Wednesday, May 11, 2016

How the Minimum Wage Helped Wreck Puerto Rico's Economy

As I have posted many times. The problem with minimum wage is not the need or the idea itself but that it demands establishing a bid price to absorb all supply.  Only then can the economy adjust and properly restructure.  My sophisticated approach to providing a bid was to establish the daily four hour shift that automatically supplies enough to cover housing and sustenance.  This had two major advamtages.

It got everyone mobile and fed early in the morning and then fed and available for additional work after lunch on their own recognizance.  My objective is to provide a protocol that everyone can easily live with while ensuring the user has ample opportunity to do other tasks, to do other work as well and to chase more opportunity.  It even accommodates a two job scenario much better than any alternative as it ensures ample time for sleep and eating.

Setting up a high minimum wage without such an arrangement merely means those outside the price make informal arrangements and that becomes the norm along with a drop in tax revenues.  It is ultimately stupid.  Yet the idea of minimum wage is politically attractive while the idea of a base bid for all labor is difficult to explain or sell politically.  
Once it is done correctly the economy itself will hugely expand and become vastly more efficient and financially secure.  As the base is locked into a deliverable set of services, other wages will track in concert with such a natural base bid..

How the Minimum Wage Helped Wreck Puerto Rico's Economy

$7.25 Devastated Its Economy; Imagine What $15

Wi Do

Puerto Rico is in crisis and drowning in debt. Now it looks like the island’s Development Bank, set up to raise living standards in the territory, will collapse. Congress is rushing to provide some help, but it also needs to consider the effects of federal regulations on the island. Foremost among these is the federal minimum wage.

The heavily indebted island demonstrates the tragic consequences of forcing up the minimum wage out of sync with the market price for labor. Between 1974 and 1983, Puerto Rico was forced to increase its minimum wage in line with the federal figure, where it has remained since 1983. The results of imposing this standardized federal minimum wage have been “substantially reduced employment on the island,” as well as swathes of unemployable low-skilled workers who decided to immigrate to the US mainland to seek work, according to research published by the National Bureau of Economic Research.

The Puerto Rican economy is heavily dependent on its manufacturing and tourism sectors, so low-skilled workers tend to form the backbone of the island’s economy. The average hourly wage in Puerto Rico is $11.13, meaning that the current $7.25 minimum wage constitutes two-thirds of the average wage. This ratio is nearly twice as high as on the mainland.

According to a report by International Monetary Fund economists, only 40 percent of the adult population in Puerto Rico is employed or seeking work, compared to 63 percent in the mainland. The other 60 percent are unemployed or working in the vast underground economy. Clearly, there are hundreds of thousands of Puerto Ricans working for less than the federal minimum, employed in the black market. For a nation struggling to service its debt, discouraging economic activity or driving it underground is not a good idea.

Puerto Rico’s woes as a result of the minimum wage should be a warning for the mainland, and island residents should worry about what the current momentum over here means for it in the future. Last week, California Governor Jerry Brown signed a bill to raise the state's minimum wage to $15 an hour by 2022. The arbitrary $15 minimum wage figure is being promoted more widely than ever before by presidential candidates and progressive politicians around the country.

If a $15 federal minimum wage were to be imposed on Puerto Rico, it would be the equivalent of more than $35 an hour in California. Such an increase would be devastating for the island’s economy; even in wealthy California, $15 is a serious threat to the labor market.

The upshot: There is no one-size-fits-all minimum wage rate for all of parts of the country, and arbitrarily high figures, such as the popular $15 target, are well out of sync with the market price for labor in different states. The effects of a harmonized and ever increasing minimum wage will continue to be felt most noticeably in the lower-income states and territories and in low-skilled industries.

1 comment:

0jr said...

They took out a loan that they could'nt and had no intention of paying off

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