Puerto Rico – your next opportunity to bail out the irresponsible 😡

This morning on Bloomberg radio they were interviewing Professor Anne Krueger about the situation in Puerto Rico, the dire situation. As you know, Puerto Rico is a Commonwealth of the United States subject to many of its laws including the minimum wage law. Krueger’s description of the state of things, especial those related to work, productivity and doing business was startling to me. It was a classic case of too much of a good thing, providing unaffordable “free” stuff, bureaucratic mismanagement, failure to adjust to global economic changes and unintended consequences like disincentives to work. 

Where have you heard all this before?  Forget Greece, who is going to bail out Puerto Rico … Mr and Mrs U.S. taxpayer?  You can read her full report by clicking on the link in the title of the report below. 

It’s so interesting when you consider that the Democratic Party and the left in general is perceived to be the party of the people, working Americans as they say and yet time after time we find examples of all their good intentions through providing more and more assistance, entitlements, etc. going bad, becoming unaffordable, encouraging non-productive behavior, encouraging tax evasion and all that goes with decreasing personal responsibility on a micro and macro level. 

In the end, as in Greece, likely Puerto Rico and even among elements of the general US population (public employees are one example), it is usually average Americans who pay the price of these misdirected policies. A goal of helping people improve their situations and status and doing so is great. Trapping them in marginal comfort and dependency is cruel. 

From the opinion page of the New York Times 7-1-15

modern Greece not only joined the European Union but over the years merrily plundered its treasury. And Melos did not invite an unprecedented sovereign debt crisis or engage in unsustainable social policies as Greece did over the last decade and more.

Take a most recent example of the Administration changing OT rules. Aside from the possibility of employers managing for this change to the detriment of some workers, others because of increased compensation if they are paid for OT will lose their health care subsidy or see it reduced. Are they better off? Maybe yes, maybe no!

Puerto Rico A Way Forward

June 29, 2015
 

ANNE O. KRUEGER, RANJIT TEJA, AND ANDREW WOLFE 

But even more significant forces on the supply side have been gnawing at growth:
• Employment and labor costs. The single most telling statistic in Puerto Rico is that only 40% of the adult population – versus 63% on the US mainland – is employed or looking for work; the rest are economically idle or working in the grey economy. In an economy with an abundance of unskilled labor, the reasons boil down to two.
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Employers are disinclined to hire workers because (a) the US federal minimum wage is very high relative to the local average (full-time employment at the minimum wage is equivalent to 77% of per capita income, versus 28% on the mainland) and a more binding constraint on employment (28% of hourly workers in Puerto Rico earn $8.50 or less versus only 3% on the mainland); and (b) local regulations pertaining to overtime, paid vacation, and dismissal are costly and more onerous than on the US mainland.

Workers are disinclined to take up jobs because the welfare system provides generous benefits that often exceed what minimum wage employment yields; one estimate shows that a household of three eligible for food stamps, AFDC, Medicaid and utilities subsidies could receive $1,743 per month – as compared to a minimum wage earner’s take-home earnings of $1,159.
The result of all of the above is massive underutilization of labor, foregone output, and waning competitiveness.

Barriers to competition and business activity. A number of local laws and regulations restrict domestic competition and business investment. Puerto Rico’s rankings in the World Bank’s Doing Business Index slipped to 47 of 189 in 2015 (versus a #7 ranking for the US as a whole); in some areas, the rankings are decidedly bottom tier.