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What about productivity?

By ELISABETH ROMAN of Caribbean Business

August 25, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Once again, Puerto Rico’s commonwealth government and the Legislature have decided to further raise the cost of doing business on the island by legislating more increases in local wages and benefits. It doesn’t matter that Puerto Rico is already the most regulated jurisdiction in the U.S. when it comes to labor laws and we are having a hard time competing in a global economy without any federal tax exemptions.

Now, local politicians from both major political parties have decided Puerto Rico’s minimum wage should be higher than the established federal minimum wage, that the Christmas bonus mandated by law–which they generously increased for public-sector employees–now has to be increased in the private sector, that employees should even receive a summer bonus, and part-time workers must get the same benefits provided to full-time employees, along with a list of other labor measures that are only expected to make it harder to do business in Puerto Rico.

No one is against paying benefits and better wages to employees in the public and private sectors, but whatever happened to productivity and merit increases. The government is seeking to impose on the private sector the same measures that have helped send the Commonwealth into a fiscal crisis. During the Calderón administration, the Legislature increased the Christmas bonus to $1,000 for all government employees besides increasing employees by more than 40,000. Raises for public-sector employees are often legislated, particularly during election years to gain votes, without considering where the revenue to pay for them will come from. Government employees already have the highest median weekly salary in Puerto Rico. The Acevedo Vilá administration also has added about 6,000 employees in the seven months he has been in office. This has helped create the crisis situation we are facing today, where government is having difficulties meeting payroll for more than 300,000 employees. Bonuses and increases in wages and benefits should be based on productivity, particularly in government, since the cost of these come out of taxpayers’ pockets.

Puerto Rico’s Chamber of Commerce, Manufacturers Association, Hotel & Tourism Association, and Products Association unanimously voiced their opposition to the proposed changes to local labor laws, warning both the commonwealth government and the Legislature that these measures will only lead to higher operational costs, more unemployment, and further hinder our ability to compete in a global economy.

Needless to say, the proposed changes to Puerto Rico’s labor laws were presented by politicians, in most cases from both political parties, without evaluating the economic impact these measures would have on the island’s economy. The increase in the Christmas bonus alone is estimated to cost the private sector millions of dollars in additional expenses each year, while changes to benefits and wages paid to part-time employees are expected to lead to higher consumer prices and unemployment. When operating costs get too high, companies tend to tighten their belts and reduce their workforce to bring down costs so, instead of helping Puerto Rico’s workers, the proposed labor laws actually will affect them adversely.

It is bad enough that businesses in Puerto Rico have had to endure a cumbersome permitting process, higher electricity rates than in the 49 states of the U.S., and escalating gas prices, among other increases, now they also face higher utility rates, transportation costs, tolls, and more taxes intended to help the Commonwealth dig out of its fiscal crisis. The result of Puerto Rico’s escalating costs is that we are closing the doors to foreign and domestic capital investment–and even on further local investment.

Local government officials need to create more opportunities by making it easier to do business on the island, instead of legislating benefits that only will make it more costly for the private sector to operate. Otherwise, we will be unable to compete with such developing countries and regions as China, India, the Dominican Republic, and Latin America.

This Caribbean Business article appears courtesy of Casiano Communications.
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