COVID-19 Financial Impact


Puerto Rico lawmakers, led by those from the Popular Democratic Party (PDP), which technically has a majority in both houses of the local legislature, are moving on an initiative to increase the island’s minimum wage law. Small businesses and economists argue that these initiatives would further hurt the already ailing economy.

The effort by the PDP is being led by Rep. Héctor Ferrer Jr., who is proposing a government-led commission to analyze and establish a process for increasing the minimum wage in Puerto Rico, which is the federal minimum wage of $7.25 an hour. Many employees on the island also qualify for a legally mandated Christmas bonus from their employers, which is 2 percent of their annual salary, up to $600.

“Our working class lives in a difficult economic situation, which is further aggravated by the [coronavirus] pandemic,” Ferrer said. “We have more than 300,000 people in jobs subject to the federal minimum wage, which is $7.25 an hours, which represents a wage of $15,080 a year. It is time to do justice to these workers, through a serious analysts that results in benefits for all the sectors involved.”

Based on his figures, more than 30 percent of residents who are employed in Puerto Rico receive the minimum wage.

According to Ferrer, the commission’s responsibilities would include defining the methodology by which the minimum wage would be increased on the island.

“Contrary to what other sources indicate, granting an increase in the minimum wage would have a positive effect on the economic development of Puerto Rico,” said the freshman lawmaker. “The study carried out by the proposed commission should emphasize the importance of achieving this increase so as to improve the existing economic inequality.”

At the same time, Ferrer said an increase in the minimum wage on the island should be subject to the cost of living, as he recommended the increase should be carried out in phases. “Any proposed increase must be phased, with the interest of doing justice to the salaried worker. It is essential that the commission seeks to vindicate the culture of work in Puerto Rico and strengthen the formal economy over the informal economy, an essential element in the construction of the project.”

Hector Ferrer Jr

Popular Democratic Party Rep. Héctor Ferrer Jr. >Brandon Cruz González

By way of comparison, Mississippi, the poorest state in the United States, has not increased its minimum wage rate. “Mississippi has not established a state minimum wage rate. Because most employers and employees in Mississippi are subject to the federal Fair Labor Standards Act, the minimum wage set forth in that law would typically apply. Currently, the federal minimum wage is $7.25,” according to the Employment Law Handbook.

Business Owners Speak Out

Meanwhile, Francisco Santana, president of the P.R. Small Businesses Association (AsoPYMES, Spanish acronym), said the issue of raising the minimum wage may be valid, but not in the midst of a pandemic and an economic crisis.

“With the situation that we have right now, how can a small-business owner manage higher payrolls? They don’t have the same revenues, so I don’t know how a salary increase would be managed. Second, let’s say it becomes law - the option for small merchants is to increase their prices. Would it really help to increase all prices and give workers a little bit more income if they have to pay more?” he said to THE WEEKLY JOURNAL.

“I’m not saying that the issue of raising the minimum wage isn’t valid, but for small-business owners who are experiencing reduced sales, fewer clients, different work hours, and with employees working part-time, right now they cannot afford a wage hike... Right now in the context of the pandemic it is not the time,” said the local businessman who owns an agricultural company in Ponce.

“The avalanche of legislative bills disconnected from the economic reality of PR and the difficult situation of thousands of merchants continues. Frustrating for others!” tweeted economist Gustavo Vélez.

“Without analysis or studies, and knowing that thousands of businesses are on the verge of bankruptcy, PDP legislators are filing a measure to increase the minimum wage,” he added.

Yaliz Báez Rivera, co-founder of Yōko Restaurant in San Juan, said small businesses do not have the ability to cover such additional costs.

“The reality is that I have been an employee most of my life and the minimum wage, unfortunately, becomes the maximum in many places, and with that wage, it is very difficult to live. I think we have all been through this with this pandemic; many people who were used to one salary have had to adapt to a different one.

“However, small merchants absorb it, and then it is our responsibility to cover that expense when there are a lot of benefits for large companies - such as Walmart, Walgreens and a lot of other companies that the government gives them additional benefits just for employing workers.,” she said.

Small biz

Promoting local businesses is key for the island’s economic development. >Courtesy Indulac

Báez also said small businesses need more incentives to operate. “I would love for the bill that goes with the minimum wage to be tied with benefits for small businesses because the problem is that benefits are always given to the big companies... but then we, who are trying to survive the pandemic, feel the impact of the salary increase. Again, I totally agree; however, I insist that it should be hand in hand with a bill that helps small businesses to defray these expenses.

“If it does not come tied to an incentive... businesses will put their workers under contract (like freelancers) or will reduce their hours, and then the employees will lose their fringe benefits of vacation days, sick leave. Those are not only economic benefits, but are also tied to the emotional health of people who had job security… We comply with all the requirement of the law, but it would be a big blow for us,” she said.

Success of the Initiative Uncertain

Gov. Pedro Pierluisi has indicated that he would look at the issue of raising the minimum wage, but largely demurred. “I anticipate that President [Joe] Biden and the Democratic leadership in Congress will push for a minimum wage increase,” he said.

Pierluisi, of the New Progressive Party and a Democrat in national politics, also demurred on signing an executive to that effect, but for specific sectors.

“I am not ruling it out. For example, the previous governor [Ricardo Rosselló] issued an executive order that established a [higher] minimum wage for construction projects using federal funds. So I am not ruling out issuing an executive order, but not necessarily the same; different, but with the intention of ensuring that the labor force in reconstruction projects is well paid,” he said to EL VOCERO, the sister publication of THE WEEKLY JOURNAL.

The Financial Oversight and Management Board (FOMB) has been a staunch supporter of the Puerto Rico government following its certified Fiscal Plan, which includes enacting “cost-saving measures.” To that end, the FOMB has the legal mandate from the federal government to reject any bill signed by the governor that is deemed “inconsistent” with the fiscal plan, such as a financial impact on the central government’s finances.

In fact, five legal challenges filed by the government of Puerto Rico against the FOMB were rejected last month by the federal judge that is overseeing the island’s bankruptcy proceedings. The challenges concerned several medical-related laws as well as allocations on vacation and sick time for public employees.

Retail Sales

Many retail stores have suffered losses during the pandemic.

Judge Laura Taylor Swain of the U.S. District Court for the District of Puerto Rico rejected the central government’s arguments and barred it from implementing the aforementioned laws and allocations. The judge indicated that such laws were not proven to be “revenue neutral,” as required by the Puerto Rico government’s approved Fiscal Plan.

The FOMB said in a statement that Swain’s ruling indicated that the five laws were in violation of the federal Promesa law that governs the island’s bankruptcy proceedings.

“Promesa mandates that new laws must not impair or defeat the purposes of Promesa as determined by the Oversight Board and must not be significantly inconsistent with the Certified Fiscal Plan and the Certified Budget. Significantly, Judge Swain determined the burden is on the Government to provide a formal estimate explaining each new law’s impact and to respond to the Oversight Board’s notifications of any deficiencies,” said the FOMB.

“Judge Swain found the Oversight Board had justifiable concerns that the Government had not considered the impact of each new Act on the Commonwealth’s expenses and revenues. Judge Swain also determined the Government failed to comply with Promesa with respect to each new Act.,” the Oversight Board added.

- Reporter Giovanna contributed to this story.

Asst. Editor/Reporter for The Weekly Journal. She is a journalist with more than 20 years of experience. Rosario received both of her bachelor’s and master’s degrees in International Politics from Georgetown University’s School of Foreign Service.

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