Pierluisi Statement on H.R. 4637, the Puerto Rico Minimum Wage Improvement Act
San Juan, Puerto Rico—Resident Commissioner Pedro Pierluisi released the following statement regarding H.R. 4637, the Puerto Rico Minimum Wage Improvement Act, which was introduced by Congressman Mark Sanford of South Carolina last Friday and would—according to the accompanying press release—“allow Puerto Rico to opt out of federal minimum wage requirements”:
“I oppose this bill, which might as well be called the “Encourage More Migration from Puerto Rico to the States Act.” The people of Puerto Rico, like the people of South Carolina, are American citizens. Puerto Rico’s economy, like South Carolina’s economy, is part of the U.S. economy. As policymakers, our objective should be to close the gap between Puerto Rico and the states, not to widen it. 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.”
“As Sergio Marxuach, policy director at the Center for a New Economy, explained in detail during his testimony before the Senate Committee on Energy and Natural Resources on October 22, 2015, the application of the federal minimum wage to Puerto Rico is not the cause of the U.S. territory’s economic problems and exempting Puerto Rico from the federal minimum wage is likely to harm, rather than to help, the territory’s economy.
“The percentage of working-age individuals in Puerto Rico who are working or seeking work in the formal economy—known as the labor participation rate—is very low. It currently stands at under 40 percent, compared to a U.S. national average of over 60 percent. There is a large informal economy in Puerto Rico, meaning many individuals earn income, but do not pay payroll or income taxes on that income and do not accrue benefits like Medicare and Social Security.
“Given the specific situation in Puerto Rico, 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. Authorizing employers in Puerto Rico to pay their workers under the federal minimum wage—$7.25 per hour—would not help achieve this objective.
“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, 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. It is difficult to see how a worker in Puerto Rico could earn under $7.25 an hour, pay taxes on that income, and still meet his or her most basic needs. The most likely result of exempting Puerto Rico from the federal minimum wage would be to discourage individuals from working in the formal economy, to encourage more individuals to work in the informal economy, to provide an additional incentive for individuals to rely upon government programs rather than to work, and to increase the already-historic level of migration from Puerto Rico to the states. I am not aware of a single economist in Puerto Rico who has argued otherwise.
“Rather than authorizing employers in Puerto Rico to pay workers a lower wage, 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.”