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

(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.

Puerto Rico Development Bank: Economic Activity Index rise is ‘encouraging’

SAN JUAN – The Economic Development Bank for Puerto Rico (EDB) published Wednesday its Economic Activity Index (EAI) for the island. The indicators for October, its release highlighted, reflect a “substantial” improvement in the economy.

The EDB-EAI is made up of four indicators:

  • Total Payroll Employment (Establishment Survey/Thousands of employees). This variable is provided by the Bureau of Labor Statistics of the U.S. Department of Labor and Human Resources (BLS) on a monthly basis. The establishment survey provides employment, hours, and earnings estimates based on payroll records of business establishments in Puerto Rico.
  • Total Electric Power Generation (Millions of kilowatt-hours [kWh]). This variable is provided by the Puerto Rico Power Authority (PREPA) on a monthly basis. This indicator includes the electric power generation produced by petroleum, natural gas, coal and renewable energy sources. The renewable energy is supplied by utility-scale solar photovoltaic generating capacity, two wind farms and landfill gas sources.
  • Cement Sales (Millions of 94-pound bags). This variable is provided by CEMEX Puerto Rico & Argos Puerto Rico LLC on a monthly basis. The data are compiled and converted by the EDB.
  • Gas Consumption (Millions of gallons). This variable is provided by Puerto Rico Highways and Transportation Authority (PRHTA) on a monthly basis. The EDB adjusts the series with a three-month moving average.

“The EAI for the month of October registered a level of 120.4, which represents a substantial increase of 15.5% when compared with the same month of the previous year, this being the second increase after 69 consecutive months of year-on-year reductions,” EDB President Luis Burdiel said. “More importantly, the EAI’s accumulated average for fiscal year 2019 registered a level of 121.4, which translates into a growth of 4.6% versus the result for the same period of fiscal year 2018.”

EDB President Luis Burdiel (Courtesy)

In October, cement sales on the island increased by 132.4% and electric power generation rose 420% compared with the same month last year. Another indicator, gasoline consumption, increased 4.2% and non-farm salaried employment increased by 2.1%.

From July to August, the government-owned bank’s release added, the hotel- and parador-room occupancy rate was 72.2%, “which means a reduction of 5.7% compared to the same period of the 2017-2018 fiscal year. However, for the period of August 2018, the movement of passengers on cruise ships was 134,274 compared to 114,186 for August 2017, which entails an increase of more than 20,088 passengers, or 17.6%.”

From July to September this year, 2,874 homes were sold, or 1,000 more than during the same period last year, for a 35% increase.

Meanwhile, according to data provided by the Federal Bankruptcy Court, the number of bankruptcies filed from July to September was 1,999, “a substantial reduction when compared with the last administration: same period for fiscal years 2014 -2015 (2,718) 2015-2016 (2,665) and 2016-2017 (2,633). That is a reduction of at least 25% in bankruptcy filings if we compare them with any year” of the previous administration, the EDB said.

In October, some 31,000 more people were employed than the same month last year, leaving the current total at 1,005,000 people with jobs. The unemployment rate for October was pegged at 8.3%, a 3.1% drop when compared with the same month in 2017.

The labor-force participation rate reached 40.3% in October, or 1.8% higher than in October 2017. The number of people self-employed was 150,000, or 17,000 more in relation to October 2017. Non-farm employment totaled 853,600 jobs last month, an increase of 17,300 jobs compared with October 2017.

“These results show that the measures we have taken are giving results after more than a decade of job and economic activity loss. The reforms to the permitting system, the labor framework and the energy system foster the confidence of the economic sectors. Other measures such as the creation of DMO [destination marketing organization], Invest PR and the new medicinal Cannabis industry contribute to our economic progress,” Economic Development Secretary Manuel Laboy added in the government release.

Puerto Rico Economic Activity Index rises for 5th consecutive month

SAN JUAN – The Economic Development Bank for Puerto Rico (BDE) published Monday the Economic Activity Index (EAI) for April, which reached 119.9. This result represents an increase of 0.6% when compared with March. The index has registered an upward trend for five consecutive months.

The EAI is highly correlated to Puerto Rico’s real gross national product (GNP) in both level and annual growth rate and is used to measure the behavior of the island’s economic activity and possible future trends. Its methodology is similar to that used in the Conference Board’s coincident index of the U.S. economy.

The four main indicators that make up the EAI are the average of total nonfarm-payroll employment, cement sales, gasoline consumption and electricity generation.

Payroll employment is provided by the Bureau of Labor Statistics of the U.S. Department of Labor and Human Resources (BLS) on a monthly basis. The establishment survey provides employment, hours, and earnings estimates based on payroll records of business establishments in Puerto Rico.

Electric power generation figures are provided by the Puerto Rico Electric Power Authority (Prepa) on a monthly basis. This indicator includes the electric power generation produced by petroleum, natural gas, coal and renewable energy sources supplied by utility-scale solar generating capacity–two wind farms and landfill gas sources.

Cement sales numbers are provided by CEMEX Puerto Rico & Argos Puerto Rico LLC monthly. The data are compiled and converted by the EDB.

Meanwhile, gas consumption is provided by the Puerto Rico Highways and Transportation Authority, and the EDB “adjusts the series with a 3 month moving average.”

The components of the index that reflected an upward trend in April were gasoline consumption and cement sales.

According to the EDB, average nonfarm employment for April was 849,400, which represents a moderate growth of 0.4%, or about 3,400 more jobs than in March. In addition, by April, 1.3 million 94-pound cement bags were sold, an increase of 3.4%, or 41,900, more bags compared with the prior month.

The estimated gasoline consumption in April was 84.4 million gallons, an 11.5% increase, or 9.1 million gallons more than in March. Electric power generation for April totaled 1.35 billion kilowatt-hours (kWh) in April, an increase of 2.5%, or 34.7 million kWh more than produced in March.

Labor force recovers slightly in Puerto Rico after hurricanes

SAN JUAN – The survey prepared by the Puerto Rico Labor Department revealed that the island’s labor force participation rate stood at 40.6% in November, which represents a slight increase compared with last year, despite the interruptions caused by Hurricane María.

For the same period last year, the labor force participation rate had been estimated at 40%. Therefore, the unemployment rate, non-seasonally adjusted, in November was 10.4%, thus, a reduction of 0.6 percentage points is observed when compared with November 2016 when it was 11%.

When looked at by age group, the survey showed that people ages 35 to 44 years have the highest level of labor participation, or 71.8% of the economically active population in November, with 49% men and 33.3% women.

There were 1,115,000 people working in November, an increase of 4,000 compared with the same period last year, when there were 1,111,000 workers.

Among the main reasons among the people not included in the working group survey for November were domestic jobs, 29.4%; retired, 23.2%; attending school, 18%; and disabled, 15.5%.

However, the non-farm wage employment in Puerto Rico, which is based on the payroll of establishments on the island, was 850,500 in November. Compared with the same month last year, when it was 890,900, a decrease of 40,400 salaried jobs is seen.

The industries that registered losses were trade, transportation and utilities (13,400); educational and health services (7,800); leisure and hospitality (7,000); government (4,100); manufacturing (3,100); mining, logging and construction (2,400); professional and business services (1,600); financial activities (800); information (100) and other Services (100).

In October, the participation rate stood at 38.6%, its lowest in 27 years. Meanwhile, salaried employment on the island was the lowest amount since at least 1990.

This data is usually seasonally adjusted, but the Bureau of Labor Statistics could not make the adjustment for November because it lacked September data since the employment survey could not be carried out in the immediate aftermath of two hurricanes.

Puerto Rico labor force rate at lowest in 27 years

“The official surveys of the month of November contrasted sharply with the labor scenario in October, which measured the immediate impact of hurricanes Irma and María. Fortunately, there was no loss of additional employment between the months of October and November. On the contrary, the surveys reflected a recovery in employment, which is a reflection that while businesses continue to open, people will return to their jobs,” Labor Secretary Carlos Saavedra said in a statement.

“However, this does not mean we have overcome the disastrous effects of the atmospheric phenomena on our economy, since we are still below the number of jobs we had before the hurricanes. At the Department of Labor, we will keep an eye on these surveys to continue observing the effect of Irma and María on our economy and the recovery efforts of this administration,” he added.