Why Don't More Puerto Rican Men Work? The Rich Uncle (Sam) Hypothesis

54 Pages Posted: 23 Jan 2006 Last revised: 12 Aug 2022

See all articles by María E. Enchautegui

María E. Enchautegui

University of Puerto Rico - Departamento de Economía

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: November 2005

Abstract

Puerto Rico has an extraordinarily low employment rate for men. We document the low employment rate using Census of Population and labor force survey data and offer "the rich uncle (Sam) hypothesis" that the connection of the relatively poor economy of Puerto Rico to the wealthier US has created conditions that generate low employment. In support of the hypothesis, we show: 1) that GNP and GDP have diverged on the island, distorting the relationship between GDP and employment, due potentially to federal tax benefits to companies operating in Puerto Rico; 2) transfers to Puerto Rican families funded mainly by the federal government, which account for about 22 percent of personal income; 3) open borders to the U.S. that give men with high desire for work incentive to migrate to the US, and potentially creates a lower bound to wages on the island; (4) a wage structure with relatively higher earnings in low paid jobs; and (5) employment in the informal sector, which is unmeasured in official statistics. We note that other regional economies with rich "uncles", such as East Germany with West Germany, Southern Italy with Northern Italy, have comparable employment problems.

Suggested Citation

Enchautegui, María E. and Freeman, Richard B., Why Don't More Puerto Rican Men Work? The Rich Uncle (Sam) Hypothesis (November 2005). NBER Working Paper No. w11751, Available at SSRN: https://ssrn.com/abstract=844686

María E. Enchautegui

University of Puerto Rico - Departamento de Economía ( email )

San Juan
Puerto Rico

Richard B. Freeman (Contact Author)

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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