The Global Wage Report: Addressing the Impact of Inflation and COVID-19 on Bermuda

23 January, 2023

The International Labour Organization (ILO) recently published its 2022-2023 Global Wage Report entitled, The impact of inflation and COVID-19 on wages and purchasing power (the “Report”). It highlights the negative effect that COVID-19 and inflation have had on world economies during the past three years and proposes policy initiatives to combat the cost of living crisis.

The Report takes into consideration three important developments that will shape social and economic policies in the near to medium term:

  • the gradual recovery from the COVID-19 crisis;
  • The global rise in inflation that began in 2021 and accelerated rapidly in 2022; and,
  • The Ukraine war created additional economic uncertainty for many countries.

The Report highlighted that the Ukraine war has led to a further price increase in goods and services across all world regions, which have trended upward since 2021. Price increases have alarming implications for wages as inflation erodes their real value, reducing household purchasing power.

The Report further emphasizes that the cost of living increases do not affect all households in the same way. It notes that rising inflation has a higher cost of living impact on lower-income families because they spend most of their disposable income on essential goods and services. The items in the basket of goods and services most likely to experience significant price increases are those inelastic demand items that remain constant despite price changes, such as food, transport, and energy.

The ILO emphasizes that policies are required to slow down rising inflation and that consideration should also be given to how such policies impact households across income levels. Considering events over the past three years, the Report sets out various policy initiatives and responses for countries to consider when tackling the current cost-of-living crisis, such as:

  • Macroeconomic Policies, which include increasing interest rates;
  • Labour Market and Wage Policies, which include minimum wages, social dialogue and collective bargaining, along with the creation of decent formal wage employment;
  • Policies Directly Supporting Households and the Most Vulnerable, which include means-tested vouchers provided to low-income households and a reduction of indirect taxation on goods and services; and
  • Tackling the Gender Pay Gap by reducing pay discrimination and achieving equal pay for work of equal value.

The Government recognises the challenges currently experienced by households and has responded firmly and swiftly.

Labour Market and Wage Policies

Minimum wages are essential in reducing poverty and protecting lower-paid workers against heavy losses of purchasing power during times of high inflation. One of the ways that the Ministry of Economy and Labour (the Ministry) is addressing the current cost-of-living crisis is by implementing a statutory minimum hourly wage rate of $16.40 to take effect on 1 June 2023. The Wage Commission, tasked with recommending a minimum wage and living wage rate for Bermuda, will also be responsible for proposing adequate adjustments to the minimum wage rate every three years to help improve the living standards of low-income households. This critical step will bring Bermuda in line with 90 per cent of ILO Member States that already have minimum wage systems in place.

Working in consultation with the unions and employers’ organizations through the tripartite Labour Advisory Council, the Ministry’s Labour Relations Section will be publicizing guidance on whether a working relationship more closely resembles an employee or an independent contractor. This guidance will help to decrease employee misclassifications and assist persons entitled to the wages and protections under the Employment Act 2000 and the recently debated Employment (Minimum Wage Entitlement) Act 2022 to benefit from the same.

The Ministry is also progressing with legislative amendments focused on creating formal guidelines concerning tips, gratuities and service charges to ensure workers receive their earnings due.

Policies Directly Supporting Households and the Most Vulnerable

Understanding the need for intervention, the Government diligently worked toward implementing policies that directly support households and the most vulnerable in our society. The policies implemented include:

  • The Supplemental Unemployment Benefit (SUB), extended to November 2022, offered financial support to those in need who did not qualify for financial aid through the Department of Financial Assistance programme.
  • Ensured adequate social protections were in place by providing over $47 million in grant funding to support those who required financial assistance and increased funding for food allowances supporting more families in need.
  • Continued to progress financial assistance reform initiatives which include:
  • Increasing eligibility and benefits for financial assistance recipients;
  • Increasing eligibility and benefits for families seeking child day care allowance; and
  • Creating a scheme to provide short-term support to individuals facing sudden financial hardships.
  • Provided 150 dollars per child to support public school parents.

In July 2022, the Government announced a relief package for working families that included a payroll tax rebate for 75% of workers in Bermuda making less than $96,000. Individuals earning:

  • Less than $60,000 annually received a $250 rebate; and
  • Between $60,000 and $96,000, received a $100 rebate.

The Government launched the Mortgage Guarantee Program, an initiative that allows eligible persons to receive a discounted mortgage rate based on a portion of their mortgage supported by a Government guarantee. This programme speaks to the Government’s commitment to building a nation of owners. The first of the two phases of the program is open to first-time homeowners, and the second phase will be available to persons seeking to refinance existing mortgages. 

A guaranteed commitment of $50 million will allow for approximately 250 persons to benefit.

In the February 2022/23 Budget Statement, this Government promised to provide “relief now and more relief to come”, and this was done by:

  • reducing taxes for those making less than $96,000;
  • reducing private vehicle licensing fees by 10%; and, 
  • not increasing Government fees since 2018.

In March, the Government provided further relief by: 

  • Freezing fuel prices, saving Bermudian families $23 and taxi and minibus operators $35 at the pump each month after stopping what was previously an automatic process of increasing fuel prices. 
  • Extending duty relief on fuel importation to ensure the ongoing freeze in fuel prices meant that more money remained in the pockets of Bermudian families, taxi operators and minibus drivers.
  • Extending payroll tax relief to the hotel, restaurant and retail sectors. In a direct response to the increasing cost of goods, the Government implemented legislation to drop duty rates on a list of 21 essential items. The Cost of Living Commission Amendment Act reduces the duty on these items to 0%, reducing consumer costs.

Tackling the Gender Pay Gap:

In September 2022, the Ministry of Social Development and Seniors established a Gender Affairs Council tasked with identifying disparities that arise from gender-related issues and providing policy recommendations. Disparities in economic opportunity are one of the issues identified for policy recommendations.

The Ministry is relentlessly committed to providing social and economic protections for Bermudians and growing the economy. In alignment with the ILO policy recommendations, the Ministry of Economy and Labour has taken the necessary steps as outlined above to address the global rise in inflation, the challenges workers continue to face as a result of COVID-19 and the Ukraine war, and will continue in its obligation to the workers and families of this country.