Working Paper: NBER ID: w11751
Authors: Mara E. Enchautegui; Richard B. Freeman
Abstract: Puerto Rico has an extraordinarily low employment rate for men. We document the low employment rate using Census of Population and labor force survey data and offer "the rich uncle (Sam) hypothesis" that the connection of the relatively poor economy of Puerto Rico to the wealthier US has created conditions that generate low employment. In support of the hypothesis, we show: 1) that GNP and GDP have diverged on the island, distorting the relationship between GDP and employment, due potentially to federal tax benefits to companies operating in Puerto Rico; 2) transfers to Puerto Rican families funded mainly by the federal government, which account for about 22 percent of personal income; 3) open borders to the U.S. that give men with high desire for work incentive to migrate to the US, and potentially creates a lower bound to wages on the island; (4) a wage structure with relatively higher earnings in low paid jobs; and (5) employment in the informal sector, which is unmeasured in official statistics. We note that other regional economies with rich "uncles", such as East Germany with West Germany, Southern Italy with Northern Italy, have comparable employment problems.
Keywords: No keywords provided
JEL Codes: J4; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal tax benefits (H20) | low employment rates among men (J79) |
| federal transfers (H77) | labor market participation (J29) |
| migration patterns to the U.S. (J61) | local labor conditions (J89) |
| wage structure in Puerto Rico (J31) | labor supply decisions (J22) |
| informal employment opportunities (J46) | labor market participation (J29) |