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Why Don't More Puerto Rican Men Work? The Rich Uncle (Sam) Hypothesis

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  • Maria Enchautegui
  • Richard B. Freeman

Abstract

Puerto Rico has an extraordinarily low employment rate for men. We document the low employment rate using Census of Population and labor force survey data and offer "the rich uncle (Sam) hypothesis" that the connection of the relatively poor economy of Puerto Rico to the wealthier US has created conditions that generate low employment. In support of the hypothesis, we show: 1) that GNP and GDP have diverged on the island, distorting the relationship between GDP and employment, due potentially to federal tax benefits to companies operating in Puerto Rico; 2) transfers to Puerto Rican families funded mainly by the federal government, which account for about 22 percent of personal income; 3) open borders to the U.S. that give men with high desire for work incentive to migrate to the US, and potentially creates a lower bound to wages on the island; (4) a wage structure with relatively higher earnings in low paid jobs; and (5) employment in the informal sector, which is unmeasured in official statistics. We note that other regional economies with rich "uncles", such as East Germany with West Germany, Southern Italy with Northern Italy, have comparable employment problems.

Suggested Citation

  • Maria Enchautegui & Richard B. Freeman, 2005. "Why Don't More Puerto Rican Men Work? The Rich Uncle (Sam) Hypothesis," NBER Working Papers 11751, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11751
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    References listed on IDEAS

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    1. John Bound & Timothy Waidmann, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1393-1419.
    2. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
    3. Jennifer Hunt, 2004. "Convergence and determinants of non-employment durations in Eastern and Western Germany," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 249-266, June.
    4. Spilimbergo, Antonio, 1999. "Labor Market Integration, Unemployment, and Transfers," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 641-650, November.
    5. repec:fth:prinin:330 is not listed on IDEAS
    6. Alida Castillo-Freeman & Richard B. Freeman, 1992. "When the Minimum Wage Really Bites: The Effect of the U.S.-Level Minimum on Puerto Rico," NBER Chapters,in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 177-212 National Bureau of Economic Research, Inc.
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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. 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.
    3. Bustillo, Inés & Velloso, Helvia, 2015. "Puerto Rico: Fiscal and economic growth challenges," Studies and Perspectives – ECLAC Office in Washington 14, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

    More about this item

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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