Labor in the Puerto Rican Economy: Postwar Development and Stagnation

By Carlos E. Santiago | Go to book overview
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ing multiple time-series techniques. However, Williams ( 1975) and Saks ( 1975) have analyzed the impact of Aid to Families with Dependent Children (AFDC) payments (which are augmented by food stamps) on labor force participation, although they only measure recipient, and not aggregate, behavior. The work of Feldstein ( 1974) concerning the effects of transfer programs on the intertemporal labor supply response is also relevant.
It is noteworthy that the basic discouraged worker hypothesis stresses the decline in labor supply as workers drop out of the labor force. However, less emphasis has been placed on individuals who postpone their labor force entry or reduce quits due to declining employment opportunities. Workers who are discouraged from quitting their current jobs would not be reflected in declining labor supply.
This hypothesis has been labeled the Dernburg-Strand thesis. See Dernburg and Strand ( 1964, 1966).
The additional and discouraged worker effects are sometimes discussed in more conventional terminology as being, at least descriptively, equivalent to the income and substitution effects, respectively, of unemployment on labor supply. In fact, the "net" effect of one's "own" unemployment on supply is ambiguous, a priori, and essentially an empirical question. This approach is not very satisfactory when participation rates are used to measure labor supply instead of the more conventional measure of hours worked. For a derivation of these results, see Rea Jr. ( 1974).
For a review of the time series approach to labor force participation, see Mincer ( 1966). Mincer provides an especially strong critique of Dernberg and Strand's effort at specifying a labor force participation model.
The aggregate unemployment rate was found to most reflect changing employment conditions in Puerto Rico in the shortrun because it was found to be, for the most part, independent of the trend variable. The employment-population ratio was discarded because of its noticeable long-run trend (downward), which dominated shorter-run movements of the variable. Other variables that were considered, but did not perform substantially differently from the aggregate unemployment rate, were lagged aggregate unemployment rates and a weighted unemployment rate, sometimes called Perry's unemployment rate.
Positive first-order autocorrelation was evident in the regression equations. The Cochrane-Orcutt technique was used to correct for this and, as might be expected, some coefficients that were initially statistically significant proved not to be.
For an analysis of some of the difficulties confronting the island


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