Must-read: Arindrajit Dube and Ben Zipperer: “Puerto Rico’s predicaments: Is its minimum wage the culprit?”

Must-Read: Arindrajit Dube and Ben Zipperer: Puerto Rico’s predicaments: Is its minimum wage the culprit?: “The federal minimum wage–which has applied to Puerto Rico since 1983…

is much more binding there than it is on the mainland…. In 2014, for example, the federal minimum wage stood at 77 percent of the median hourly wage in Puerto Rico, compared to 42 percent in the United States…. Clearly, the Puerto Rico’s minimum wage exceeds the cautious rule-of-thumb of 50 percent of median wage of full-time workers suggested by one of us in previous work. But… the major problem with a minimum wage-centric explanation is timing. There has been no change in the relative minimum wage between Puerto Rico and the mainland over the past 32 years. And since the federal standard has not kept up with wage growth on the island, the bite of the minimum wage in Puerto Rico has eroded over this period….

In their 1992 paper, ‘When the Minimum Wage Really Bites: The Effect of the U.S. Level Minimum on Puerto Rico,’ economists Alida Castillo-Freeman… and Richard Freeman… found evidence of moderate-sized job losses by comparing unemployment trends over time, and by comparing wages and employment across industries on the island. Yet… Alan Krueger found that some of the findings by Castillo-Freeman and Freeman proved fragile… driven by the over-representation of many narrow manufacturing industries in their sample….

Professors Freeman and Krueger are in complete agreement today that it is unlikely either to be a major factor behind the current economic crisis, or an important part of the solution. Indeed, the long-run decline in the bite of the minimum wage presents a serious challenge for those arguing otherwise, since the timing of the crisis is inconsistent with minimum wage having played a real role in it…