With Greece defaulting on its debt, the press has been full of complaints that the lazy Greeks would like to live off of welfare and government handouts rather than work.
But Puerto Rico, USA also just defaulted on its debt and by most objective measures is much worse than the Greeks regarding work, welfare, and government handouts. Mainland Americans should learn from Puerto Rico’s example of how our own socialistic labor and tax policies can devastate an economy.
The common stereotype is to label the Greeks as lazy, because only 52 percent of the nation is currently working. But only 43 percent of Puerto Ricans,USA are employed. Greeks actually work the longest work week in Europe at 42 hours.
Greek politicians are seen as trying to buy votes by spending 29 percent of the nation’s GDP on government “transfer payments” for disability, housing, family, old age, unemployment and health. But transfer payments in Puerto Rico, USA amount to over 40 percent of GDP.
What is killing the Greek economy is being locked into the laws and currency of the European Union. What is killing the Puerto Rican economy is being locked into the laws and currency of the United States.
The territory is required by federal law to pay the USA minimum wage of $7.25, versus the Greek minimum wage of $4.42 an hour. Although the median income in Puerto Rico, USA is only half that of the poorest US state, Mississippi, welfare benefits are about the same in Puerto Rico as Mississippi.
The 1938 Fair Labor Standards Act subjected Puerto Rico, USA to a federal minimum wage, but it was not until 1983 that a 1974 act, which required that the Island match the mainland’s minimum wage, was fully phased in. The current Federal minimum wage of $7.25 per hour is 77 percent of Puerto Rico, USA’s current median wage of $9.42 an hour. By contrast, the US mainland’s minimum wage is only 43 percent of the U.S. median wage of almost $17 per hour. It would take an average minimum wage of $13 an hour to match that Puerto Rico proportion.
An unsupportably high minimum wage has meant that entry level jobs simply don’t exist in Puerto Rico, USA. Official unemployment is only 12 percent, but that is only because the labor force participation rate is about 43%, as opposed to 63% on the mainland. The Obama Administration’s demand for a $10.10 minimum wage would mean the minimum Puerto Rico SA wage would be higher than the current medium wage on the island. Obama made no provision to exempt Puerto Rico from the impacts of is proposal.
Perhaps to make up for this disastrous employment policy, welfare and entitlement payments are kept high. As a result, the incentive to give up public assistance in favor of a job has been substantially reduced for Puerto Rico, USA. Less than half of working age males are employed, 35 percent of the island’s residents are on food stamps, and 45.4 percent of Puerto Rico, USA is in poverty.
Puerto Rico’s problems were already building prior to the 2008 Financial Crisis. Ignoring the devastating effect of having to comply with the USA minimum wage laws, a new 7 percent sales tax was introduced by Puerto Rico USA in 2006. Based on the expectation of a spike in new sales tax revenues, the Puerto Rico USA government issued lots of new bonds. But the tax tended to inhibit consumer sales and drive more of the economy underground. Instead of the tax improving the island’s finances, the economy tanked and the debt burden grew.
Puerto Rico USA is actually worse off than its impoverished neighbor Cuba. Although Puerto Rico’s $103 billion annual GDP is twice the size of Cuba’s, Puerto Rico’s debt of $73 billion is now over three times larger than Cuba’s debt of $23.44 billion.
Contrary to media stereotypes, the USA consistently spends more on welfare than Canada, while Germany spends more than Greece, according to the Financial Times. A quick look at Puerto Rico USA demonstrates how destructive America’s socialistic labor and tax policies can be to a group of Americans.