro on an annual basis. If the coronavirus effects will last six months, the reduction will be half this figure, €1.7 billion," Prof. Falzon told this newspaper. And the decline in GDP will not occur uniformly across all sectors. Some sectors, like ac- commodation and food service, wholesale and retail, and arts, entertainment and recreation, will see their sector sales revenue decline very rapidly, forcing vast lay-offs. The government itself will see big reductions in income tax revenue, national insurance contributions and VAT, probably also close to a 26% reduction on an annual basis. Analysing the gainfully em- ployed in the private sector in all 21 groups, Prof. Falzon assumed a probability of expected redun- dancies in each sector that might be laid off or suffer reductions in income. He carried out the exercise after hearing what he said was worry- ing note from the USA's Treas- ury Secretary, Steven Mnuchin, who said that if things get much worse in the United States due to the coronavirus, unemployment could reach 20% in the United States. It was only in the 1930s during the Great Depression that the US last saw unemployment levels reaching 25%. Now stock markets have tumbled heavily in the United States and Europe in the last four weeks, forcing the Federal Reserve to reduce its benchmark interest to almost zero, and injecting billions of dollars as liquidity in the bank- ing system. The European Cen- tral Bank and Bank of England followed with similar significant schemes to improve liquidity in their respective banking systems. "Mnuchin's statement got me thinking about the possible ef- fects of the coronavirus on in- come and employment in Malta. I looked at the GDP data from the National Statistics Office, and found that several economic sectors are grouped together in the production account of GDP. Then I looked at the employment figures and found that these are very detailed into 21 different sub-categories of all the different industries in Malta." Prof. Falzon assumes that the public sector will not lay off any workers in this coming crisis, and somehow, all public sector Economist's warning: 55,000 unemployed unless government launches massive intervention Godfrey Baldacchino Prof. Joe Falzon: "The government, constituted bodies and the unions, need to come together and find a national solution to prevent the massive expected layoffs" Agriculture & Fishing 2010 0% 0 Quarrying 364 0% 0 Manufacturing 21615 5% 1081 Electricity & Gas 36 0% 0 Water, Sewerage & Waste Mgt 403 0% 0 Construction 11683 10% 1168 Wholesale & Retail 26989 80% 21591 Transport & Storage 9320 30% 2796 Accomodation & Food Service 14160 90% 12744 Information & Communication 7075 10% 708 Financial & Insurance Activities 10200 10% 1020 Real Estate Activities 1704 60% 1022 Professional, Scientific & Tech 15069 10% 1507 Admin & Support Services 16914 10% 1691 Public Admin & Defence 0 0% 0 Education 5774 10% 577 Human Health & Social Work 6730 10% 673 Arts, Entertainment, Recreation 9448 80% 7558 Other Services 4378 20% 876 Activities of Households 342 0% 0 Extraterritorial Organisations 222 0% 0 Total Private Sector 164214 33.4% 55013 Total Public Sector 47610 Total Gainfully Occupied 164556 25.9% Gainfully Redun- Unemployed occupied dancies "The Great Depression taught us that only massive monetary and fiscal stimulus can help to recover slowly the economy to its former levels of economic activity"