by Nathan Kowalski
The last few decades have been tough for labour. Shifting macroeconomic forces have tilted the economic playing field toward capital and created a much more difficult environment for real wage growth and opportunities.

• According to US Federal Reserve data, corporate pre-tax profits have grown from 5 per cent to about 9 per cent of US GDP since the late 1990s, while wages have shrunk from 46 per cent to about 43 per cent. There are many reasons for this shift and here are a few to consider:
• Low interest rates and cheap capital have enabled zombie companies to perpetuate and frustrate productivity growth and the efficient allocation of capital. Lower productivity limits wage growth.
• The scalability and automation of jobs through technology has created job destruction and shifted the nature of work for many industries, which has left those affected with little to no bargaining power when it comes to jobs. The mix of jobs is shifting, and the speed of this change is accelerating.
• Partially due to regulation and network effects, a winner-takes-all market has developed in some industries that has fostered monopolies or oligopolies, who can stifle competition and control pricing. This lack of competition can prevent a more free-market based job market full of options for workers within these industries.

This does not look like it will improve over the medium term either. The recent OECD report on the future of work highlights the following:

• 14 per cent of jobs could disappear from automation in next 15 to 20 years
• 32 per cent of jobs are likely to change radically due to automation
• One in seven workers are self-employed, one in nine on temporary contracts
• Six out of ten workers lack basic IT skills
• Union membership has fallen by almost half in three decades

These are very real issues and risks for Bermuda and may, in fact, be the most important things to consider. You cannot, of course, benefit from labour law changes like the minimum wage if there is no wage to be had. But when it comes to labour in Bermuda it is not only the global macro environment to consider.  A lot has to do with demographics.

Demographics are destiny it is said that “demographics are destiny” and this is certainly a theme that figures into our economic assessment of Bermuda and one that we have discussed many times in the past.  By now, no one on this island should be surprised that Bermuda is facing an unprecedented wave of aging, or a “grey tsunami”, as the baby boom generation – defined as people born between 1946 and 1964 – moves to the end of their productive careers. The magnitude of this shift will create numerous issues, including pressure on entitlement programmes and weak economic growth.

A report by the Department of Statistics show the population of Bermuda has been decimated by the loss of thousands of expatriates and emigration of some Bermudians.  The report suggests the average annual population growth rate in Bermuda will be negative from 2016 to 2026.

Bermuda suffers from a “denominator problem” – its obligations continue to rise while this amount is getting divided among fewer and fewer people.  In general, a reduction in population brings less demand for goods and services as well as pockets of excess supply.  Many businesses demand a certain population size to remain viable.  This only gets more worrisome when you look at the composition of the Bermudian population.

Major intergenerational change in Bermuda is just getting started. This will require the consideration of social shifts when one ponders economic analysis in the future.  If not arrested and changed, the declining and aging population will increasingly become a drag on economic growth as the labour force shrinks.  To alleviate this, Bermuda needs to focus on bringing its youth back by creating more entry-level jobs. It also needs to focus on polices to encourage generational fairness.  Policy changes should focus on reducing the younger generation’s burden of escalating liabilities (shifting the cost to those more responsible if possible) and a focus on lowering living costs which can disproportionately affect the island’s youth.  It also needs to be serious on developing a comprehensive immigration plan.

Nathan Kowalski – CPA, CA, CFA, CIM, FCSI is the Chief Financial Officer of Anchor Investment Management Ltd. and can be contacted at [email protected]

This article was originally featured in the TOP TEN 2019 edition of the RG Business Magazine.

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