Unit labour cost growth declined to an annual average of 0.6% during 2005-2007, compared to 3.9% during 2001-2004. This improvement was driven by a pick-up in productivity and moderate wage awards. Wages and productivity drifted significantly apart in 2008, however, a divergence which will have harmful consequences if allowed to persist. Progress has been registered in other areas too, though at times not to the same extent as in other EU countries. In the labour market, the employment rate increased from 54% in 2004 to 55.2% in 2008, driven by a steady rise in the female employment rate, while the unemployment rate fell to a record low of 5.9% in 2008. In education, early school leavers declined from 42% in 2004 to 37.3% in 2007, although this is still well above the 15% average EU ratio. 4 Education attainment levels increased from 51% to 55% during the same period. 5 Since the start of this decade, the student population pursuing further and higher education has increased by an annual average of over 5%. 6 An improvement in human capital goes hand in hand with greater employability. In 2008, the employment rate of those with a tertiary level of education stood at 86%, compared to 46% for those with only a secondary level of education.
In 2005 the decision was taken to join ERM II with a unilateral commitment to maintain the exchange rate at its central parity. This was supported by a process of fiscal consolidation, driven both by revenue enhancing and expenditure cutting measures; the first stage of pension reform; the liquidation of loss-making State enterprises and the privatization of others; and further liberalization measures, including in telecommunications and the postal and port services. Measures were also taken in pursuit of the Lisbon Agenda objectives, especially to improve labour market participation and to enhance educational attainment levels. Finally, EU accession also saw the adoption of a new framework for product market regulation. The decision to meet the Maastricht criteria at the earliest possible opportunity seemed overly ambitious to some at the time, but a combination of appropriate policies implemented within a clear strategic framework and an improvement in Malta’s external environment led to the desired objective being achieved just three years after EU accession. In July 2007, in fact, the European Commission recommended to the EU Council that Malta be allowed to adopt the euro on the grounds that it had achieved the high degree of sustainable convergence required by the Treaty. Achievements of the past five years The implementation of reforms began to pay dividends after 2004. Also with the help of stronger external demand, growth accelerated to an average annual rate of 3.4% between 2005-2008, compared with 0.5% in the preceding four years.