| 来源类型 | Working Paper |
| 规范类型 | 论文 |
| The Climate for Business Development and Employment Growth in Puerto Rico | |
| Steven J. Davis; Luis Rivera-Batiz | |
| 发表日期 | 2005-09-02 |
| 出版年 | 2005 |
| 语种 | 英语 |
| 摘要 | The full text of this paper is available here as an Adobe Acrobat PDF. Abstract Employment rates in Puerto Rico range from 55 to 65 percent of U.S. rates during the past thirty years. This huge employment shortfall holds for men and women, cuts across all education groups, and is deeper for persons without a college degree. The shortfall is concentrated in the private sector, especially labor-intensive industries that rely heavily on less educated workers. Motivated by these facts, we identify several factors that undermine employment growth and business development, including high minimum wage requirements, a history of tax incentives for capital-intensive activities, a host of regulatory entry barriers, and a business climate in which profitability and survival too often rest on the ability to secure favors from the government. We ay close attention to the permitting process whereby the government oversees and regulates onstruction and real estate development projects, the commercial use of equipment and facilities, and the periodic renewal of various business licenses. Based on interviews with experts and participants in the permitting process, and supplemented by other sources, we compile evidence that the permitting process is excessively slow and costly, fraught with uncertainty, subject to capricious outcomes, susceptible to corruption, and prone to manipulation by business rivals and special interest groups. Introduction The employment rate among Puerto Rican residents is stunningly low, and it has been so for ecades. Household census data for 1980, 1990 and 2000 yield employment rates in the neighborhood of 40% for persons 16 to 65 years of age. Comparable data for the United States yield employment rates in the range of 65 to 70%. The OECD reports an average employment rate of 66% for member countries in 2000, and Turkey, at 49%, is the only OECD member with an employment rate below 54%.1 These comparisons underscore the puzzle presented by Puerto Rico’s persistently low employment rate. This paper investigates the employment record in Puerto Rico and its climate for business development. The paper has three related goals. One is to shed new light on the reasons for Puerto Rico’s low employment rate by taking a close look at its employment structure. Another is to highlight some longer term consequences of Puerto Rico’s business climate and chronically weak employment performance. A third goal is to identify government policies and institutional arrangements that impede employment growth and business development. In terms of our third goal, we pay close attention to the permitting process whereby the government oversees and regulates construction and real estate development projects, the commercial use of equipment and facilities, and the periodic renewal of various business licenses. Several factors contribute to Puerto Rico’s poor employment performance, but there are good reasons to suspect that the permitting process is one important obstacle to business development and employment growth. Anecdotal evidence suggests that the permitting process is excessively slow and costly, fraught with uncertainty, subject to capricious outcomes, susceptible to corruption, and prone to manipulation by business rivals, politicians and special interest groups. Problems and inefficiencies in the permitting process raise the costs of creating new business establishments, undercutting the drive for employment growth. Sizable fixed costs in learning how to navigate the system fall more heavily on smaller and younger businesses and on would-be entrepreneurs who lack political connections. For these reasons, the permitting process is also likely to repress the emergence of a productive entrepreneurial culture, or drive it into the underground sector. The permitting process is one aspect of an obtrusive and often counterproductive role for government in Puerto Rico’s economy. There are many others. Section 936 provisions in the U.S. tax code distorted Puerto Rico’s industry structure at great cost to the U.S. treasury with few benefits for Puerto Rican residents (Pelzman, 2002, Hunter, 2003, and Bosworth and Collins, 2005). Puerto Rico’s own tax code is replete with provisions that benefit special business interests at the expense of the general welfare. Various “buy local” laws and tax provisions lessen competitive pressures on local business interests by disfavoring foreign producers. Regulatory entry barriers abound. The Jones Act raises the cost of international trade by requiring the use of American vessels for goods shipped by water between U.S. and Puerto Rican ports. Puerto Rican employers are subject to U.S. minimum wage requirements, even though the average Puerto Rican wage is roughly half the average U.S. wage. Government transfer payments account for more than a quarter of Puerto Rican household incomes in recent decades (Burtless and Sotomayor, 2005). And the Puerto Rican government has traditionally accounted for a large share of employment and production activity on the island, much larger than in the United States. A truly striking feature of Puerto Rico’s economy is the underdeveloped state of its private sector. Private sector employment rates in Puerto Rico are less than half the U.S. rates in recent decades. Even fewer Puerto Rican residents have first-hand experience, as owners or employees, in “free enterprise” organizations–private businesses that operate in the formal economy without large government subsidies, special tax breaks and regulatory advantages, or heavy-handed oversight by government bureaucracies. These observations about Puerto Rico’s economy point to some key challenges and concerns. First, chronically low employment rates imply that Puerto Rican residents are short on work experience, opportunities for learning on the job and marketable skills. Second, the management skills and business savvy required for a thriving entrepreneurial class are likely to be in especially short supply. Relatively few Puerto Ricans work in the private sector, and business persons have learned to focus their creative energies on how to curry favor with government officials and circumvent bureaucratic obstacles to commercial success, rather than how to develop and execute business models that can withstand the rigors of competition in an unfettered marketplace. Even if reform creates an institutional framework that is advantageous for productive entrepreneurial activity and long term growth, it will be difficult to rapidly upgrade business skills and reorient a rent-seeking business culture. Third, most Puerto Ricans have a strong financial stake in maintaining certain aspects of an expansive public sector–as salaried government employees, as recipients of transfer payments and public sector pensions, or as beneficiaries of government contract awards, subsidies, tax breaks and special regulatory advantages. This web of vested interests in a highly socialized economy presents a formidable barrier to effective economic reform. The paper proceeds as follows. Section 2 investigates the structure of employment in Puerto Rico with a focus on comparisons to the United States. Section 3 considers several policies and institutions that shape the climate for business development and employment growth in Puerto Rico. Section 4 considers the permitting process in some detail. We draw on a variety of sources for our study of the permitting process, including personal interviews with more than one hundred business persons, real estate developers, construction contractors, government officials and outside experts. Section 5 summarizes our main results and distills a few conclusions. The full text of this paper is available here as an Adobe Acrobat PDF. |
| 主题 | Citizenship |
| 标签 | Puerto Rico |
| URL | https://www.aei.org/research-products/working-paper/the-climate-for-business-development-and-employment-growth-in-puerto-rico/ |
| 来源智库 | American Enterprise Institute (United States) |
| 资源类型 | 智库出版物 |
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/206854 |
| 推荐引用方式 GB/T 7714 | Steven J. Davis,Luis Rivera-Batiz. The Climate for Business Development and Employment Growth in Puerto Rico. 2005. |
| 条目包含的文件 | ||||||
| 文件名称/大小 | 资源类型 | 版本类型 | 开放类型 | 使用许可 | ||
| 20060222_DavisandRiv（637KB） | 智库出版物 | 限制开放 | CC BY-NC-SA | 浏览 | ||
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