One size fails all
The sharp increase in the cost of living triggered by the disruptions caused due to the Covid-19 outbreak has become the talk of the town be it in political circles, at industrial relations level and even on social media. Unfortunately, what some economists had expected to be a temporary spike is turning out as something which we will have to adapt to for the foreseeable future. Moreover, global circumstances such as the ongoing tensions with Russa over Ukraine, have exacerbated the situation with respect to fuel prices. In the case of Malta, the government is saying it has already forked out an estimated €200 million in 2021 to keep prices under control to mitigate this effect.
However, we need to look at the bigger picture to ensure that vulnerable members of society like low-income earners can withstand such shocks. One of the major tools which has been in used for the last 30 years is the cost of living allowance (COLA). This mechanism tries to quantify the increase registered in the previous year through the retail price index, and compensate accordingly in the form of weekly wage increase for the following year. While there is widespread consensus that the introduction of COLA was a milestone, it is almost universally acknowledged that this tool needs an overhaul or else it risks becoming obsolete. It makes little sense to treat individuals earning five figure sums each month with those who are dangerously flirting with the poverty line. What sense does it make that employees on an annual salary in excess of €60,000 receive the same compensation as those earning €900 per month? While from a strictly statistical perspective one might argue they have both been exposed to the same cost of living increase as the rise in prices did not discriminate on how much one earned, the context of either case is diametrically opposed. A monthly expense of €400 on food for someone with a salary of €5,000 pales in comparison with a monthly €400 expense for somebody earning €900 a month. Yet, on paper the cost of living increase in either scenario is statistically the same!
Hence any debate on a new mechanism to look after the vulnerable is doomed to fail as long as a one-size-fits-all approach is adopted. In this respect the government’s commitment to roll out a new and separate mechanism to look after vulnerable groups is to be commended. Clearly, any form of compensation or allowance has to be based on the principle of social justice. Moreover, even when tackling specific clusters of society, like for example pensioners, it would be a mistake to tackle them as one cohort as there might be great disparities within that bracket. There might be pensioners living at risk of poverty if not below, and there might be others leading a very comfortable life whereby financial matters are not a major issue. This consideration must be given weight as more often than not such mechanisms are based on averages whereby the ultimate result dilutes notable fluctuation in prices which are smoothed out. This would ultimately defeat the aim of such mechanism. Instead, a model highlighting spikes in prices which need attention would do more justice. If we keep adopting methodologies which try to spread out pronounced socio-economic gaps we would simply be papering over the cracks. In that case one might term such approach as being along the one-size-fails-all model.