A Labour Force Survey published yesterday by Bermuda’s Department of Statistics indicates that over the last two years, the island’s labour force has shrunk, its unemployment rate has dropped, and remuneration has increased.
Bermuda’s 2018 Labour Force Survey (the “Labour Force Survey”) was based on responses from 1,437 households taken in May 2018. It found that median gross annual income from a principal job climbed 9 per cent. from $58,113 to $63,288 and suggested that the number of Bermudians in the working population increased by more than 4,000 to 30,560 since 2016. By contrast, the number of non-Bermudians – a category that includes non-Bermudian spouses of Bermudians and Permanent Resident Certificate (“PRC”) holders – had fallen by more than 5,000, from 9,225 to 4,051.
The Labour Force vs the Employment Survey
The Labour Force Survey offers some insight into Bermuda’s working population as compared to the compulsory annual Employment Survey (the “Employment Survey”), which the government treats as its primary source of employment trends. The last Employment Survey conducted in 2017 found that there were 33,653 filled jobs of which 23,667 were held by Bermudians, 7,338 by non-Bermudians, 1,862 by non-Bermudian spouses of Bermudians and 786 by PRC holders.
The Labour Force Survey found that the labour force of people aged 16 years or more who are either working or looking for work dropped by more than 1,500 persons compared to 2016, from 38,155 to 36,646, a decline of nearly 4 per cent.
“The only realistic counter to the island’s demographic challenge of a rapidly shrinking and ageing population is significant positive migration of people of working age… Immigrants and returning Bermudians with the right skills will help to create jobs, not displace them.”
Bermuda’s Fiscal Responsibility Panel, November 2018
The unemployment rate fell from 7 per cent to 6 per cent and, among Bermudians, from 8 per cent to 6 per cent. The fall was most notable among young people, with the unemployment rate for under-25s falling from 23 per cent to 18 per cent. The labour force participation rate fell to 80 per cent from 83 per cent two years ago.
The “economically inactive” population of persons over the age of 16 who are classed as neither employed nor unemployed rose 6 per cent from 15,428 to 16,389. Further, the trend towards an ageing population was evident with an increase in the number of retired people rising from 8,319 in 2016 to 9,168 this year. There were also more full-time students not seeking work: 3,273 compared to 3,032, and more people not actively seeking work: 911 compared to 828.
According to the Labour Force Survey, underemployment remains an issue for 17 per cent of the working population. These 6,343 people were described as working, but willing and available to work “more adequately”.
A population projection released by Bermuda’s Department of Statistics last month entitled ‘Bermuda’s Population Projections, 2016-2026’ predicted that one in four people in Bermuda will be over 65 by 2026, placing a strain on pensions and healthcare provision. There will be fewer working age people paying into the system, meaning the old age dependency ratio – described as the number of seniors as a share of those of working age – will rise from 24.7 in 2016 to 39.9 in 2026.
An Ageing Populace = a Ticking Time Bomb
The shrinking labour force highlighted by the Labour Force Survey and the population projection speaks to the island’s demographic challenges. With thousands due to retire in the coming years, Bermuda has one of the oldest populations in the world and one of the highest ratios of senior citizens to working-aged people. With people living longer, employers facing more business uncertainties and the changing demographics of the island, underfunded pensions are the latest difficulty facing the territory. Taxpayers pay into three different government pensions: one for the general population to receive in retirement, one to support the retirement of civil servants, police, fire and quango employees, and one for elected cabinet ministers and members of the legislature. All are currently in shortfall but the largest one – the contributory pension fund (the “CPF”) – has the largest deficit.
Only contributions from the present workforce are used to make payments into the CPF from which old-age pensions, disability and death benefits for the general population are paid. There is no provision for any shortfall to be covered by the Government’s normal Budget. So the main challenge to the survival of the CPF is the low ratio of workers to pensioners. The social insurance scheme into which all Bermudians contribute, and from which all seniors collect a stipend after turning 65. In 2016, by the previous government estimated to be underfunded by $2.07 billion. A 2014 review of the CPF predicted that even in a best-case scenario, the money in this fund would run out in 2049.
The government will have no choice but to take the unpopular step of raising taxes on the ever-shrinking working population further encouraging emigration of the young and skilled, while at the same time reducing the quality and quantity of services provided to the growing number of elderly people. The political, economic and social consequences for all Bermudians, but especially those most dependent on government services, would be severe.
There are a number of small actions that could be taken immediately, such as raising the retirement age as mentioned above, and the government has announced that it will look at raising this to 67 years as one way of addressing the problem. Other options would be to lower the amount of the cost-of-living increase, relating pension payments to average salaries rather than final salary, and increasing contribution rates. Several business leaders including John Wight, President of the Bermuda Chamber of Commerce, have led calls for the island to change its approach to immigration to attract more working age people to the island, in the interest of economic sustainability. To make the island more attractive to both Bermudians who currently live and work abroad and foreign nationals, Bermuda’s immigration system would need to be reformed. If more people were added to the workforce and the population in general, this would widen the base of the pyramid in terms of those who would be able to fund the ageing population and foot the bill for pensions.
Solutions to that which ail us
Like many of the British Overseas Territories, apart from tourism, Bermuda has few obvious natural resources and its remote location, high-cost of living and limited local skills base make the support of new industries challenging. The government has identified growth through economic diversification in an effort to reduce Bermuda’s dependence on insurance and reinsurance, and provide alternative employment opportunities for Bermudians. To do so, the government has focused on the promotion of technology and financial services sectors which are high-value, can be delivered remotely and are supported by the territory’s top notch regulatory and legal infrastructure.
Recent moves to accelerate the processing time for work permit applications and to implement a reorganisation of the Immigration Department, while welcome developments, need to be implemented in conjunction with wider reforms of practices and policies. The private sector in Bermuda is still championing increased immigration effected through a modernised and liberalised immigration policy if Bermuda is to return to a sustainable economic and demographic trajectory and become less prone to the vagaries of the external economic pressures. To attract investment and make immigration to Bermuda by entrepreneurs and businesses more popular would be an open and transparent immigration policy that has a certain path to citizenship. Such a move, particularly if combined with measures to encourage the return of overseas Bermudians with marketable skills and the provision of citizenship to the families of non-citizens that have been long resident in Bermuda, might facilitate at least some net growth in the local labour force. Any other option would risk the island remaining a transitory nation subject at an ever-increasing rate to the whims of the global economy.
Immediate action needed
In light of the relentless demographic shift, Bermuda must take immediate steps to ensure the long term viability and relevance of its social welfare framework. The territory must respond to these changes with policy reforms that encourage individuals to work longer, incentivise the retraining and employment of older workers as the work environment changes, liberalise immigration policies, and confront the challenge of an increasingly elderly population in need of additional social services. From the perspective of fiscal sustainability, the need for these changes is serious and urgent.
