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How the Minimum Wage Helped Bankrupt Puerto Rico

By: Contributor - Nov 2, 2015, 8:58 am
In the last 10 years, 10 percent of Puerto Rico's population has fled to find work elsewhere, according to Juan Carlos Hidalgo.
In the last 10 years, 10 percent of Puerto Rico’s population has fled to find work elsewhere, according to Juan Carlos Hidalgo of the Cato Institute. (@PoliticoAgenda)

By Joseph Hammond

EspañolGreece isn’t the only beach tourism destination that is struggling with a debt crisis. This summer, Puerto Rico announced that it would be unable to repay some US$72 billion in debt. In recent days, the commonwealth successfully restructured some of this debt at the cost of an additional $60 million in fees paid to various financial advisory firms.

With two 2016 Presidential hopefuls, former Secretary of State Hilary Clinton and Senator Marco Rubio, appearing at campaign events in Puerto Rico in the past few weeks, it’s worth examining one issue which has contributed to Puerto Rico’s fiscal crisis: the US federal minimum wage.

Neither Rubio nor Clinton were keen to discuss the harmful impact of a high US minimum wage during their respective trips. Yet, they took opposing views on the federal response to Puerto Rico’s debt problems.

Clinton supports giving Chapter 9 bankruptcy protections to the island. Marco Rubio took a different approach.

In an op-ed published in Puerto Rico’s largest daily, El Nuevo Dia, Rubio wrote: “Like their counterparts in Washington, Puerto Rico’s liberal-leaning politicians — who today are hosting Hillary Clinton in San Juan  — have taxed and spent too much, and lacked the political courage and competence to pull Puerto Rico out of economic despair. The result is today’s toxic brew of economic stagnation, high taxes, and bloated government, which have led to a serious debt crisis and a mass exodus of its people.”

Rubio’s tone struck a chord on the island. Niesa Cruz, a law graduate who normally votes for the Democrats, found herself siding with Rubio. She spoke with Polizette as she prepares to take the island’s bar examination later this month.

“He is right to not endorse bankruptcy protections for Puerto Rico. The problem is the misadministration of our nation and the people we have put into office. Bankruptcy might help us for four years, but then we will be in the same position. Marco Rubio is not sugar-coating the issue, and I respect that.”

A significant contributing factor to Puerto Rico’s situation is the $7.25 an hour federal minimum wage. Speaking to the PanAm Post, Juan Carlos Hidalgo, a policy analyst at the Cato Institute, noted: “Puerto Rico’s per capita GDP is 60 percent of Mississippi’s, the poorest state on the mainland. As we have seen elsewhere, high minimum-wage levels harm low-skilled workers and minorities. It keeps the unskilled from improving their situation. Puerto Rico has one of the lowest labor-participation rates in the Western Hemisphere.”

Hidalgo further noted that only 39.8 percent of working-age adults are in the workforce, while 25 percent of working adults are employed in the public sector.

“In Puerto Rico,” Hidalgo explains, “the minimum wage is 75 percent of average GDP per capita. That is extremely high, higher than France or eastern Germany, where average GDP per capita hovers around 60 percent.”

The minimum wage in Puerto Rico, meanwhile, is also a larger share of the median wage than that of any US state.

These factors have made it difficult for Puerto Rico to balance its budget. They have also contributed to the fact that many Puerto Ricans are now looking for jobs elsewhere.

Hidalgo states that, “in the last decade, the island’s diminishing economic prospects have caused 10 percent of the population to leave for elsewhere, and much of that migration has been to Florida, an important swing-state in recent presidential elections.”

As a result of this migration, Orlando, Florida, and its surrounding communities now have a larger Puerto Rican population than San Juan or New York.

Although both Clinton and Rubio have chosen to ignore the federal minimum wage’s clear contribution to Puerto Rico’s economic troubles, each seems to realize that the road to winning Florida in the general election may start in San Juan.

Joseph Hammond is a journalist, consultant, and former Cairo correspondent for Radio Free Europe. Follow @TheJosephH.