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Puerto Rico's new minimum wage: 'Not enough, but a starting point'

The U.S. territory raised its minimum wage for the first time in years, but it still may not be enough to make up for the island's high cost of living, experts say.

Puerto Rico raised its minimum wage for the first time in more than a decade, but experts say while it's a step in the right direction, there are several structural factors that make it difficult for working-class families in the U.S. territory.

Gov. Pedro Pierluisi signed a law Tuesday to increase the current minimum pay of $7.25 an hour to at least $8.50 an hour starting in January.

The increase could represent an additional $2,000 a year for a full-time worker, according to him.

“For a long time, thousands of workers on our island have not received an increase in the minimum wage, but they have had an increase in the cost of living over these past 12 years," Pierluisi said in a statement. "A payment of $7.25 an hour is no longer sustainable to live in Puerto Rico, so it was time to do justice to the working class."

The new law will greatly benefit "people who are at the very bottom of the wage structure in Puerto Rico's economy," according to Carlos Vargas-Ramos, director of public policy at the Center for Puerto Rican Studies at Hunter College in New York.

Image: An employee helps customers at the Mall of San Juan in Puerto Rico on June 1, 2020.
An employee helps customers at the Mall of San Juan in Puerto Rico on June 1, 2020.Xavier Garcia / Bloomberg via Getty Images file

These people include workers in retail, which in Puerto Rico is a very large sector of the economy, as well as those who work in department stores, supermarkets, gas stations or as security guards, he added.

While many cheered the move amid Puerto Rico's decadelong financial crisis, the new minimum wage is still not enough to ensure fewer families live above the federal poverty level. Nearly 44 percent of the Puerto Rican population lives in poverty, according to census numbers.

"It's not enough, but it's a starting point. This can also be complemented with the earned income tax credit," a refundable tax credit for low- to moderate-income working families that Puerto Ricans will have access to starting next year, said José Caraballo-Cueto, an economics expert and an associate professor at the University of Puerto Rico's graduate business school in Rio Piedras.

"When you consider that tax credit, a worker could basically earn the equivalent to $10 an hour," he added.

The main reason why the current or the new minimum wage aren't enough to lift families out of poverty is the island's high cost of living.

"The cost of electricity is one of the expenses straining most citizens and small businesses" who already pay twice as much for electricity as U.S. customers for unreliable service, Caraballo-Cueto said in Spanish.

A century-old law known as the Jones Act, which limits foreign ships from going to Puerto Rico, raises the cost of imported goods, contributing to the island's high cost of living, both Caraballo-Cueto and Vargas-Ramos said.

Under this law, American-built vessels and American crews, among the most expensive in the world, are the only ones allowed to make shipments to the island without restrictions. This consequently increases the cost of goods sold in Puerto Rico, including gasoline, cars and produce, Vargas-Ramos said. This is particularly a big deal for an island that imports about 85 percent of all its food.

The minimum wage in Puerto Rico is set to increase again in July 2023 to $9.50 an hour, according to the new law. Another increase to $10.50 is being considered for July 2024, but it would require further approval.

Helping businesses adapt to paying more

The government should step in to help subsidize the economic impact future minimum wage increases could have on certain small businesses, particularly those in "industries with low income and a lot of competition" such as child care and at-home care workers, Caraballo-Cueto said. "If the minimum wage is too high for these businesses, it may cause them to close down."

However, other industries such as construction and finance, which pay their workers at least $15 to $12 an hour respectively, may be in a better position to keep up with future wage increases, he added.

For this reason, Caraballo-Cueto argues that the ideal thing to do would have been to establish minimum wage requirements across different industries.

The newest wage increase excludes waiters at restaurants, who still make a minimum wage of $2.13 an hour plus tips, and certain farmworkers, some of whom have access to other agricultural economic incentives, Caraballo-Cueto said.

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