If a higher minimum wage, higher regulations, the Jones Act, and other protectionist rules are actively destroying Puerto Rico’s economy, how can those same policies not also be harming the United States? Can Puerto Rico be considered the experiment proving this?
On June 28th, Puerto Rico announced that it was unable to pay back the $72 billion in public debt that it owed, money that was borrowed repeatedly to bolster an anemic economy for the last decade. Puerto Rico’s GDP has contracted an average of 1.7% yearly since 2005. Much of that can be attributed to the repeal of the IRS Code 936 which had encouraged specific industries to headquarter on Puerto Rico. The subsequent loss of business has resulted in tepid revenue collection which has not been enough to cover the government’s social programs and bloated government payroll. You can read the Puerto Rican Debt Report here.
In order to help Puerto Rico back on a path to economic recovery, it is imperative that more systemic changes are needed. The Manhattan Institute outlined some major ideas, such as repealing the Jones Act. For a more in-depth discussion on the Jones Act in relation to Puerto Rico, check out their article. Other suggestions include “offering Puerto Rico an exemption to the federal minimum wage, loosening territorial labor laws, and reducing benefits that disincentivize work.”
These very policies have impeded the economy’s ability to grow and recover from the fiscal woes that began last decade. When minimum wage requirements are high relative to the local average, employers hire less workers. And when receiving benefits can be more generous and lucrative than working full-time, less people participate in the workforce.
These types of policies have been shown to be extremely detrimental to Puerto Rico, and yet our country continues to expand them here. We see the effects in our own sluggish recovery, yet the Obama Administration ignores it, and then deflects the blame elsewhere. Puerto Rico should be a wake-up call for the U.S., but it’ll likely be ignored too.