Climate for Business Development and Employment Growth in Puerto Rico

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, the authors 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.