By: Marshall Kirby, Public Policy Analyst

With contributions by: Justin Velez-Hagan, National Executive Director

November 23 2010, Washington, D.C. – Puerto Rico has been hit very hard in the global economic crisis.  Currently, there is an official 17% unemployment rate, which does not include the underemployed and those who have given up looking for work.  Yet, at the same time, there is a shortage of labor in the agricultural sector.  As of last week, Puerto Rico is discussing Bill 1038, which will in essence allow the Commonwealth to import foreign labor on a temporary basis to assist with the coffee bean and other harvests.  [For more information on the policy, click here]

There are two important issues at play – one is from the business and economics perspective – the crops and the fields need to be harvested.  Each year, there is wasted production and wasted output because the fields lack the physical labor needed to bring them to harvest.  This leads to inefficiency of production, and could eventually cause the island to lose any competitive edge it has in the production of coffee and other agricultural endeavors.  The second issue is that there is inefficiency in the labor market if there is an excess of labor (which 17% unemployment clearly shows) and unwillingness for Puerto Rican’s to work as laborers in the agricultural sector.  This is not a new phenomenon; we have seen this for a long time in the lower 48 of the United States.  Macroeconomics teaches us that an economy will never have a 0% unemployment rate, due to seasonal, frictional, and structural factors.

We have seen this same situation elsewhere as well.  In Costa Rica, thousands of laborers migrate from Nicaragua to work on farms.  Even taking into account that many of the unemployed are physically unable to do the demanding labor, and those whose level of education leads them to be overqualified for the jobs – a policy designed to import labor seems to show policy makers are more interested in quick fixes than looking at the whole problem.

It may be important to reconsider policies which demotivate low-end labor participation.  Transfer payments (i.e. welfare programs) and unemployment benefits have increased drastically since the recession and may be attributed to the economic situation.  As of 2006, nearly 20% of the island’s income is from transfer payments.[i] In the same year, nearly one in six men (of working age) received disability benefits.  Combine these with record unemployment benefits and Puerto Ricans may have a significant disincentive for working for low wages.

What civil society and leaders in government should be doing to encourage qualified Puerto Ricans to take these jobs [some of which pay a very decent salary of $125 a day] is make sure they are well advertised and perhaps set up a transportation plan for those who live out of reach from the farms to enable to work.  This way the fields get harvested for full production and more Puerto Ricans can get work until the labor market turns around.

[i] “Trouble on Welfare Island.”  The Economist.  May 2006.