Recently Bermuda’s Department of Statistics (DoS) released its fourth annual Environmental Statistics Compendium which claims Bermuda’s population has increased over the past two years.

In our latest quarterly economic update Anchor Investment Management did some work on this issue and we estimate that Bermuda’s population declined by 4.2% since the last census in 2010.

Needless to say, this is a wide divergence of outcomes.

In this article we elaborate on how we came to our estimate and some potential impacts for Bermuda and the decision makers that influence policy decisions.

It has become increasingly clear that over the past five years a great deal of the decline in the economy has been a direct result of Bermuda’s declining population.

Less people living on the Island means less demand for essential goods like housing, food and healthcare.

Part of one worker’s income becomes the source of income of another worker when goods and services are transacted for. Thus if you have less people transacting in Bermuda you will have less income for everyone reliant on local transactions. In 2012 real GDP contracted by 4.9% which coincided with the loss of nearly 2,000 jobs, the largest ever recorded in a single year.

So how do Anchor and the DoS get to two such different outcomes?

The DoS population projections were based off the 2000 Census.

The projections for the 10 years to 2010 were actually very good as the actual census data from 2010 was only half a percent below what we calculate would have been the 2010 estimate.

However, using the same projections made back in 2000 to estimate the population in 2011 and 2012, and moving forward, may be inappropriate when the population dynamics have clearly changed.

The last available data on Bermuda’s population comes from the 2010 Census. At that time Bermuda’s population stood at 64,237 people.

Anchor estimates that Bermuda’s population had declined by 4.2% (2,676 people) to 61,561 by the end of 2012. Anchor bases its calculation starting with the 2010 Census and is driven by two main factors: the loss of expatriate jobs and the decline in the ‘Bermuda-born’ population. We believe if there is a risk to our estimate it is too high.

In 2010 there were 1.5 non-Bermudians for every non-Bermudian job. From 2010 — 2012, 1,564 non-Bermudian jobs were lost. Since non-Bermudians and their families are required to leave the island when they lose their jobs, and there are roughly 1.5 non-Bermudians per non-Bermudian job, we estimate a loss of 2,346 non-Bermudians between 2010 and 2012.

Between the Census in 2000 and the subsequent one in 2010 the Bermuda-born population declined from 44,290 to 42,802 or about 0.3% per year.

Extrapolating this trend we assume that between 2010 and 2012, Bermuda actually lost 344 Bermudians. This would suggest both the growth and the decline in Bermuda’s population primarily relates to the immigration and subsequent emigration of expatriate workers and their families.

Our estimate ignores the potential that the weak economic environment and narrow job market, which focuses on just a handful of industries, has led to an increased number of Bermudians leaving the island in search of employment (emigration). Nor does it consider the immigration of foreign spouses marrying Bermudians which may add to the local population. We have assumed these two factors have approximately netted out over this period.

Moreover, we estimate that since peaking in 2008, the Bermuda population has declined by 4,220 or a whopping 6.4% to 61,561!

In addition several other real time data points confirm our analysis.

For example, registered road vehicles have fallen 4.5% and electrical consumption has fallen 6.8% since 2010. We realise that some of this could be people giving up on cars or energy efficiency but the trend is rather clear.

We have written in the past about what makes economies grow.

Essentially the longer term potential growth rate of a country relies on two factors: working population and productivity. A growing population is the source of an increasing workforce and the more productive these workers are, the wealthier they become.

In the long run, a country becomes rich or stagnates depending on its mix of people, innovation and investment. If a country gets this critical mix right, short term fluctuations in economic growth rarely matter.

This brings us to a very simple economic equation:

‘Delta’ Working Population x ‘Delta’ Productivity = ‘Delta’ GDP

Delta is the Greek letter delta which is the symbol for change. What this equation and financial axiom reveals is that there are only two ways to grow an economy: you can increase the size of the working-age population OR increase the productivity of the current work force. Thus, with a substantially reduced working population Bermuda’s potential growth has been secularly impacted and its rate of growth is also much likely to be slower than in the past given ongoing demographic challenges.

There are a couple takeaways from this:

1. We have a lot of space. I often hear statements like “how many people can Bermuda handle” or “Bermuda has no space”. To be honest I do not view this as a problem at all, especially at this stage. I would worry about congestion only if more than five thousand immigrants descend upon our shores in a short period of time which I believe is very unlikely. The immigration department should be more than capable with real time statistics to temper the flow of guest workers or new citizens if immigration accelerates at an unsustainable rate. Bermuda’s problem right now is that it has too few people. Statistics on Bermuda Housing suggest about 16% of available rental units are vacant. On the commercial side we have in excess of 1 million square feet of commercial rental space vacant. These numbers suggest there is ample space. Too think otherwise suggests the real numbers are being ignored.

2. The “denominator problem”. Bermuda has a huge “denominator problem”. Its grossly underfunded pension plans and soaring healthcare costs are compounding with the reduction in the number of payers. The more payers (the denominator) versus the payments and entitlements (the numerator) the better the system’s ability to sustain itself. Without a constant influx of younger (and preferably healthy) new entrants into these plans, entitlements and/or services are likely to be cut or suspended. However, the problem is exacerbated by official statistics that suggest the population is growing (making the problem seem less bad), when there are signs that this may not be the case.

Bermuda has fewer people. The reduction in population is compounding our economic problems and has dramatically lowered the aggregate demand on the island. This has led to rental income reductions, retail closures, school closures, much lower construction activity and much reduced tax revenue. A major solution for all that ails Bermuda is a growing local working population. Competitive jurisdictions such as the Cayman Islands have adjusted their immigration policies to successfully support their economy with new business development.