Upskilling of workforce key to sustaining economic growth - Central Bank report

Upskilling of the labour force is key to sustaining the fast-paced economic growth of recent years, a Central Bank of Malta report has highlighted.

The economy needs a shift in emphasis towards productivity with upskilling being at the heart of this change, according to the labour force analysis.

“Upskilling and re-skilling will become an even more fundamental priority to recover from the deep economic shock arising from the pandemic especially as certain sectors are likely to be required to invest to adapt to new technologies and survive the digital transition process,” the CBM analysts said.

The report, The Characteristics Associated With the Short And Long-term unemployed in the Maltese Labour Market’, was published in the CBM’s second Quarterly Review for this year.

It noted the high rate of employment achieved over the past few years, particularly after 2014 with policies that actively encouraged people to work rather than stay on benefits or be unproductive.

“Prior to the COVID-19 pandemic, the Maltese labour market achieved practically full employment and economic growth was facilitated by the importation of foreign labour given the demographic characteristics of the Maltese population,” the report noted.

Government’s ‘Make Work Pay’ policy introduced in 2014 encompassed various measures including the tapering of benefits, in-work benefits for low income earners, free childcare for working parents and programmes such as the ICT4all, the Community Work Scheme, the Youth Guarantee Scheme, the Training Pays Scheme, and the Work Programme Initiative.

“The goal of these policies was to address the poverty trap by making the prospect of being in employment more attractive than being dependent on social benefits. These policies led to a substantial increase in the expenditure on employment incentives and labour market services while at the same time, expenditure on support declined,” the CBM analysts said.

This shift in labour market spending helped raise participation rates and skills, lowering of youth unemployment and the duration of unemployment.

However, the CBM report noted that problems related to skills gaps remain and have to be addressed if the country is to maintain its growth trajectory.

“There is now an opportunity and a strong need to upskill the labour force with a particular focus on transferable skills - skills that could be used in a variety of roles, thus making jobseekers more attractive to prospective employers,” the report said.

It acknowledged that an active labour market policy is limited in its ability to address challenges in basic education but well placed in creating incentives to improve on training and other education.

The CBM report emphasised the need for policies that are designed well to ensure their success, including accreditation. “It is important that all training undertaken is recognised and appropriately credited,” the report said, adding this is in line with the European Commission’s 2020 Skills Agenda which aims at a standard European approach to micro-credentials. “Having tangible qualifications and credentials leads to improved job finding.”

It also emphasised the need for appropriate targeting to ensure positive employment effects.

The CBM analysis tallies with the findings and recommendations made in October last year when Finance Minister Clyde Caruana unveiled an employment policy for the next eight years.

The employment policy emphasised the need to improve educational and training outcomes to address skill gaps in the market.

It recognised that the next challenge is to ensure that Maltese workers have better skills to be able to earn better incomes.

An economic and labour market analysis that accompanied the recommendations showed how Malta has among the lowest rates of people who spend time in education across the EU. A worker spends an average of 16 years in education in Malta, whereas in Ireland the average stands at 20 years, which means people enter the labour market with a more extensive skill set.

But although the employment policy sought a better-skilled workforce it warned foreign labour is still needed if the country wanted to maintain the same level of growth.