July 02, 2015
It is always cute when a major news outlet decides to blame problems on a policy it doesn’t like in a new story. That is what the Wall Street Journal did today in a news story that told readers Puerto Rico’s main problem is having the same minimum wage as the rest of the United States.
While the minimum wage is clearly high relative to labor productivity in Puerto Rico, its economic performance over the last four decades cannot be reconciled with a story where the minimum wage is the main culprit. Puerto Rico’s minimum wage converged to the U.S. minimum wage over the period 1978 to 1983. In spite of this sharp increase in the minimum wage, Puerto Rico’s unemployment rate fell sharply from the 1970s to the 1980s as its economy experienced strong growth (figures 3 and 4). While the unemployment rate in Puerto Rico remained higher than in the United States, the general direction was downward until the recession hit in 2007.
This simple story suggests that the minimum wage cannot be the main culprit. It is certainly possible that the minimum wage may have led to somewhat higher unemployment than would otherwise be the case, but the cause of the Puerto Rico’s economic crisis must be elsewhere.
Note: An earlier version described the article as a front page story. The article did not run on the front page of the paper.
Further Note: The WSJ had a much fuller account of Puerto Rico’s economic problems earlier in the week.