By Jonathan Levin and Yalixa Rivera, Bloomberg
If Adalberto Perez’s five children are to thrive in storm-wracked Puerto Rico, he needs a job.
His applications at restaurants where he could cook — anything from mofongo to moo goo gai pan — have gone unanswered. He spent a full day waiting on a freelance cabinet-repair gig that never materialized. By the time he arrived at the San Juan unemployment office, he was despondent.
“You have to know somebody to get in anywhere,” said Perez, a 31-year-old chef by training, standing on a recent Tuesday outside the benefits office where some applicants waited more than an hour with small children in tow.
Puerto Rico’s economy must figure out how to put Perez back to work. The bankrupt commonwealth has lost about a fifth of its jobs during a decade of recession, but that’s deceivingly hard to see: The unemployment rate spiked, then returned last year to roughly the same level as when the malaise began. That’s because the rate measures only the percentage of the workforce actively looking for employment, and many disillusioned residents have abandoned the job market.
The commonwealth’s labor-force participation — the portion of adults working or looking for work — has dropped 6 percentage points in the past decade to just 40 percent, the lowest in the U.S., and 23 percentage points below the national average.
Puerto Rico’s economy started shrinking about the time of the U.S. financial crisis. But as the mainland recovered, the island’s economic output kept declining until the government had to declare bankruptcy on its $74 billion in debt. Then Hurricane Maria slammed into the commonwealth in September, obliterating its energy grid and for weeks shuttering everything from gas stations to banks and retailers. Aid money is starting to pour in, but Puerto Rico still needs to fix systemic flaws to build a sustainable future and repay its debt.
Creditors believe the chances are good. Prices on most Puerto Rico bonds rallied after Governor Ricardo Rossello released his latest fiscal plan on March 23. It estimates a $6 billion surplus — before paying debt service — through fiscal 2023. General obligation bonds traded this week at almost double their price in December, according to data compiled by Bloomberg.
The path to success may be less certain than the market suggests. Last month, Rossello sat with business leaders around a table and, staring into a television camera, pledged to push labor-force participation toward the mainland level. In a gambit apparently designed to please a Congress-appointed oversight board, he proposed cutting back worker benefits such as obligatory Christmas bonuses and vacation days to make the market more attractive to would-be employers.
Just a week later, amid a public outcry, he canceled his own reform. He’s still likely to present an alternative, but attracting jobs may prove easier said than done, according Gustavo Velez, an economist with San Juan-based Inteligencia Economica.
Damage to a resort in Patillas.Photographer: Xavier Garcia/Bloomberg
Hurricane Maria reconstruction, fueled by some $70 billion in insurance claims and federal aid, could prompt a temporary recovery in the moribund construction business. Other industries show less promise. Manufacturing, including medical devices and pharmaceuticals, accounts for well over half the economy. But the rewrite of U.S. tax laws could lure work back to the mainland, eliminating some 230,000 jobs, according to Velez.
If Puerto Rico loses manufacturing jobs, it’s unclear what might sustain the economy, Velez said. It has tried to establish itself as a tourist center and cruise-ship hub, but tourism accounts for only about 7 percent of the economy and the jobs are typically low-paying.
“The downward spiral is going to continue,” Velez said.
To bring workers back into the work force, Rossello last month floated the idea of raising the minimum wage by $1 an hour and adding an 80-hour-per-month work requirement to the food-stamp program. He took criticism from all sides. Alicia Lamboy, president of the Puerto Rico Chamber of Commerce, said businesses could ill afford to pay more. And residents were livid about stricter food-stamp provisions and potentially losing the Christmas bonuses.
Outrage bubbled up from the legislature to YouTube, where one popular commenter and satirist wrote a song to the tune of a Jose Jose ballad: “They treat me so bad, and then they ask why I’m leaving,” he sings. The background singers add: “How sad!”
Even if some changes eventually go through, Puerto Rico’s feeble labor-force participation is a multifaceted challenge. Puerto Ricans retire earlier than mainland workers, and it isn’t clear how Rossello’s changes would address that. The bloated public sector lets employees retire after 30 years of service, so there’s long been a pronounced employment dropoff around age 50. On the mainland, the decline occurs around 65.
And many workers who do jump in are underemployed, filling slots for which they’re overqualified and underpaid.
“I always end up doing jobs that require less education,” said Jose Ignacio Ramos, a 24-year-old with a business administration degree and a 1-year-old child. He was working at a Crocs store in a northern municipality for minimum wage.
He’s applied for more than 10 other positions in the past year. Perez, the 31-year-old at the unemployment office, said he’s considered moving to Florida.
Velez, the economist, said the jobs won’t come until the the island makes its peace with Wall Street.
“If Puerto Rico doesn’t regain access to the capital markets, all the investment and jobs that the economy needs are never going to arrive,” Velez said. “At the end of the day, you need to have economic activity to have jobs.”