Management & Labor

American Wages Might Explain Puerto Rico's Economic Troubles

July 2, 2015

Puerto Rico’s long-simmering debt crisis owes much to an economy that has been shedding jobs for years. And blame for that, economists say, stems in part from how the island operates under the same wage rules as the more prosperous 50 states.

The commonwealth is subject to the federal minimum wage of $7.25 an hour, even though local income and productivity are significantly lower than in Mississippi, the poorest American state. The minimum wage in Puerto Rico is equal to 77% of per capita income, compared with 28% in the U.S. overall.

Roughly one-third of workers earned the minimum wage on the island in 2010, compared with just 16% for the U.S. mainland, according to a 2012 report by the New York Federal Reserve Bank. That report concluded the minimum wage contributed to a lack of jobs for lower-skilled workers, in part because businesses can relocate to lower-wage nearby countries.

These problems are laid bare in a report Puerto Rico’s government released Monday by Anne Krueger, a former top official at the International Monetary Fund. Puerto Rico’s economy, which has been in recession for nine years, has struggled to create jobs and has compensated by offering generous tax breaks to companies and income support to residents.

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