A New Minimum Wage Law, or the “Encourage More Migration from Puerto Rico to the States Act”?

Pedro Pierluisi, the Resident Commissioner for Puerto Rico in the U.S. Congress, released a statement in response to H.R. 4637, a bill introduced by Congressman Mark Sanford of South Carolina which would allow employers in Puerto Rico to pay less than the federal minimum wage.

Pierluisi made several points against this idea, which has been discussed in various news media and in hearings about Puerto Rico:

Reducing the minimum wage in Puerto Rico would be a further inequality.

We can imagine how Americans would respond to the idea that residents of Mississippi should automatically be paid less than those in Colorado. Congress is allowed to make different laws for territories than apply to States, and States have quite a bit of control over their minimum wage, but exempting Puerto Rico from the minimum wage federally could be viewed as a slap in the face to working people in the territory. Since this has been done before, it is also possible to see how exempting industries in Puerto Rico from minimum wage regulations actually worked out: workers made less money, and new wealth was not created.

“Our objective should be to close the gap between Puerto Rico and the states, not to widen it,” said Pierluisi. “The gap exists precisely because the federal government has treated Puerto Rico unequally and unfairly over the years, and so the last thing Congress should be doing is enacting more bills that treat my constituents unequally and unfairly.”

Lower wages would not create jobs.

The theory behind an exemption from  the minimum wage is that employers would hire more workers if they could do so at less expense. These jobs, in theory, would provide income for people who are currently unemployed and desperate for jobs — even jobs that pay very little. In fact, Puerto Rico has a significant “informal” economy in  which people can work without paying taxes or gaining benefits. “The goal of federal and local policymakers should be to enact policies that encourage island residents, whether they are unemployed or working in the informal economy, to obtain jobs in the formal economy.,” said Pierluisi. A lower minimum wage would encourage participation in the informal economy and make taking a formal job less lucrative than accepting government assistance.

The U.S. minimum wage is not unrealistically high for Puerto Rico.

Some people living on the mainland may imagine that the cost of living in Puerto Rico is so low that the minimum wage is unnecessarily high. Pierlusi cited research that found that the cost of living is actually as high as or higher than that in many areas of the mainland United States. “A recent report by the Puerto Rico Institute of Statistics compared the cost of living in Puerto Rico with approximately 325 urban areas in the United States,” he reported, “and concluded that the overall cost of living in Puerto Rico—encompassing gasoline, energy, food and housing—is 13 percent higher than in those jurisdictions.  Residents of Puerto Rico are also required to pay an 11.5 percent sales tax on most purchases, which is the highest sales tax in the nation.”

The minimum wage is not a swap for federal income tax.

““Rather than authorizing employers in Puerto Rico to pay workers a lower wage,” Pierluisi continued, “a far more constructive course of action would be for Congress to include Puerto Rico in the federal earned income tax credit program and to fully extend the federal child tax credit program to the territory, as many economists in the states and Puerto Rico have proposed.  I would note that, in 2013, 514,000 of the 2.1 million federal tax returns filed by individuals in South Carolina claimed the federal earned income tax credit.  Overall, individuals in South Carolina claimed $1.3 billion under the EITC, for an average tax credit of $2,500.  Nearly every individual in South Carolina who receives a refund check does not earn enough to owe a single penny in federal income taxes, so there is no reasonable basis to argue that Puerto Rico residents should not be eligible for this program because Congress has chosen to exempt territory residents from certain federal income taxes.”

While the author of H.R. 4367 did not argue for a minimum wage exemption on the grounds that the people of Puerto Rico don’t pay the same federal income taxes and residents of the States, this is often used as an excuse for unfair treatment of Puerto Rico. States and the residents of States benefit from EITC whether the recipients pay federal income tax or not. This program would provide an incentive to work in the formal economy and would help the people of Puerto Rico to survive on minimum wage jobs, which do not meet the financial needs of working families in Puerto Rico any more than they do in the States.

Pierluisi said that the bill “might as well be called the “Encourage More Migration from Puerto Rico to the States Act.” Puerto Ricans are leaving the territory in large numbers, moving to states like Florida, where the 75% growth rate of the Puerto Rican community far outpaces the 45% growth rate of the Cuban community; South Carolina, where the Hispanic population has more than doubled in the past decade, according to the Pew Research Center; and Texas, which has been identified as a destination state for Puerto Ricans.

While this movement enriches the States, it is a major barrier to the achievement of economic growth in Puerto Rico.

Read the full statement.