Economic inequality is increasingly an issue on the Island and not only between those who have jobs and those who do not.

The widening gap between the best paid in our community and the lowest paid should not be ignored. On an Island of this size, the poor are forever rubbing shoulders with the rich.

In a way that does not happen in larger countries, the poorest see the way that “the other half” lives at close quarters. As the least well-off are left farther behind, frustration and disillusionment will grow.

Nathan Kowalski, a chartered financial analyst, the chief financial officer of Anchor Investment Management and a columnist for The Royal Gazette, in his three-part series on the future of the world of work, touches on the inequality issue. He paints a remarkably clear picture of what has happened during the six-year recession within Bermuda’s working population using two graphs.

The first one illustrates how, as the Island’s workforce has shrunk dramatically, the amount each worker produces has soared. Mr Kowalski puts this down mainly to technological innovation, which has allowed fewer workers to produce more, and also the relocation of many lower-skilled jobs to lower-cost jurisdictions.

The second graph shows how the top-paid group in the Island’s employment survey, senior officials and managers, have enjoyed uninterrupted pay increases since 2008, allowing their earnings to roughly keep up with inflation. Over the same period, the lowest median income group, service workers and market sales workers, saw no increases at all for a three-year period and have not kept pace with cost-of-living rises.

While Mr Kowalski admits that this is a very rough measurement, it is an empirical indicator of a widening gap between rich and poor in Bermuda.

Expanding inequality is a global phenomenon, certainly in developed economies. Thomas Piketty’s best-seller Capital raised the profile of the issue. In June the International Monetary Fund (IMF) issued a report that described widening income inequality as “the defining challenge of our time”, coining a phrase from US President Barack Obama. Pope Francis has spoken of the “economy of exclusion” and Hillary Clinton has made tackling inequality the centrepiece of her US presidential campaign.

The IMF report finds that measures of inequality have increased substantially since 1990 in most of the developed world. It quotes studies showing that the top 1 per cent in developed economies account for about 10 per cent of income. And the top 10 per cent now has an income close to nine times that of the bottom 10 per cent.

Some financial inequality is inevitable and necessary, to reward risk-takers and innovators whose efforts can lead to the betterment of life for whole communities. Inequality is a necessary tenet of a capitalist system. However, when the income gap widens as it is doing today, there can be negative impacts on the economy.

If the income of the lowest paid is not keeping pace with inflation, then it follows that their spending will not be keeping pace with inflation either, thus eroding demand from a substantial part of the community.

According to the IMF report, a 1 per cent growth in the income share of the top 20 per cent will drag down growth slightly, while a rise in the income share of the bottom 20 per cent would increase growth. It argues the case for progressive tax and social policies, not only in the interests of fairness, but also as an enhancer of economic growth.

As Mr Kowalski points out, financial equality is not realistic, but the equality of opportunity is something we should strive for as a community. In an increasingly knowledge-based economy, education will be the key to helping those on the lower rungs of the economic ladder to climb higher. Automation will continue to render jobs obsolete over the next decade, just as it has over the past decade, likely further fuelling the inequality trend. The frustration expressed by union members during the Labour Day commemorations was perhaps symptomatic of the painful changes going on in the world of work and the impact they are having on Bermudians’ lives.

One should not blame the Government for technological advances that have cost jobs and squeezed the middle class, but it is clear that policymakers can take some steps to improve equality of opportunity.

Mr Kowalski has floated some interesting policy ideas. For example, to encourage hiring by exempting the first $35,000 of employee income from payroll tax; five-year tax holidays for “designated new technology” businesses to foment new business formation; lowering immigration barriers to foreign-born job creators and investors; a graduated property tax system that would impose a standard rate on a primary residence and a progressively higher rate on each additional property — effectively a tax on wealth; and active promotion of science, technology, engineering and mathematics (STEM) education.

There is not room here to explore his suggestions in more detail. However, these are practical ideas, worthy of cool-headed consideration by our lawmakers.

This is not the first time Mr Kowalski has turned his considerable analytical skills to examining Bermuda’s long-term issues. He should be commended for these efforts.

His latest series can be found under his name on The Royal Gazette website at www.royalgazette.com.