Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?

25 Pages Posted: 18 Jun 2004

See all articles by Alida Castillo Freeman

Alida Castillo Freeman

National Bureau of Economic Research (NBER)

Richard B. Freeman

National Bureau of Economic Research (NBER); University of Edinburgh - School of Social and Political Studies; Harvard University; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: June 1991

Abstract

This paper uses time series and cross-industry data on employment and wages in Puerto Rico to assess the effects of applying the U.S. minimum wage to the Puerto Rican labor market. We find that the U.S. minimum has a massive effect on the earnings distribution in Puerto Rico and that it has substantially lowered employment and altered the allocation of labor across industries. The reduction in employment is due to the fact that the minimum has a high level relative to average earnings or productivity, not to an especially high estimated elasticity of employment to the minimum. We claim that the results support the textbook model of the minimum wage more strongly than studies of the minimum in the U.S. because in Puerto Rico the U.S. minimum has "real bite."

Suggested Citation

Freeman, Alida Castillo and Freeman, Richard B., Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor? (June 1991). NBER Working Paper No. w3759, Available at SSRN: https://ssrn.com/abstract=226928

Alida Castillo Freeman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Richard B. Freeman

National Bureau of Economic Research (NBER) ( email )

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University of Edinburgh - School of Social and Political Studies ( email )

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Harvard University ( email )

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