Puerto Rico labor law overhaul called key to growth

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WASHINGTON – Two members of Puerto Rico’s Financial Oversight Board agreed Thursday with a panel of other experts that an overhaul of the territory’s local labor laws is a key its future growth.

Thursday’s discussion at the Heritage Foundation in Washington, which describes itself as the bastion of the American conservative movement, came as the territory’s legislature continues a debate over the elimination of job protections that currently mandate a court hearing or paid severance in order for an employee to be fired.

The legislature faces a June 30 deadline for making the labor law changes, or the Oversight Board will impose a previously certified plan that would eliminate required Christmas bonuses and mandatory sick and paid leave days.

Puerto Rico is considering instituting the same at-will employment statutes used in many states, as well as adding more restrictive rules for receiving food stamps and instituting an earned income tax credit to encourage work.

Panelists said the territory’s labor laws are more restrictive than any state on the mainland at a time when residents are leaving the island for better economic opportunities.

The challenge, they said, is to convince the people of Puerto Rico that a more competitive labor market will produce more jobs.

Andrew Biggs, a member of the Oversight Board and a resident scholar at the American Enterprise Institute, said economists predict there would be an additional one percentage point of annual economic growth if the reforms are adopted. The AEI is a think tank committed to strengthening the free enterprise system.

“The labor reform part is crucial not just for the well-being of the island but also for creditors,” Biggs said in an interview. “If there’s no economic growth on the island, there’s no money to pay creditors.”

Jose Carrión, Oversight Board’s chairman, said that as an employer in Puerto Rico he’s familiar with how “onerous” the labor laws are.

“It’s very problematic to keep up with all the labor requirements,” Carrión said. “We do so and we abide by the law, but it does not make Puerto Rico competitive with places to where we are losing our population such as Florida.”

Employers in Puerto Rico, for instance, are required to give workers 24 hours off after they work 8 hours, said Anne Krueger, economics professor at Johns Hopkins School for Advanced International Studies.

That means a restaurant worker who put in an afternoon shift cannot be asked to work the following morning, she said.

“Many of the policies that have been adopted are anti-growth big time,” said Krueger.

The labor force participation rate is only 38% on Puerto Rico compared to 63% on the mainland, she said.

“It’s not just labor reforms,” Carrión said. “There are multiple things the island can do. It’s whether the island chooses to do them.”

The Financial Oversight Board came to an agreement with the governor on the labor law changes and it’s now up to the legislature.

Carrión said it the legislature doesn’t agree, the island reverts back to the certified fiscal plan.

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