Sooner or later, more retirees than government employees

Most developing economies have as their long-range goal a policy to strive to increase the annual income earning potential of its citizens, particularly those in the private sector. Of course, where there are not too many local citizens within the private sector—but a large number employed by government as is the current situation in the Commonwealth—then it’s not too difficult to figure out where the principal interest of the government lies. But this is shortsighted since it is the income-generating, taxpaying private sector that permits the government to maintain a large employment payroll. The smaller the private sector becomes the less government revenues generated and thus, theoretically, the fewer number of government jobs available. At least that’s how it’s supposed to work.

Most governments and societies strive to increase the wage levels of its workers upon which personal income tax can be levied. Not so in the Commonwealth where policies have been largely designed to keep wage levels for all manner of skills within the private sector at low levels. While the policy has been directed at the large numbers of nonresident workers this may eventually prove not to be in the best long-term interest of the local population and the island’s youth in particular.

Because low wages paid in the past have discouraged Commonwealth youth from acquiring trade skills such as plumbers, electricians, masons, etc., all of which are occupations very much in demand and highly paid in the United States, we could expect to see an increase in young people becoming interested in acquiring these skills—but only if the cost of such services increased as a result of higher wages. This would also eventually contribute to reducing the reliance on nonresident workers and will also provide a source of employment for displaced government workers.

A strong, vibrant private sector is therefore essential to provide a source of employment for the local citizenry.

If the Commonwealth continues to delay the imposition of the federal minimum wage, it will never be able to convince its indigenous citizens to abandon the desire to seek employment within the government, which will continue to remain as a substitute for a career in the private sector. One has the impression that many in the Commonwealth consider the phrase “economic development” to be almost entirely confined to government income distribution and government job creation. In recent years little success has been achieved in optimizing private sector development from the standpoint of it being a true and effective source of employment for the indigenous population.

One serious outcome looms on the horizon, which sooner or later could well result in there being more retirees than active government employees. Considering that the government is not known for its ability to engage in forward planning, given the condition of the island’s potable water supply and its delivery system, along with the absence of reliable power and other public service deficiencies, one thing that it had better consider—and soon—is the future of its active employment levels and the eventual impact upon retirement funds available to retirees both existing and those of the future. Here’s why:

For the past several years a work force consisting largely of approximately 35,800 nonresident workers have existed side-by-side with government employment levels of, say, 5,000. The ratio is about seven nonresident jobs to one government job. If the deterioration of the economic base isn’t arrested, fewer nonresident workers will be needed which should translate into fewer government workers. Fewer government workers means fewer employees paying into the retirement fund. Currently about 5,000 government employees make retirement contributions to a fund supporting about 2,000 retirees. As government employment is reduced, there will always continue to be an increase in the number entering active retirement.

Eventually, the system could reach a level where the number of retirees will equal the number of individuals on the government payroll. Then ultimately, over the succeeding years, there is a real possibility that the number of retirees will exceed the number of individuals holding government jobs and contributing to the fund. As a hypothetical example, consider that government employment levels remain largely fixed at, say, 3,500 (after the current “economic shakeout”). All the while those on the retirement rolls continue to increase year after year. The whole thing will eventually be out of balance. That’s when real trouble begins.

And that’s why it is vital for the government to meet its obligation to the Fund by paying its share of the employer’s contribution to permit the Fund to continue to invest in interest generating securities and other investment instruments. So the money will be there when future retirees need it. At the present time this is not happening and it is disastrous for future retirees.

In just five years, the central government’s debt to the Fund has almost doubled from $47.7 million in 2001 to $82.4 million today. The Fund has been “dipping” into its investment portfolio (something that should never be done) in order to obtain the money to pay retiree’s monthly pensions. They had no choice if retirees where to receive their checks—but it is a dangerous policy over the long run.

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William Stewart is an economist, historian, and military cartographer.