The relevance of the Beveridge curve for Malta

Abstract

This Dissertation tests for the presence of the Beveridge curve, including for any shifts in the curve, and for the factors underlying these shifts, for Malta, over the same period 2002Q1 to 2018Q3. This represents a significant contribution in the context of the analysis of the Maltese labour market, given the importance given to this relationship in literature, which is however limited in the case of Malta. This study uses an Autoregressive Distributed Lag (ARDL) model to test for the negative relationship between changes in the unemployment rates and changes in the vacancy rates, which underpins the Beveridge curve, and for relative shifts in the curve over the sample period. This study then uses a limited dependent variable model, namely a Probit and a Logit model, to test for the underlying factors behind the observed shifts in the Beveridge curve. Based on data obtained from the National Employment Agency for the vacancy rates, and the Labour Force Survey for the unemployment rates, this study establishes that there exists a negative association between the changes in vacancy rates and changes in the unemployment rates, and that there has been two inward shifts in the Beveridge curve suggesting a lower unemployment rate for each level of the vacancy rate. The first inward shift occurred during 2012, and a second, more pronounced, inward shift occurred during 2016. The growth in the labour force and specifically the influx of foreign workers was the main reason behind these inward shifts in the Beveridge curve, with non-EU workers contributing more during the first inward shift, whereas other EU workers contributed more during the second shift, mainly as a result of EU accession which enabled the free movement of labour. During the second inward shift, however, other factors played a role, including the reduction in long-term unemployment rate and a lower degree of skills mismatch. The former was primarily the result of a Government’s initiative that assigned 600 long-term unemployed a full-time employment in order for them to gain the skills and experience required to be in a better position to join the private sector in the future, whereas the latter was brought about mainly by the influx of foreign workers, who, according to the EU Commission Report for Malta are compensating for the skills shortages present across all education levels among the Maltese citizens.