Abstract

In contrast to the experience of southern and peripheral economies in the euro area, Malta has weathered the financial crisis relatively well and its labour market remained resilient in the face of shocks. Using information from a firm-level survey conducted in 2014, this paper focuses on the nature of the shocks hitting the economy after the crisis and the reaction of Maltese firms to these shocks. Concerning the latter, a distinction is made between the firms’ decisions to adjust their workforce and on the wages given to new hires compared to incumbents. The empirical analysis is conducted with a multivariate probit framework that controls for both firm and workforce specific characteristics as well as the nature of the shocks faced by the firms. The results highlight the high degree of heterogeneity in demand conditions across sectors although concerns about skill shortages were broad-based.

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