Puerto Rico

Populated for centuries by aboriginal peoples, the island was claimed by the Spanish Crown in 1493 following COLUMBUS' second voyage to the Americas. In 1898, after 400 years of colonial rule that saw the indigenous population nearly exterminated and African slave labor introduced, Puerto Rico was ceded to the US as a result of the Spanish-American War. Puerto Ricans were granted US citizenship in 1917. Popularly-elected governors have served since 1948. In 1952, a constitution was enacted providing for internal self government. In plebiscites held in 1967, 1993, and 1998, voters chose not to alter the existing political status.

Economical characteristics

 * Currency: United States dollar (ISO code: USD)
 * This country does not seem to have a central bank.

Consequences of the minimum wage
In 1938, the federal government set the first U.S. minimum wage at 25 cents per hour. At the time, the average wage in the United States was 62.7 cents per hour, so most workers were unaffected. However, the law also applied to Puerto Rico, which was poorer and underdeveloped relative to the United States. Many workers in Puerto Rico earned only 3 to 4 cents per hour at the time. The result of the minimum wage was massive business bankruptcy and high unemployment.

The Roosevelt administration created the federal minimum wage with passing of the Fair Labor Standards Act (FLSA). The act was notably supported by labor unions, which faced its fiercest competition from nonunion garment factories in the southern United States and in Puerto Rico. Subject to the same national rate as workers on the mainland, Puerto Rican workers suffered much more hardship from the minimum wage law. "...the framers of the law apparently forgot about Puerto Bico, and very grave disturbances came in that island."

When the Congress established a minimum wage of 25 cents per hour in 1938, the average hourly wage in the U.S. was 62.7 cents. It resulted in a mandatory increase for only some 300,000 workers out of a labor Force of more than 54 million. In Puerto Rico, in contrast, the new Federal minimum far exceeded the prevailing average hourly wage of the major portion of Puerto Rican workers.

Puerto Rico’s unemployment rate rose sharply due to the Fair Labor Standards Act. Tens of thousands lost their jobs in such industries as cigar and cigarette manufacturing, which all but disappeared. The needlework industry, which employed over 40,000 workers in 1935, stagnated after the new act took effect. The value of needle-trade exports fell from over $20 million before the act in 1937 to barely $5 million in 1940.

After two years of economic disruption in Puerto Rico, Congress amended the minimum wage provisions. The minimum wage was reduced to 12.5 cents per hour, but it was too late for many industries and for thousands of low-wage earners employed by them, who suddenly found unemployment the price they had to pay for the minimum wage. In sum, the tragedy of the minimum wage laws was not just textbook-theorizing by academic economists, but real-world disaster for the thousands who became the victims of the law. But these destructive effects have not caused the law to be repealed; to the contrary, it has been expanded in coverage and increased in amount.

The Congress passed a separate amendment that established committees in some forty industries to set separate industry and occupational minima. From 1940 until 1974, amendments to the FLSA expanded coverage on the island but maintained the industry-committee mode of setting minima. With the 1974 and 1977 Amendments to the FLSA, however, Congress introduced a new policy, increasing coverage and enacting automatic increases in Puerto Rican minima to bring them to the U.S. level. The 1977 Amendment required industries with minima at U.S. levels to follow the scheduled mainland increases and those whose minima were below U.S. levels to increase wages by $0.30 per year until they reached the federal minimum. By 1983, Puerto Rico had effectively reached the mainland minimum wage.

The imposition of the U.S.-level minimum wage to Puerto Rico distorted the Puerto Rican earnings distribution, substantially reduced employment on the island (estimated at 8-10 percent), reallocated labor across industries, and affected the characteristics of migrants to the United States. ("Migrants from Puerto Rico to the United States are drawn largely from persons jobless on the island, with characteristics that make them liable to have been disemployed by the minimum wage.")

Links

 * Puerto Rico on Wikipedia
 * BBC country profile