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The Climate for Business Development and Employment Growth in Puerto Rico

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  • Steven J. Davis
  • Luis Rivera-Batiz

Abstract

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, we 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,. We pay close attention to the permitting process whereby the government oversees and regulates construction and real estate development projects, the commercial use of equipment and facilities, and the periodic renewal of various business licenses. Based on interviews with experts and participants in the permitting process, and supplemented by other sources, we compile evidence that the permitting process is excessively slow and costly, fraught with uncertainty, subject to capricious outcomes, susceptible to corruption, and prone to manipulation by business rivals and special interest groups.

Suggested Citation

  • Steven J. Davis & Luis Rivera-Batiz, 2005. "The Climate for Business Development and Employment Growth in Puerto Rico," NBER Working Papers 11679, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11679
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    References listed on IDEAS

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    Cited by:

    1. George J. Borjas, 2008. "Labor Outflows and Labor Inflows in Puerto Rico," Journal of Human Capital, University of Chicago Press, vol. 2(1), pages 32-68.
    2. Benjamin Bridgman & Michael Maio & James A. Schmitz, 2012. "What ever happened to the Puerto Rican sugar manufacturing industry?," Staff Report 477, Federal Reserve Bank of Minneapolis.

    More about this item

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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