Puerto Rico’s Minimum Wage Object Lesson

A report released by the Puerto Rican government this week fingers the territory’s minimum wage as a prime factor in its emerging debt crisis. Though its economy is significantly less developed than even the poorest American states, it is still subject to the federal $7.25 minimum wage, 77 percent of its median wage. This high wage floor acts as a significant employment barrier, contributing to the island’s pathetic 43 percent labor force participation rate and its economic stagnation in general.

Puerto Rico’s minimum wage — and the one being debated across the rest of the United States — is a historic anomaly. When first passed in the 1930s, it didn’t apply to low-wage sectors of the economy like agriculture, retail sales, hotels and restaurants. Rather, it was the shift to the south of northern manufacturing jobs in search of cheaper labor that drove the idea of a federal wage floor. Predictably, even with industry exemptions from Roosevelt’s New Deal wage law, his Secretary of Labor Frances Perkins reported to the president that the new law was causing people to lose jobs.

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