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$7.25 Devastated Its Economy; Imagine What $15 Will Do
by Jack Salmon
May 19, 2016
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.
— Jack Salmon is a research associate at the Competitive Enterprise Institute. This article originally appeared at FEE.org.
Rod is one of our nation’s leading minds. He’s smart, original, and very committed—a combination that one rarely finds.
Rod Martin and [former Howard Dean campaign manager] Joe Trippi are America’s two foremost experts on online politics.
Rod Martin is a Reaganite-Thatcherite conservative…[and] a man who has spent much of his life ministering to and working for the benefit of others. I know Rod as an advocate for freedom, a leader who understands the real changes we need in Washington, and who has the drive and ability to make those changes happen.
Rod Martin is the kind of dynamic leader who has the knowledge, ability and experience to lead us successfully into the 21st Century. His vision for America is compelling.
Rod Martin literally wrote the book on excellence. Humble yet brilliant, a man of love and compassion, with penetrating clarity he illuminates the world around us, and we are both stirred and enlightened.
Rod Martin is a born leader and an outstanding political mind. Anyone who takes him on is going to have a serious fight on their hands.
Rod Martin is a man of uncommon vision and character. Ever since I first worked alongside Rod in the early days of PayPal, I’ve been struck by his powerful vision for the future. Rod understands the intersection of technology, politics and culture in a way that few others do.
Rod Martin wears with uncommon grace an uncanny ability to link his vigorous faith to the practical challenges of both the business world and the political arena. Yet the respect he shows for others carries a warmth and modesty that are both too rare among those who are strong advocates of feisty positions.
America badly needs more leaders who really get the future. We need more Rod Martins.
Rod Martin is a modern day philosopher-statesman. He is a capitalist intellectual, a conservative iconoclast, a gentle adversary and a kind prophet. He inspires us towards a fresh national vision built upon the original founding principles.
Rod Martin is not only effective and efficient, but he is also perceptive, wise and gracious. He gets things done. He is a great friend and a great ally.
Rod is one of the sharpest, most gracious men I know, and one of the most gifted political thinkers today. His ability to analyze issues and communicate thoughtful insights on them have earned him the respect of people across the political spectrum.
I am proud to have been Rod Martin’s friend for a quarter century, and I can tell you that he is one of the finest men and most outstanding leaders in our church and in our country today. He has a knack for turning everything he touches to success.
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If Rod Martin represents the next generation of leaders, America has nothing to worry about.
A leader and a servant, in public life and in private, Rod Martin strides at the top of his profession, and has nowhere to go but up. He is in the truest sense of the word ‘outstanding’.
Rod Martin is undoubtedly one of the most accomplished thought leaders today. He is a wonderful mentor, a humble role model, and a deep inspiration for the next generation of scientific innovators and entrepreneurs.
Rod’s achievements pale beside his character and his brilliance. He sees what others can’t. He leads when others won’t.
Rod Martin is one of America’s finest young minds.
