The Full Picture

“An experienced software developer in Bangalore costs about $13,000 a year, compared with $78,000 in Atlanta.” [Royal Gazette Mon 05 Feb 07… page 16…(Bloomberg)]

In advanced economies, the new workplace reality is the combination of eased national borders and global wage differentials. With the world’s highest GDP and the world’s third highest per capita income, Bermuda is an advanced economy. So Bermuda has a greater wage differential than Atlanta.  Until 1989, Bermuda’s economy hired ‘guest workers’ from non-communist Europe, North America, the Caribbean and South America. A few from Australasia. In the 1990’s, with the Berlin Wall and Iron Curtain down, ‘guest workers’ started arriving from ex-communist Europe, Asia, the Indian sub-continent, and, now, a trickle from the African continent. The shift to these new areas had two effects. One, for these new guest workers, wage levels stagnated. The Asian guest worker, replaced the western European guest worker. He was willing, and able, to do the same work for the same or even slightly less pay. Driving this new bargain was a change in relative economic values.  Western Europeans saw Bermuda pay from their advanced economy perspective. They were attracted to work in Bermuda if they were able to save $300 – $500 per week. The amount was determined by their assessment of the value of that saved income once they repatriated the funds to their native country. To them, each repatriated Bermuda dollar had a buying power of about $2 – $3 in their home economy.  The second effect? East Europeans, Asians, and Indians saw Bermuda pay from their less-developed economy perspective. They were attracted to work in Bermuda if they saw an opportunity to save as little as $100 – $200 per week. The amount was determined by their assessment of the value of that saved income once they repatriated those dollars to their native country where each of these Bermuda dollars might have a buying power $5 – $10. This high value differential combined with the ability to profit relatively more from a lower savings rate meant that both employers and employees saw a mutual benefit.

            Workplace Bermuda is most attractive to workers from countries with the greatest wage differential. Thus high quality, highly educated, highly disciplined workers from Asia, the Indian sub-continent, and now Africa, are even more strongly attracted to work in Bermuda.

            Because the attraction is money saved combined with the relative worth of that money in a foreign and lower level economy, Bermuda’s wage and salary rates are now being set and influenced by this new factor. For a Bermudian, $100 will buy three bags of groceries, or pay one weeks rent in a shared ‘studio’.  In some parts of the Indian sub-continent, that same $100 will maintain an entire four person household for four whole weeks.

            On exactly the same basic wage, someone from the Indian sub-continent will consider himself far better off than someone from Western Europe. On the Indian sub-continent, $100 goes farther than it does in Western Europe; and goes much, much farther than in Bermuda.            

            For all guest workers, Bermuda’s high cost of living is not critical to their decision. The newest and most important critical factor is savings potential and the savings level that is attractive can be as low as $100 a week. The overall wage that is paid is less important than the amount that can be sent home, or that can be used to fund emigration to another country.  Between 1995 and now, Bermuda’s economy moved to using this much cheaper labour pool. In many lines of work in Bermuda, wages have stayed low, and will remain low. Bermuda’s wage rates are now set and are being heavily impacted by the result of this globalization.

    Driving hard for low and lowered costs, Bermuda’s Hospitality Industry now makes its profitability calculations on personnel costs that use this new wage factor. Without artificial government intervention, wage rates in that Industry will not and cannot rise to rates high enough to attract or sustain Bermudian workers AND maintain prices that customers will pay AND promise a profit to owners. If government intervenes, it will be intervening in a matter where the absolute laws of economics and the realities of the marketplace apply. Combining thoughtful, careful, and certainly minimal government intervention with far better educational and vocational preparation is likely to be the only successful – and possible – way forward.

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