Employees in Puerto Rico take home a smaller share of income than anywhere else in the U.S.
But is this despite, or because, of the many regulations the Puerto Rican government uses to try and tilt the economic scale in favor of workers?
The island’s government leans to the left and has done all it can to interfere with the free market in Puerto Rico. For instance, in Puerto Rico, the minimum wage is extremely high — 77 percent of the median wage. Unlike the mainland U.S., Puerto Rico has European-style labor laws that grant time-and-a-half pay to anyone who works over 8 hours a day and make it difficult to lay workers off.
Proponents of these pro-labor policies have been willing to shrink the entire economic pie in order to get a bigger slice for a few.
The problem is that they haven’t even achieved that. In Puerto Rico, workers get a smaller slice of the pie than anywhere else in the U.S.
In the U.S. as a whole, employees in manufacturing earn 61 cents of every net dollar earned. But in Puerto Rico, they earn only 8 cents.
This is because of a policy trap set by Congress.
Congress created tax incentives in the 20th century in order to lure manufacturing to the island. But at the same time, Congress maintained the maritime Jones Act, which makes electricity and shipping prohibitively expensive, making Puerto Rico a bad place to do business.
So the principal industry that invested in Puerto Rico was pharmaceuticals, since stamping out pills uses little electricity and shipping, and also requires vanishingly few workers. Pill factories took advantage of the tax credits (which are now defunct) without being badly gouged by the Jones Act.