Estudios Técnicos: Covid-19 crisis could cost Puerto Rico economy 100,000 jobs
Consulting firm says work that can be substituted by technology likely to disappear
SAN JUAN – Some 100,000 jobs in Puerto Rico, or about a tenth of the island’s workforce, could be lost permanently with the closure of small and midsize enterprises (SMEs) as a result of the shutdown in economic activity during the Covid-19 pandemic, according to the most recent economic impact analysis prepared by San Juan-based consulting firm Estudios Técnicos, which notes that jobs that could be substituted by technology are at most risk of disappearing.
The analysis attributes the potential job losses to, among other factors, the accelerated adoption of remote technology during the crisis. The 100,000 figure is a little more than 10 percent of the 958,000 people employed, including the self-employed, on the island in March, according to U.S. Department of Labor (DOL) data.
“It is clear that many small and medium size businesses will be lost permanently and that the retail market will have a very different and more concentrated structure than before,” reads the Estudios Técnicos analysis, which states that the estimated net impact of Covid-19 on the island’s economy will be about $10.8 billion. “Although the trend in that direction was already well established, COVID will almost certainly accelerate it. This is not unique to Puerto Rico.”
Nearly 370,000 people, or close to 40 percent of the island’s employment, are “at high risk of unemployment,” the analysis states, noting that the industries that could suffer the greatest permanent job losses are trade, transportation and utilities; recreation and accommodation; educational and healthcare services; and professional and management services.
The occupations that could suffer the most job losses due to the Covid-19 crisis, according to the Estudios Técnicos analysis, are sales and related occupations; food preparation and serving related occupations; transportation and material moving occupations; and building and grounds maintenance occupations. Jobs involving installation, maintenance and repair; construction and extraction; and personal care services could also cease to exist.
“The jobs that have the highest risk of being lost are precisely those that are more susceptible of being substituted by technology,” the analysis states.
A recent survey carried out by Colmena66, a program of the Puerto Rico Science, Technology & Research Trust, found that 70 percent of local businesses did not have any means to operate remotely. The survey, carried out between March 20 and April 24 among 625 establishments, found that 59 percent of businesses closed temporarily, 20 percent operated partially, and 4.6 percent opened completely. Another 6.9 percent closed permanently or were about to close, while 9.8 percent operated online.
The survey said that “creative industries, professional services and small retailers” were “more flexible” in doing business remotely, while restaurants, hotels, agribusinesses and food processors were “the least flexible.”
Some 255,854 new unemployment claims were filed between mid-March and May 9, compared with the 16,533 claims filed between January and mid-March, according to DOL data cited by the analysis, which compares the total 272,387 claims filed between Jan. 1 and May 9, to the 19,763 claims filed during the same period last year, a 1,278 percent rise.
The estimated job losses could keep Puerto Rico’s unemployment rate well above the 8.8 percent rate registered in February, before the Covid-19 business lockdown measures were instituted locally to curb the spread of the potentially deadly virus.
The executive director of the Puerto Rico Financial Oversight and Management Board (FOMB), Natalie Jaresko, said last week that the island’s unemployment rate may be close to 40 percent. The oversight board certified a fiscal plan that states that the commonwealth unemployment insurance fund could run out by December as jobless claims remain higher than before the crisis.
“There will be many businesses that will not be able to survive a prolonged lockdown and even a prolonged period of social distancing without lockdown,” Estudios Técnicos CEO José Joaquín Villamil told Caribbean Business. “This is precisely the problem with local SMEs. So one result of the virus will be a very different economic structure going forward. Obviously, the large multinational and local firms will survive.”
While the Estudios Técnicos’ analysis found that the effect of the Covid-19 crisis on the local economy will be $20.9 billion, it subtracts an estimated total impact of federal funding of about $10.1 billion, to conclude that the net impact on the economy will be $10.8 billion. The economic impact and federal funding estimates are greater than in the last analysis published by the consulting firm in April.
“The total impact is 43.2% higher, on account of the extended lockdown and additional stimulus measures. Due to a significant portion of the new funding increases being transferred to agencies rather than directly impacting demand, the total increase in funding impact is much lower, 29.6%,” the analysis states. “This is representative of the deadweight loss due to agency redistribution and administrative inefficiencies compared to direct transfers (which were by far the majority of funding in the previous update). Hence, even though the funding increased by more than 50%, the total economic impact of the additional lockdown periods is greater than the expected benefits from additional funding.”
The firm’s analysis stresses that estimates for the impact of Covid-19 will vary given that, in contrast with one-day events such as hurricanes, which are localized, the novel coronavirus pandemic is an ongoing global phenomenon whose end is not in sight.
Gov. Wanda Vázquez has gradually lifted lockdown restrictions, in place since mid-March, for many businesses since May 1, although social-distancing restrictions and the nightly curfews remain until at least June 15. Shopping centers were scheduled to reopen Monday, but customers must make appointments before visiting.
The Estudios Técnicos analysis states that the biggest economic impacts of the virus disruption will be felt by manufacturing, $9.17 billion; accommodation and food services, $2.09 billion; wholesale and retail, $1.9 billion; finance and insurance, $1.7 billion; healthcare and social assistance, $1.64 billion; and transportation and warehousing, $1.02 billion.
Villamil said the estimated economic impact figures include “all the intermediate production in the economy, what manufacturing buys from agriculture, from itself, from services, etc. and vice versa.” He said these figures “give you an idea of impacts across all the sectors and sub-sectors.”
As a result of the Covid-19 crisis, Estudios Técnicos changed its forecast for Puerto Rico’s gross domestic product from an original estimated growth this year of 1.2 percent to an estimated contraction of 4.4 percent in the current situation, Villamil said, noting that the figure does not factor in the impact of federal hurricane- and earthquake-recovery aid.
“We just wanted to have a ballpark figure of impact from COVID-19,” he said. “We have said many times that overall economic performance in the next three to five years will depend on how quickly CDBG-DR [Community Development Block Grant-Disaster Recovery program] and other funds are converted to economic activity.”