EspañolA report in this summer’s edition of Regulation draws a horrific picture of Puerto Rico’s future if the federal minimum wage increases to US$10.10 per hour. The analysis details what would happen to employment if the wage were raised by the US Congress from the current $7.25.
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In what may be just an election-year tactic, the Democrat-controlled White House and US Senate are proposing just such a change, presumably to highlight the differences between them and the Republicans. Republicans, in general, oppose the hike, although the GOP has on occasion supported such mandated wage hikes in the past.
Party politics aside, the study offers greater proof that raising the minimum wage hurts the poor, instead of helping them.
Earlier this year, the non-partisan Congressional Budget Office said that raising the minimum wage would cost anywhere between 100,000 and 1 million jobs nationwide, with the greater impact on poorer states and territories. The “best guess” average was that it would cost roughly 500,000 jobs nationwide.
Puerto Rico, however, is a unique case. With total employment at about 985,000, and 285,000 of those employed by government, the real employed workforce (in private industry) is only about 700,000. Of the total employed, 471,000 earn less than the proposed $10.10 minimum wage. The same report indicates that a staggering 193,000 of these individuals would lose their jobs, and that is the rosy, low estimate.
What the report doesn’t say is that many of the small businesses that employ minimum or low-wage workers may not have enough room in their profit margins to withstand yet another blow to their bottom lines. They would be forced to either raise prices — eliminating any value the new wage would add to workers’ salaries — or they would go out of business completely. This would compound the total number of jobs lost and tax-revenues forgone.
This would put Puerto Rico’s already disastrous financial situation into the abyss of economic chaos.
Caribbean Business reports that the Puerto Rico Economic Activity Index fell in June for the 19th straight time, and another 2.9 percent year over year. With this decrease in economic activity, how exactly does the current administration believe they will continue to meet revenue expectations needed for a balanced budget and maintain payments on their debt? In private, I suspect they don’t, but I digress.
The point is that many small business owners, barely staying afloat and out of bankruptcy, will be faced with impossible choices: raise prices, cut employees, or close their businesses. Raising prices in this economic environment would likely cause sales to drop, thus killing the necessary income stream to maintain the level of service expected to keep customers coming back.
There will be those business owners who can absorb the cost and those industries that can absorb the increased prices, but the number of small business owners holding on by a very thin economic thread has to be substantial in Puerto Rico and the rest of the nation.
While the US Congress remains divided on the issue in an election year, there is no telling if enough Republicans will support the move and get it passed. If that happens, Puerto Rico may find itself asking for the Obama administration to exclude it from the program, as they were from Obamacare.
However, what self-disrespecting politician in Puerto Rico will come out against a hike in the minimum wage? And, when the impact starts to hurt, which one of those politicians will be brave enough to say why the economy has tanked even further than it already has?