Column: A Look At Cost Of Living Adjustments

September 22, 2016 | 32 Comments

[Opinion column written by BPSU President Jason Hayward]

Cost of Living Adjustments [COLAs] are adjustments made to an employee’s wage or salary primarily based on a country’s rate of inflation.

In unionized environments, COLAs form a part of the collective agreement and are negotiated with the employer. In non-unionized environments, however, COLAs are at the sole discretion of the employer unless otherwise built into the employee’s contract.

Most countries use the Consumer Price Index [CPI] to measure their rate of inflation which is derived from calculating the price changes of a fixed basket of consumer goods and services. Most COLAs use the CPI’s measure of inflation as a basis for calculating appropriate adjustments. The primary aim of the COLAs is to ensure that employees maintain their purchasing power.

Purchasing power is fundamentally the value of currency expressed in terms of the amount of goods and services that can be obtained by a defined amount of money. Inflation erodes an individual’s purchasing power because as prices increase the amount of goods and services a person can acquire with the fixed amount of money decreases. As a result, the cost of living for that individual increases.

Let’s take a practical look at the impact on an employee’s salary when they fail to receive COLAs:

Assume that a Government employee was hired in 2010 for a position that paid a gross annual salary of $60,000. However, despite Bermuda’s inflation rate for the period from 2010 to 2016 equating to 12.8%, this employee never received COLAs.

As a result, the purchasing power that the employee enjoyed in 2010 has eroded significantly and, in 2016, their real wage is now $52,333.33. A salary adjusted to factor in inflation is considered the employee’s real wage.

In addition, because much of an employee’s monthly salary deductions are non-discretionary and fixed, net pay is also much less than what it was in in 2010. If an employee does not receive COLAs, they will not only have reduced purchasing power and a higher cost of living but they will also have less disposable income as taxes increase. Disposable Income is the amount available for spending and savings after taxes have been deducted.

Continuing with the example above, the impact of increasing the cost of deductibles is illustrated below:

CHART SEPT 16 J H

This chart demonstrates that even though a person’s gross annual salary remains the same, the employee will take home 4.5% less in 2016 than in 2010.

The rising cost of monthly salary deductions compounds the impact that inflation has on an individual’s real wage and on his daily life. Consequently, an employee’s disposable income is reduced as day-to-day expenses consume an ever-growing portion of an individual’s income.

As the employee’s salary erodes, so does his quality of life. However, modest COLAs granted over this same 6-year period could have afforded the employee the opportunity to maintain purchasing power, disposable income, net income and, most importantly, quality of life.

- Jason Hayward

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Comments (32)

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  1. Curious says:

    In his next article Mr. Hayward explores the effect of debt on sovereign credit ratings and borrowed cost.

    • inna says:

      That would be just a bit too responsible for Mr. Hayward !!

    • hmmm says:

      Perhaps he should comment on the impact of increasing Union dues, or having an fly by night vote on turning an unpaid position into a paid position.

  2. And still Blacks get paid less then their white working colleagues.

    • inna says:

      Education is the key !!

    • Toodle-oo says:

      Still waiting for you to provide names of companies in existence right now , in Bermuda , that pay their black workers of equal qualification , experience , performance , skill ,attitude and seniority less than they pay the white employees .

      • Its in de Government Census.
        LMFAO

        • Toodle-oo says:

          No it’s not

          Same company , find it and name it . Generalities do not count . And neither does comparing the wages with chamber maids and waitresses with one of the ‘Brians’ either .

        • hmmm says:

          I just looked through the 2010 census….nothing in there supporting your statement Onion Juice.

          You are clearly making things up to suit your agenda.

          Read the 2010 census results document and come back with your response.

    • codfish says:

      Please give examples

  3. Dark Star says:

    The economy sank—–you and your folk should be thankful to have a job. The wish of Bermuda was for the civil servants to shrink-you, Furbert, and the rest of the union heads talk behind closed doors, agree with everybody about what has to be done so the country survives, and then you get in the public eye and do an about face and talk a whole bunch of ignorance. Why don’t you and the head of all the unions take a cut in your salaries and donate it to a rainy day union fund??????

  4. Onion says:

    Okay. So now Hayward needs to look at what happens to Civil Service pay and quality of life if the Bermuda Government isn’t able to get spending under control and ends up defaulting on debt and losing access to new borrowing.

    The time to be angry about this is not now, it was 6 years ago when this mess was being made by wild deficit spending by the PLP but at the time the Unions supported it. Now the Unions should be focused on supporting the OBA in fixing the problem and stabilising the futures of their members and making sure that this mess never gets made again.

  5. Sidney says:

    … and COLAs for unionized government workers creates inflation, which creates more COLAs, which creates more inflation…

  6. LiarLiar says:

    Now, show the effects on annual raises on Government expenditures, revenues and the need to raise taxes to fund these annual raises.

    This comparison is especially useful in an environment where civil service wages/benefits consume nearly two thirds of Govt. revenue and which Govt. expenditures require the borrowing of >$200mn annually on top of a >$2bn debt load.

    On top of that once you add in the $180mn per interest charges (>$490k a day) those two expenditures alone are closer to three quarters of Govt. revenue.

    And since you can’t cut the two largest expenditures the only avenue left is cutting social programs, infrastructure development and so on.

    Sorry, Bro. Hayward, but the Private Sector has taken the full brunt of the economic downturn from business closures, higher taxes, and no cost of living raises.

    We should let the Brits take over our finances for awhile. They did in Cayman and now they are making massive surpluses and are now grating raises to their Civil Servants.

  7. serengeti says:

    I have worked for decades and have never heard of a ‘COLA’. How can that be?

    Oh right. I live in the real world.

    • New Employee says:

      I worked in the private sector for 14 years and yes had cost of living increases.

  8. reddamtibi says:

    Getting the popcorn ready…

  9. smh says:

    Gimme Gimme Gimme. We don’t care that the rest of you are in the same boat as we are and in fact paying for all our salaries. WE WANT IT ALL AND WE ARE NOT GOING TO GIVE BACK!! heheheheh. Signed Jason

  10. St Geo says:

    There are many that do an honest days work and this has effected them and yet all are tarnished with same brush. This Government and any other government are not interested in holding workers accountable while they manage so poorly. Not all department are like that but majority. Hold permanent secretaries and Directors accountable and not move them from post to post to hide their poor work habits. But I don’t think any government will touch this cause they all alike.

    • inna says:

      The massive civil service is really a voting base. The PLP enlarged it to guarantee successive victories at the polls and the OBA doesnt have the gusto to trim it down because it will guarantee their loss at the polls. Catch-22!

      The fact of the matter is that the cost of the government civil service is no where near in line with the quality produced by the same. Until that problem is fixed, we will find ourselves no better off.

  11. Kangoocar says:

    Of course he doesn’t mention one FACT as to how we are in the mess we are in which makes it impossible for anyone to get a raise! I will help Jason, Jason when you actually publicly put the blame for this where it belongs ” plp ” then and only then will you be taken seriously!

  12. Rada Gast says:

    Is this a real world example, or just a theoretical exercise to make a point?

    • New Employee says:

      It is correct. I started as a civil servant in 2010 after working for years in the hotel and grocery industry.

    • Who feels it knows it... says:

      This is a real world example except GEHI is higher than the figure stated above. Also the example doesn’t have any union dues listed. That 2016 figure should be around $41,000…

  13. Realist says:

    Thank you for the information Mr. Hayward.

  14. Mary says:

    oh lawd Mr. Hayward is so handsome

  15. New Employee says:

    I think it is really sad that people feel civil servants do not deserve their jobs and or should not have their correct salary. In my department the employees gave ways to save money and our department heads gave back thirty percent of the annual budget.Other departments have did similar. We pay taxes and put most of our money into the community. Many civil servants have to find ways to make ends meet also. Some are single parents and or sole bread winners of the household. Not everyone are upper management. Government also needs to make money. Eg. There is a tax for landlords whom do not trim their trees over growth. There are other fines that are on the books and not being collected. Another example school kids are free to ride the bus. Instead of issuing bus passes to high and middle school kids use the school Id. Goverment departmemts use too much paper and ink. Why not have paperless methods with in reason. Eg automatic invoices. Instead of always cutting employees and salary find ways to cut other types of spending. Some departments have too many different uniforms. Parents have to provide tissues, toilet paper etc to schools because government has cut stores supplies. I have mentioned a few times. The post office is under used. If the post office had foreign addresses just like mail boxes, we could import through them at a reasonable cost. That is money going into government purse. Many MPs have their own thriving business. If they cared for their country and staff they can take a larger paycut. I am sure many will disagree but I am not just complaining. I am offering ideas.

    • wondering says:

      you’ve got some good points threre as well – add to the list the govt employees who have these magged out Govt trucks with fancy wheels and use it to pick up their friends and family in addition to the fact of living in a govt subsidised house while renting out their newly renovated house with a pool or the heads of depts with a car that they don’t need. pay them a transportation stipend per month, or annually and discard their vehicles which in turn decreases costs for the govet (less fuel, less maintenance, etc)

  16. JUNK YARD DOG says:

    Can any body tell me why we don’t have 5 star hotels here ?

    • Juicy Onion says:

      We don’t have 5 star hotels because Bermuda no longer competes in the industry. Bermuda has become lazy and complacent. So there are no investors, it’s that simple. Bermuda has no casinos, no car rentals, no clothing optional beach. That is just three ways Bermuda does not compete.

      Bermuda just thinks she is too special to work hard enough in today’s tourist industry. Sorry but that’s the truth. They make excuses like, “we are too small for car rentals” and idiotic things like that. Bermuda just doesn’t want to be inconvenienced at all.

  17. wondering says:

    and this guy work as a statistician………wow!!!!

    he has a need for spectacles and not the rosy kind

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