By these measures, just how bad are we?

Without question, the twin afflictions of extreme income inequality and mounting poverty are recognised as the defining economic and public policy challenges facing the world today. Far from being isolated to a few countries or a specific region of the world, these problems are acknowledged as now plaguing the vast majority of countries the world over.

Not surprisingly, the causes, consequences and potential remedies of extreme inequality and poverty have become the primary focus of researchers globally in recent years. Today, intensive research efforts extend well beyond departments of economics and business schools to encompass not only numerous other disciplines within academia but the resources and attention of private think-tanks, government agencies, supranational organisations and civil advocacy groups worldwide.

But what of these conditions in Bermuda today? Do we know how much Bermudians have endured as measured by these key economic dimensions? Do we have government estimates of their values? Do we know how Bermuda compares internationally in these crucial areas?

Regrettably, in Bermuda these statistics are notably conspicuous by their absence. To date, the Bermuda Government has yet to produce an estimate of income inequality, and an official measure of the island’s poverty was published only once from data as now long ago dated as 2004. When the subsequent 14 years are occupied by an economic crisis of the scale and duration of our own, the elapsed period since our only official poverty reading represents an economic lifetime.

But while Bermuda has been preoccupied with avoiding the island’s harsh economic truths, much of the rest of the world has accumulated considerable knowledge of these twin maladies. Unsurprisingly, extreme income inequality leads to significant differences in health and educational outcomes, and impedes social mobility, severely curtailing the life chances of the poor. As some will regard as obvious, high levels of poverty and inequality serve to squander the talent and thwart the potential of individual lives of the disadvantaged.

More recent research, however, exposes the detrimental impact of extreme inequality on economic growth for countries as a whole. Severe inequality not only harms the economic prospects of the poor, but the overall income-generating potential of a country at the aggregate level as well. Moreover, severe inequality and poverty are mutually self-reinforcing. Extreme inequality inherently diminishes the poverty-reducing impact of economic growth and high levels of poverty reduce social mobility, leading to self-generating intergenerational cycles of privileged and disadvantaged families.

Additional work by political economists, political scientists and sociologists now also documents the malignant, politically corrosive nature of inequality extremes. As inequality rises, so, too, do the power and influence of financial and economic elites who invariably work to curry favour with politicians and regulators, subverting prudent reforms and entrenching further their unfair advantages.

If left unchecked, severe inequality inevitably leads to degenerative and potentially even dysfunctional governance. Democracy is seriously compromised, if not outright corrupted. At its most extreme, the money and power of elites result in what has been termed by researchers as a “political capture” of the political process or a “regulatory capture” of regulatory authorities who lose sight of the cares, concerns and, ultimately, welfare of ordinary citizens.

Perhaps most importantly, the research shows that neither inequality nor poverty is the ineluctable economic residual of capitalism’s inexorable march of progress. Quite to the contrary, extreme inequality and poverty are the direct consequences of poor public-policy choices made by public officials. They are the results of choices we collectively make, or fail to make, and, as such, when properly understood, their solutions are eminently obtainable.

So, far from being a mere academic exercise in empirical economic estimation, quantifying Bermuda’s likely levels of inequality and poverty may well provide important insights in the political and regulatory conditions of the country in addition to our socioeconomic circumstances and could well offer critical preliminary guidance in the development of effective economic, political and regulatory reforms. To what degree have the island’s previous policymakers exercised poor judgment in their decision-making? If errors in policy have occurred, were some likely to be more damaging than others?

How has the island’s experience with inequality and poverty evolved over time? Can we point to changes in government policy predating significant changes in our inequality and poverty? Has Bermuda’s experience with policy adoption and our subsequent economic performance differed materially from those of other countries?

How alert should Bermudians be to the risk of political and regulatory capture of their authorities? Has the welfare of ordinary Bermudians been systemically subjugated to the interests of more powerful foreigners and wealthy Bermudian elites, and, if so, should institutional reforms be implemented to address these imbalances? And, now that Bermuda’s new government is purportedly poised to embark on historic reform, are we likely to encounter much resistance from our public and private-sector guardians of Bermuda’s powerful financial and economic interests? Or, perhaps given the scale of Bermuda’s economic problems, does our new government even possess the requisite competencies to deliver on its promises?

Turning first to the evidence on Bermuda’s income inequality, Figure 1 recreates a chart first used by Nathan Kowalski in his “Financial Ramblings from the Rock” column. The chart displays the wage rates of the top and bottom-paying occupational job categories published by the Department of Statistics in its annual, The Bermuda Job Market: Employment Briefs. The top-paying occupational category is termed “Senior Officials and Managers”, while the bottom is “Service Workers and Shop and Market Sales Workers”.

The pay in each category has been rebased to 100 at the start of the period for comparability and over the eight years to 2016, the income of top-paying jobs had risen to 121, while that of bottom-paying jobs had increased to only 114. These figures are in nominal terms, so the effects of inflation are not accounted for. Over the same period, Bermuda’s consumer prices rose 20.1 per cent, resulting in the income of bottom-paying jobs in real terms falling by more than 5 per cent, while the top-paying jobs barely stayed ahead of inflation.

But is this widening pay inequality present in Bermuda’s longer-term data? Unfortunately, using these occupational job categories we are unable to make direct comparisons over longer timescales owing to changes made in 2008 by the Department of Statistics in its classification methodology. The merging of some jobs and a further parsing of others in this change resulted in our occupational job categories of today not precisely corresponding to those before 2008.

For our purposes, however, this is not an insurmountable obstacle, as Bermuda’s lower-paying and higher-paying jobs have remained isolated in distinctly different categories. In fact, in examining groupings of occupational categories across longer periods of time we can capture much of the desired information.

Figure 2 presents data from two separate groupings of occupational categories for the period 2000 to 2016. Here, sales and service jobs started in two different categories and ended in one, while the managerial and professional jobs started in two categories and ended in three. By taking averages of comparable categories, we can approximate the change in income for each of these two different groupings over the 2000-2016 period.

The longer-term data shows a continuation of much the same trends. Nominal pay increases for sales and service jobs rose by 37 per cent over the 16-year period, while managerial and professional jobs had a 67 per cent increase in pay.

Meanwhile, over the same period, Bermuda’s consumer prices increased by 52 per cent, resulting in the real performance of these pay increases being virtual mirror images of each other. Once the effects of inflation are removed, sales and service pay fell by almost 10 per cent, while managerial and professional pay increased by almost the same number.

Providing further information on our relative pay performance, Figure 3 displays the “wage increases” from as far back as 1993 for two occupational job categories that have not been redefined by the Department of Statistics in the intervening period.

Again, both “Clerical” and “Agricultural & Fisheries” jobs have been rebased to 100 at the start of the period. Here, wage increases are reported in real terms, so the effects of inflation have been removed. Additionally, Bermuda’s productivity performance is included as an indication of growth in the island’s total real income.

Both job categories are relatively low-income in relation to average salaries in Bermuda, but their distinctly diverging wage performance reflects our labour market’s severe dislocation caused by the inordinate rise of finance on the island and our failure to diversify the economy. While not receiving the same wage increases as high-income workers in Bermuda, clerical staff as office workers have fared considerably better than other low-paid workers on the island.

The diverging performance of these income categories could not be more stark. As Bermuda’s productivity increased 35 per cent in the 23 years to 2016, the real pay of clerical workers was unchanged, while Agricultural & Fisheries employees had a 32 per cent decline in their paycheques when adjusted for inflation.

And, as a point of order, Bermuda’s Agricultural & Fisheries workers are not overwhelmingly cheap foreign labour — at least not foreign. According to our Department of Statistics, Bermudians comprised 48 per cent of our Agriculture & Fisheries workers in 2016.

Importantly, these trends of rising income inequality also are reflected in our widest measures of personal income in Bermuda.

• This is Part I of a three-part weekly series

Robert Stubbs is an economist, CFA, holds an International Bond Dealer Diploma and has completed the ACAS actuarial exams. He was formerly Head of Research for Bank of Bermuda and his professional interests at present lie in enterprise risk management