UNEMPLOYMENT IN PUERTO RICO 1

Unemployment is a major social issue that negatively affects the individual, society and

country (Simpson,2011). Experts in the field of economy state that unemployment will always

exist , however high unemployment has costs that have no benefits and no gains (Simpson,2011).

Unemployment is defined as a phenomenon that occurs when a person who is actively searching

for employment is unable to find work (Investopedia,n.d.).In Puerto Rico, unemployment rate

seasonally adjusted for December 2016 was 12.4% which is 0.5 percent higher than November

which proves the unemployment crisis in Puerto Rico in 2016 is increasing at a monthly rate

(Rivera, ,Colon, , Figueroa and Prez ,2017). It is important to thoroughly study the causes of

this phenomenon in order to find a solution. The causes of unemployment in Puerto Rico in 2016

are political, economical and social.

The government is one of the causes of unemployment. When the United States Congress

abolished Section 936, a tax system designed to promote the establishment of new industries in

Puerto Rico, manufacturing and pharmaceutical industries left Puerto Rico causing a large

absence of job opportunities (The National Puerto Rican Chamber of Commerce, 2015). Since

Puerto Rico is a Commonwealth of USA, it has no full authority over its own economy and

government (The National Puerto Rican Chamber of Commerce, 2015). Along with the

abolishment of Section 936, the U.S. government has negatively affected Puerto Rico with the

Merchant Marine Act of 1920 which forces ships that transport goods to the island go first

through U.S. ports and Puerto Rico is not allowed to negotiate bilateral trade agreements (The

National Puerto Rican Chamber of Commerce, 2015). This has caused a large inflation that

affects Puerto Rico by increasing operational costs for any remaining industry and reduced

international competitiveness. The government of Puerto Rico has been unable or unwilling to
UNEMPLOYMENT IN PUERTO RICO 2

make adjustments to the loss of section 936, and instead has sustained the economy with loans.

The public debt which, has surpassed more than 100 percent of total economic output by Puerto

Rican citizens within its borders or GNP (The National Puerto Rican Chamber of Commerce,

2015). According to the Bureau of Labor Statistics(2017) out of the 981,400 people employed in

Puerto Rico, 226,400 or 23% are employed by the government. The fact that the Government is

the major employer is bad for the economy since Government jobs do not generate wealth,

instead they contribute to the deficit and are therefore not sustainable. According to Lopez

(2015) Puerto Ricos financial crisis is caused by government spending, and to fix the problem,

the government must cut at least 30 percent from the government workforce. In order to solve

the deficit that has lasted for over a decade in Puerto Rico, the Government in Puerto Rico has

increased taxation and decreased funding primarily for education and to a lesser degree other

social investments (The National Puerto Rican Chamber of Commerce, 2015). However, the

administration of Puerto Rico decided there was enough money to invest in public funded

projects that created an urban train system, a new super-aqueduct water system, the Coliseum

of Puerto Rico, and a new convention center (The National Puerto Rican Chamber of

Commerce, 2015). These projects mentioned have not yielded a positive return of investment

and contributed to the deficit. Income taxes on businesses developed domestically have been

increased to such a degree that native Puerto Ricans that wish to develop businesses leave Puerto

Rico (The National Puerto Rican Chamber of Commerce, 2015).

A bad economy can result in unemployment. The primary reason of unemployment

currently is involuntary termination of employment with 36.5% and in second place with 28% is

termination of temporary job in a study that measured employment by duration and reason of

unemployment (Rivera, ,Colon, , Figueroa and Prez ,2017). The logical conclusion based on the
UNEMPLOYMENT IN PUERTO RICO 3

data is that companies are cutting costs by firing personnel and can't hire for long term positions

in order to make profit. High unemployment rates can also prevent the economy from being

restored and if not addressed quickly it can contribute to an economic collapse.

Unemployment leads to higher payments from state and federal governments for

unemployment benefits , food assistance, and Medicaid. At the same time, those

governments are no longer collecting the same levels of income tax as before - forcing

the government to borrow money (which defers the costs and impacts of unemployment

into the future) or cut back on other spending (Simpson, 2011, para. 8).

This happened to Puerto Rico, which has become heavily dependent on transfer payments and

other public assistance from the U.S. Federal Government whose transfer payments equaled 27

percent of GDP in 2010 of the country (The National Puerto Rican Chamber of Commerce,

2015). Also, 46.1 percent of Puerto Rico residents live below the federal poverty level

(Congressional Task Force, 2016). Approximately 40% of the GNP depends on the dying

manufacturing sector (The National Puerto Rican Chamber of Commerce, 2015). The cost of

electricity in Puerto Rico(which peaked in February 2013 at 30.6 cents per kilowatt hour ) is

higher than the price of electricity in any of the 48 contiguous states of the U. S. , it is also at risk

of rising or falling due to an almost exclusive dependency on the shifting price of crude oil in the

world market, in addition to periodic supply disruptions (Congressional Task Force, 2016). The

expensive and unreliable electricity system is a hindrance to economic growth (Congressional

Task Force, 2016). The capacity of the country to generate income is not high enough to pay off

the loans. When interest rates on an economys debt exceeds the economic growth rate, it

becomes impossible for an economy to recover (Congressional Task Force, 2016).

UNEMPLOYMENT IN PUERTO RICO 4

Social issues influence unemployment in a negative way. High crime scares investors,

reduces competitiveness on an international level, can cause emigration of skilled educated

workers and increases operational costs (The Caribbean Council, n.d.). As a consequence of the

economic and criminal crisis there has been an increase of emigration of professional and high

income earners that have left Puerto Rico since the mid-2000s in search of better job

opportunities and a stable economy in U.S.A. (The National Puerto Rican Chamber of

Commerce, 2015). Educated professionals and entrepreneurs have left and continue to leave

Puerto Rico reducing the middle class population and no industry that requires skilled educated

work force will be established in a country were the required employees do not exist. The costs

of crime are categorized differently in order to better determine the costs.

Direct costs: the value of all goods and services used to prevent violence or offer

treatment to its victims or perpetrators. This has been the most commonly estimated

category of costs and includes health costs, police, justice and prison costs, as well as

resources spent on private security measures. While the most frequently measured, this

category may not be the most important. Non-monetary costs: higher mortality and

morbidity rates that result in pain, suffering and death, but not necessarily result in either

expenditures on health care or in easily quantifiable economic losses. Economic

multiplier effects: impacts on human capital, labor force participation, lower wages and

incomes, savings and macroeconomic growth. Social multiplier effects: erosion of social

capital, inter-generational transmission of violence and lower quality of life (United

Nations Office on Drugs and Crime and the Latin America and the Caribbean Region of

the World Bank ,2007,p. 41).

UNEMPLOYMENT IN PUERTO RICO 5

High crime affects businesses by forcing investment in security, affecting employee productivity,

preventing business expansion, increased costs of services purchased, negative impact on

investments like theft of equipment, and worse access to financing (United Nations Office on

Drugs and Crime and the Latin America and the Caribbean Region of the World Bank , 2007).

The creation of jobs requires economic stability, low crime, capital investment, reduction

government control and less taxation of both businesses and individuals required to sustain the

country. The U.S. government nullified any potential for capital investment by removing the

Section 936 and the reckless spending, lack of viable counter measures to the loss of section 936,

high taxation, and inability to stop crime of the Puerto Rican Administration have ensured the

opposite.

There are number of factors in Puerto Rico that tend to inhibit capital investment,

including the governments fiscal challenges; poor financial reporting; the high cost of

electricity and other utilities; a burdensome permitting system and other bureaucratic

issues; a relatively high level of violent crime; labor market rigidities; complicated and

often idiosyncratic tax policies; relatively weak infrastructure; and a high degree of

politicization, which causes even productive investments, policies, and programs to be

halted by one political party because they were instituted under the other political party

(The Congressional Task Force, 2016, p.59).

In conclusion, the causes of unemployment in Puerto Rico in 2016 are political, economical, and

social.

.
UNEMPLOYMENT IN PUERTO RICO 6

References

Bureau of Labor Statistics(2017, April). Economy at a Glance. Retrieved from

https://www.bls.gov/eag/eag.pr.htm

Congressional Task Force (2016, December) Congressional Task Force on Economic Growth in

Puerto Rico. Retrieved from

https://www.finance.senate.gov/imo/media/doc/Bipartisan%20Congressional%20Task%20Force

%20on%20Economic%20Growth%20in%20Puerto%20Rico%20Releases%20Final%20Report.p

df

Investopedia (n.d.) Unemployment. Retrieved from

http://www.investopedia.com/terms/u/unemployment.asp

Lopez, F. (2015,July). Cut the Government Workforce or Wither Puerto Rico. Retrieved from

https://panampost.com/frank-worley-lopez/2015/07/29/cut-the-government-workforce-

or-wither-puerto-rico/

Rivera, J. ,Colon, H., Figueroa, J.,& Prez, W.(2017,January 20).Empleo y Desempleo en

Puerto Rico. Retrieved from

http://www.estadisticas.gobierno.pr/iepr/Estadisticas/InventariodeEstadisticas/tabid/186/c

tl/view_detail/mid/775/report_id/2b640ee2-d186-45b9-84a1-765e7345c188/Default.aspx
UNEMPLOYMENT IN PUERTO RICO 7

Simpson, S. (2011, August 9). The Cost Of Unemployment To The Economy. Retrieved

from

http://www.investopedia.com/financial-edge/0811/the-cost-of-unemployment-to-the-

economy.aspx?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186

The Caribbean Council(n.d.). Crime is damaging Caribbean development. Retrieved from

http://www.caribbean-council.org/crime-damaging-caribbean-development/

The National Puerto Rican Chamber of Commerce (2015,March 19). Puerto Ricos

Economy: A brief history of reforms from the 1980s to today and policy

recommendations for the future. Retrieved from

http://nprchamber.org/files/3-19-15-Puerto-Rico-Economic-Report.pdf

United Nations Office on Drugs and Crime and the Latin America and the Caribbean Region of

the World Bank (2007,March). Crime, Violence, and Development: Trends, Costs, and

Policy Options in the Caribbean. Retrieved from

https://www.unodc.org/pdf/research/Cr_and_Vio_Car_E.pdf