If a policy change results in large numbers of poor people losing their jobs, would The Washington Post downplay the job destruction as a minor effect that can be worked around? That’s how Post reporter Lydia DePillis skirts the horrifying result of a 1970s minimum-wage increase in Puerto Rico, which destroyed one in 11 jobs on the island and forced many of the poor to emigrate.
Richard Freeman, who co-wrote the authoritative study of Puerto Rico’s job loss, seems to join DePillis (who interviewed him) in minimizing his old study. DePillis reports that “the island lost nowhere near as many jobs as [Freeman] expected.” His expectations must have been quite dramatic, because even the Great Recession destroyed fewer than one in 11 jobs.
Puerto Rico’s minimum-wage increase was like having the Great Recession one and a half times over—and then never getting those jobs back.
In the 1992 paper, Freeman and Alida Castillo-Freeman wrote:
Imposing the U.S.-level minimum reduced total island employment by 8–10 percent compared to the level that would have prevailed had the minimum been the same proportion of average wages as in the United States.
If anything, Freeman should have expected a fairly small effect. The average minimum wage in Puerto Rico increased from $1.68 in 1974 to $3.35 in 1987. But this was an era of high inflation. At Puerto Rican consumer prices, that was only a minimum wage rise of 11 percent. At U.S. prices, it was actually a decline.
The devil was in the details: Each industry had its own minimum wage, set by committees. Castillo-Freeman and Freeman found that even before 1974, those minimum wages were raised to the hilt. In many low-wage industries they examined, over 40 percent of workers earned the minimum wage. When Congress mandated in 1974 that their wages gradually be brought up to the U.S. minimum wage, those industries collapsed:
[In] industries whose 1973 minimum was more than $0.10 below the U.S. minimum and that therefore had to raise minima substantially to reach the U.S. level, employment dropped by 32 percent from 1974 to 1983!
The only reason that the policy did not result in mass protests was that Puerto Rico had a “safety valve”: emigration to the mainland. Puerto Ricans who moved to the states during those years were poorer, younger, and less educated than those who stayed behind.
The Los Angeles City Council voted this week to increase its minimum wage to $15 by 2020. Adjusting for expected inflation, that’s a 51 percent increase over California’s current $9 minimum wage. Sewing-machine operators in LA’s garment district—most of whom make less than $10.50—face the same future that Puerto Rico’s garment workers did in the 1970s. Like low-wage Puerto Ricans, low-wage Angelenos will probably flee to surrounding areas, leaving the affluent and unaffected behind.
But what if the “Fight for 15” movement convinces Congress to raise the national minimum wage, even to $12 dollars an hour? Where will poor people go then?
Freeman is unconcerned: “Twelve dollars in three years is not going to incredibly shake up Mississippi.”
For the poorest workers, his research suggests otherwise.