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Expert alleges Puerto Rico gov’t interpretation of unemployment rate is wrong

By on April 11, 2019

(Mudassar Iqbal/Pixabay)

Prof. Morales says important factors also not being considered in labor-force participation

SAN JUAN – Dr. Edwin Morales Cortés, a professor at the Institute of Labor Relations of the University of Puerto Rico (UPR), said Wednesday that the interpretation of executive branch officials regarding Puerto Rico’s labor-force participation rate in June 2018 (40.1) and the unemployment rate (9.2) is incorrect.

This is because “it does not take into account a series of factors that affect the changes reflected in the respective rates,” Morales said in a statement.

He said that among the main factors not explained in relation to the unemployment rate decline are the following: people who no longer look for a job because they have not been able to obtain one; those who find job opportunities that do not meet their expectations; mass outmigration; and being excluded from the definition and therefore from the segments considered in the formulas applied.

The number of people in the working group dropped by 1,000 when comparing June 2018 data with June 2017.

“The foregoing affects the changes in reference rates where the Labor Secretary and the governor claimed historical achievements,” he added.

The professor said the formula to calculate unemployment does not consider people who make up the category “outside the working group,” for any of the following: very young or very old; lacking skills; does not want to work; problems with transportation or cannot work for personal reasons; people who take care of their home; students who do carry out any economic activity; retirees or pre-retirees; those with health conditions and cannot work or people with functional diversity; people who receive a pension for different reasons than retirement or pre-retirement; “volunteer idlers”; people who perform charitable work without pay; have no employment or have not sought it in the four weeks prior to the interview.

The professor stressed that interpreting the data without knowing these exclusions, leads to error. In addition, he said, there are people, who are classified as discouraged, who have stopped looking for work, since they believe they will not get a job or that those available do not necessarily meet their expectations.

Morales pointed out that for the labor participation rate, the proportion of the non-institutional civilian population aged 16 or older who is part of the working group is considered. Therefore, those who, discouraged, stopped looking for a job would not be considered as part of the working group. The statistics do not necessarily suggest that the changes in the reference rates are due to the fact that there is a greater number of jobs and a larger number of people working in net terms.

Also, the segment of the population that has recently entered the labor market is through self-employment. This category reflected an increase of 22,000 people working on their own. Highlighted as well was the total employment number, which is barely used in Puerto Rico, includes salaried employees, those who work on their own and those who work in family businesses without pay.

Morales said the outmigration factor occurs in part due to the lack of job opportunities. It also affects the decision-making process, the characteristics of job opportunities abroad based on worker expectations. He stressed that there is a significant pay gap between Puerto Rico and the states and in the benefits that tend to be granted in the private sector. He noted that the minimum wage stateside tends to be precisely an initial “minimum,” but that in Puerto Rico it de facto constitutes a salary cap that can last until the voluntary or involuntary ending of employment.

Added to the picture of considerations is the economic depression that the island faces and the high cost of living in relation to the income levels of the workers and their families.

“Nowadays, it takes more time to get a job than what it took before so this aspect also tends to explain that there are more discouraged people. On the other hand, if people who receive government aid but could work calculate the net economic benefit of working versus not working and continue receiving these, they could tend to choose not to reintegrate themselves into the workforce, “he said.

Morales urged lawmakers and the executive branch to encourage work and create decent employment opportunities and not punish this disadvantaged segment of the population.

“The above-mentioned, if it is intended that aid and subsidies are temporary and represent a motivating factor to achieve social and economic mobility of the poor class in the country,” he said.

The professor mentioned that other factors that indirectly affect the rate of unemployment and labor participation are usually: a significant birth-rate decline (of approximately 50%); the increase in life expectancy and therefore the effect of both factors on the aging of the population and part of the workforce.

Finally, the professor urged government officials not to perform simplistic analyzes of labor statistics without considering all the variables that affect the dynamics of the employment market in the context and current circumstances of the Puerto Rican reality.

“Numbers cannot be interpreted in a vacuum. It is necessary to know the context and the particular circumstances that affect the employment market,” Morales stressed.

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