The Climate for Business Development and Employment Growth in Puerto Rico

66 Pages Posted: 13 Dec 2005 Last revised: 27 Jul 2009

See all articles by Steven J. Davis

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER)

Luis A. Rivera-Batiz

Universidad de Puerto Rico - Graduate School of Business Administration

Date Written: October 2005

Abstract

Employment rates in Puerto Rico range from 55 to 65 percent of U.S. rates during the past thirty years. This huge employment shortfall holds for men and women, cuts across all education groups, and is deeper for persons without a college degree. The shortfall is concentrated in the private sector, especially labor-intensive industries that rely heavily on less educated workers. Motivated by these facts, we identify several factors that undermine employment growth and business development, including high minimum wage requirements, a history of tax incentives for capital-intensive activities, a host of regulatory entry barriers, and a business climate in which profitability and survival too often rest on the ability to secure favors from the government,. We pay close attention to the permitting process whereby the government oversees and regulates construction and real estate development projects, the commercial use of equipment and facilities, and the periodic renewal of various business licenses. Based on interviews with experts and participants in the permitting process, and supplemented by other sources, we compile evidence that the permitting process is excessively slow and costly, fraught with uncertainty, subject to capricious outcomes, susceptible to corruption, and prone to manipulation by business rivals and special interest groups.

Suggested Citation

Davis, Steven J. and Rivera-Batiz, Luis A., The Climate for Business Development and Employment Growth in Puerto Rico (October 2005). NBER Working Paper No. w11679. Available at SSRN: https://ssrn.com/abstract=819840

Steven J. Davis (Contact Author)

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luis A. Rivera-Batiz

Universidad de Puerto Rico - Graduate School of Business Administration ( email )

Ponce De Leon Avenue
00931-3300
Puerto Rico

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