Should we expect the Puerto Rico labor force participation rate to fall further?
Puerto Ricans are having a rough time, but it has been a month since Hurricane Maria hit and, in between the tears, maybe we can think unsentimentally about the future.
As noted in Can Puerto Rico be a laboratory for the future of the rest of the U.S.? (2015), Puerto Rico already had the lowest labor force participation rate in the U.S.:
The federal minimum wage of $7.25 per hour is 77% of the median wage (comparable to a $13 per hour minimum wage in May 2014 (BLS data showing median hourly wage of $17.09 nationwide)). In other words, it is illegal for companies to hire a large percentage of Puerto Ricans at what would be a market-clearing wage for their particular skills. The result is that labor force participation in Puerto Rico is 43 percent [compare to a national average of about 63 percent at the time] …
In the short run maybe there is some extra demand for labor created by government and non-profit organizations pouring into the territory. But in the long run, now that employers are reminded of the hurricane risk, should we expect less capital investment in the island and therefore less demand for labor at the Federal minimum wage or higher?
Presumably a reduction in the Federal minimum wage is politically impossible. What politician is going to tell voters “Due to your mediocre skills and education, a lot of you aren’t worth too much to employers“?
So should part of the hurricane clean-up and rebuilding effort include planning neighborhoods and cities for a future in which few people work? (The standard American development pattern is horrible for this. Suburbia was designed for people who are going to commute into and gather quasi-socially at a workplace. They’ll be mostly alone at home when they’re home, but they’ll be home and not asleep for only a few hours per day.)
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