Issue link: https://maltatoday.uberflip.com/i/1543384
19 maltatoday | SUNDAY • 22 FEBRUARY 2026 OPINION Economist Malta's wage problem is structural and education is the only way out JP Fabri THE wage debate in Malta is of- ten reduced to surface-level argu- ments. Pay should be higher. Liv- ing costs are rising. Workers feel squeezed. However, none of it ex- plains why wage growth remains stubbornly weak despite years of strong economic expansion, re- cord employment, and persistent labour shortages. The answer lies deeper. Malta's salary outcomes are not primar- ily the result of individual choic- es, sectoral quirks, or short-term shocks. They are the predictable outcome of an economic struc- ture that has prioritised labour ab- sorption over capability building, volume over value, and speed over depth. Recent income distribution data tabled in parliament and analysed in last Sunday's MaltaToday by James Debono, shows a labour market heavily concentrated in low and middle wage brackets, with only a thin layer of high-in- come earners. Maltese workers dominate the middle, EU nationals sit slightly higher, and third-country nation- als are overwhelmingly clustered at the bottom. This is not acci- dental. It reflects how Malta has grown. Over the past decade, growth has been driven by labour-intensive services, tourism, construction, logistics, and support functions. These sectors are essential, but without sustained upgrading, they impose a ceiling on wages. When an economy expands by adding people rather than by increasing output per worker, wages stagnate even when unemployment is low. Both the Central Bank of Mal- ta, in its most recent Quarterly Review, and the IMF have been increasingly explicit about this tension. The IMF's most recent Article IV consultation acknowl- edges Malta's impressive growth performance but warns that pro- ductivity growth remains modest, unit labour costs are elevated, and capacity constraints are becoming binding. Labour shortages coexist with skills mismatches, a classic sign of an economy that has ex- panded faster than its human cap- ital base. This is not a crisis yet. But it is a warning. Malta has reached the limits of labour-driven growth. Continu- ing on this path means import- ing more workers into an already dense system, placing further pressure on housing, infrastruc- ture, and public services, while do- ing little to lift median wages. This is not sustainable socially, fiscally, or economically. Education at the centre of the dilemma If wages are to rise meaningfully, productivity must rise first. And productivity does not rise through slogans, incentives alone, or tech- nological adoption in isolation. It rises when skills deepen, when firms move up the value chain, and when capital is deployed to- ward learning, innovation, and or- ganisational capability rather than short-term returns. The latest public consultation document of Vision 2050 recog- nises this in principle. It speaks of a transition toward higher value-added activity, improved quality of life, and long-term sus- tainability. But visions only matter if they are translated into binding choices and it will be interesting to see what the final document will include in this regard. How- ever, apart from documents, the real test is whether Malta is will- ing to align its education system, labour market policies, and pub- lic support mechanisms with this transition. At present, education reform remains incremental while eco- nomic pressures are structural. Early school leaving remains too high. Lifelong learning participa- tion is limited. Vocational educa- tion, while expanded, is still not embedded as a core economic strategy. Technical skills are often treated as a fallback rather than a foundation. Institutions such as MCAST have made tangible progress in fa- cilities, programmes, and industry engagement. But the challenge is not institutional effort. It is sys- temic alignment. Malta needs an education and training ecosystem that is explicitly designed to raise productivity across the economy, not just supply labour into exist- ing roles. This is where more radical thinking is required. Studio schools, embedded learn- ing environments, and dual train- ing systems offer a way forward. These models integrate education directly with production, allow- ing students to acquire technical skills, adaptability, and work expe- rience simultaneously. In a small and dense economy, such mod- els are not optional experiments. They are efficient solutions. But education reform alone is not enough if it is not reinforced by incentives. This is where the idea of condi- tional support becomes critical. Malta continues to deploy signif- icant public resources through subsidies, incentives, aid schemes, and sectoral support. Yet too of- ten, this support is decoupled from productivity outcomes. Aid sustains activity, but it does not always transform it. The IMF has repeatedly high- lighted the importance of linking policy support to productivity-en- hancing reforms. Conditionality need not be punitive. It can be developmental. Support for firms could be tied to skills upgrading, training commitments, technolo- gy adoption, or measurable pro- ductivity gains. Wage subsidies could be linked to progression pathways. Sectoral support could prioritise firms that invest in hu- man capital rather than those that simply expand headcount. Such an approach would align with Vision 2050's stated ambi- tions while addressing the struc- tural weaknesses identified by in- ternational institutions. Crucially, this also speaks to Malta's capital allocation problem. Too much capital continues to flow into low-productivity assets, particularly property, because re- turns appear safer and faster. Ris- ing property values create a sense of wealth, but they also divert re- sources away from productive in- vestment in skills, innovation, and firm upgrading. This reinforces the low-wage equilibrium rather than breaking it. If Malta wants higher wages, it must make investing in people as attractive as investing in land. The alternative is a slow erosion of the social contract. Median wages stagnate. Housing becomes less affordable. Infrastructure strains intensify. Public frustra- tion grows. And the political de- bate shifts toward symptoms rath- er than causes. The uncomfortable truth is that Malta cannot legislate its way to higher wages. It cannot import its way out either. The only sustain- able path is to build an economy where higher pay is justified by higher value creation. Education is not a social expense in this context. It is economic infrastructure. And like all in- frastructure, it must be planned, funded, governed, and maintained with long-term intent. The data offers a warning. The IMF offers a diagnosis. Vision 2050 offers Malta a narrative. What remains is the willingness to connect them through coherent policy and conditional support that rewards transformation rath- er than repetition. If Malta gets this right, higher wages will follow naturally. If it does not, debates about fairness will continue to mask a deeper structural failure. The uncomfortable truth is that Malta cannot legislate its way to higher wages. It cannot import its way out either. The only sustainable path is to build an economy where higher pay is justified by higher value creation