The Financial Oversight and Management Board for Puerto Rico recently published a presentation on the risks of its 2019 Fiscal Plan. Chief among these is the continuing decrease in Puerto Rico’s population.
The FOMB showed that between the years 2010 to 2018, the island lost 14.3 percent of its residents. Worldometers, an online data service, estimates that after peaking at 3.75 million in 1999, Puerto Rico’s current population is 2.91 million. The last time the island had a population of this size was in 1976.
Population trends are an important indicator of a jurisdiction’s consumer market. Less people generally mean less consumption. Less consumption means less commerce. And less commerce means fewer jobs. Then the cycle goes the other way: fewer jobs mean fewer consumers.
Therefore, unless Puerto Rico can reverse the tide of population loss, the FOMB’s Fiscal Plan is unlikely to meet its goals of paying creditors, growing the economy, and funding public services for the island’s residents
Many blame the loss of Section 936 – the federal tax subsidy that propped up the island’s manufacturing base. Others point to globalization and the 2008 Financial Crisis. Yet Puerto Rico’s manufacturing base started to slide well before Section 936 ended in 2006 and other jurisdictions have recovered from the world financial crisis. I posit that the root cause of Puerto Rico’s ongoing population collapse and economic contraction are the persistent cuts to Puerto Rico’s government spending and workforce.
The main problem is an entrenched and politically-charged notion that government spending – mostly in the form of government jobs – has been a hindrance, if not the primary cause, of Puerto Rico’s economic crisis. However, the data shows that Puerto Rico’s economic troubles are proportional to its out-migration. This migration is proportional to the number of government jobs that have been eliminated.
From 2008 to 2018, the number of public workers was reduced from 299,000 to 202,000, a loss of 97,000 jobs. This represents almost 10 percent of the one million jobs that the island has today. If each government job supported a family of four, the job cuts would account for almost 400,000 people who left the island in search of livelihoods that the private sector could not provide.
For those acquainted with statistics, a regression analysis using data from 1990 to 2019 shows that government job cuts explain two-thirds of Puerto Rico’s population decline.
During the last 30 years, Puerto Rico has never had a vibrant private sector. Government has played a key role in providing income and skill-building opportunities. But this did not mean that the public sector was too large. Inefficient and unproductive? Probably. But too large based on the size of the island’s population? Comparatively not.
There are four states with comparable populations to Puerto Rico’s: Arkansas, Kansas, Mississippi and Nevada. Only Nevada, with 167,000 public workers, has fewer than the 202,000 government employees that Puerto Rico has to serve its residents. One interesting note is that Nevada has a substantially larger leisure and hospitality sector that accounts for 136,000 private sector jobs. This is a sector in which Puerto Rico – with just 79,000 leisure and hospitality jobs – can seriously compete.
However, in order to go toe-to-toe with a place like Nevada, Puerto Rico needs more, not less, government spending. This means better investments and skills brought to bear on a next-generation power grid. It means water, sewer and flood control systems that will serve as a model for other coastal areas of the United States. We need airports, highways, roads and sidewalks that are the envy of the world. These essential assets require good people who are well-paid and committed to preserving and improving these vitally competitive tools.
We need to see government workers as an essential investment. Without them, we will keep losing what we have and we will never attain what we need most: a robust, growing and dynamic economy where people can stay and prosper.