How the Minimum Wage Helped Wreck Puerto Rico's Economy

$7.25 Devastated Its Economy; Imagine What $15 Will Do.

by Jack Salmon
May 19, 2016

Puerto Rico is in crisis and drowning in debt. Now it looks like the island’s Development Bank, set up to raise living standards in the territory, will collapse. Congress is rushing to provide some help, but it also needs to consider the effects of federal regulations on the island. Foremost among these is the federal minimum wage.

The heavily indebted island demonstrates the tragic consequences of forcing up the minimum wage out of sync with the market price for labor. Between 1974 and 1983, Puerto Rico was forced to increase its minimum wage in line with the federal figure, where it has remained since 1983. The results of imposing this standardized federal minimum wage have been “substantially reduced employment on the island,” as well as swathes of unemployable low-skilled workers who decided to immigrate to the US mainland to seek work, according to research published by the National Bureau of Economic Research.

The Puerto Rican economy is heavily dependent…