Paul Kupiec and Ryan Nabil explain (emphasis added),
Appearing before the U.S. Congress in September 2011, Togiola Tulafona, the governor of American Samoa, testified that the mandatory minimum-wage increases created “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities. American Samoa’s economic base would then essentially be based solely on federal-government expenditures in the territory.”
The law had a similar effect in Puerto Rico where the mandatory increases resulted in a minimum wage that was greater than 75 percent of the Puerto Rican median wage. And the results were predictably catastrophic for the economy.
Economic activity declined and Puerto Rican unemployment surged. Between 2007 and 2013, Puerto Rico’s GDP per capita declined by nearly 7 percent, while over the same period it was unchanged nationwide. As a result, many Puerto Ricans left for the U.S. mainland. The migration of young, mobile, working-age Puerto Ricans created an imbalance as the aged and less ambitious remained behind.
Puerto Rico’s labor force competes with other Caribbean-region labor forces,
Foreign investors were deterred by the high cost of hiring Puerto Rican workers. Labor costs in the Bahamas and Jamaica, two direct competitors for foreign investment, were half of those in Puerto Rico.
Tourists were reluctant to absorb the 30 percent premium for a Puerto Rican hotel room relative to other Caribbean destinations. Tourist arrivals in 2012 were identical to arrivals in 1992, while tourist visits over the same period doubled in the Dominican Republic and tripled in Cuba. Today, tourism contributes only 6 percent to Puerto Rico’s GDP compared with 27 percent in Jamaica and 16 percent in the Dominican Republic.
Yet another aspect of the disaster.
