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Few Economic Benefits Seen After Puerto Rico Labor Reform

By on July 15, 2017

Puerto Rico Labor Department, United Retailers Association and Private Sector Coalition representatives testify at a labor reform hearing. (Cindy Burgos Alvarado/CB)

Editor’s note: This article originally appeared in the July 13, 2017, print edition of Caribbean Business.

Five months after labor reform was enacted in Puerto Rico, changes in the local economic landscape have been almost imperceptible.

On the one hand, the government says employment indicators are “positive” if you look at the figures from January 2017 to May 2017, but on the other hand, members of the private sector argue that it is “too early” to see the effects since there have been very few new hires in employment.

“In January, the unemployment rate was at 12.2% and in May it was at 11%, down 1.2% since labor reform was approved. That number is the lowest since 2008,” Labor Secretary Carlos Saavedra told Caribbean Business. This change, however, is accompanied by a reduction in the labor-force participation rate, which in January stood at 40.6% and in May at 39.9%.

However, the working group’s number—which is the sum of unemployed and employed people, including contracts and salaried workers—shows an increase of 2,000 people from January to May: from 1.118 million to 1.12 million. This number is lower than what was reported for the working group in 2016, when it reached 1.126 million.

“They are positive indicators since labor reform came into force. You have more people working, [it is] the lowest point in unemployment. From January to date, there are 16,000 more people employed,” Saavedra said.

The Labor secretary added that there are no active complaints related to unjustified layoffs from the labor reform. He explained that the Walgreens pharmacy chain’s case was resolved in favor of the employer, as it showed the firing of a group of workers did not represent the hiring of workers with fewer benefits, one of the concerns involved in the approval of the new labor law.

Despite the government’s position, private-sector representatives argued that most employers are evaluating their employee regulations and determining how labor reform alters their HR systems.

For this reason, they believe it would not be until next year that employers would see the financial benefits of the Law on Labor Transformation & Flexibility, since it would allow new hirings with the benefits provided by the legislation.

Employees hired after labor reform accumulate six days of vacation a year instead of 12; will see their Christmas bonuses reduced; and must undergo a probationary period lasting nine to 12 months—which formerly lasted three months—among other aspects. The changes that apply to current employees are related to the elimination of the Closing Act on Sundays, religious accommodation and the lactating period granted to nursing mothers.

“It is too early to see the effects concretely…. There are a number of conditions that have to be met [for job creation], not just the approval of labor reform. We have other factors that are affecting business operations,” said P.R. Chamber of Commerce (CofC) President Alicia Lamboy, referring to the island’s high energy costs and tax complications.

Former CofC President José Vázquez agreed with her and said that although labor reform “was necessary,” a rotation of employees is required for employers to see the savings.

Kenneth Fernández, chairman of the P.R. Hotel & Tourism Association’s Human Resources Committee, highlighted the challenges employers have managing employees hired before and after labor reform, as these workers have different benefits. “It’s not necessarily more expensive, but it’s more complicated. You need to have two employee manuals, two policies,” he said.

Fernández said that in the hotel sector, employers are evaluating how they will apply labor reform, since they will not be hiring new staff until the peak tourism season begins in December. “[The inclination is] to create a balance between the company’s benefit and the employee’s benefit,” he said.

For attorney Luis Pabón Roca, who has offered seminars on labor reform, what is reigning among employers is confusion because personnel management is now more complicated in some aspects.

“The law has not led to the creation of new businesses. Those who were in the process of setting up a business took advantage of the provisions. But I don’t think the reform has caused people to become motivated to create a business because it is easier,” he said, adding that he believes the changes could be seen next year.

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