Job Creation and Joblessness
Employment creation is an important objective of economic development. Jobs provide a source of income, which has multiplier effects throughout the economy. But the income effect is not the only significant aspect of job creation. Jobs provide society with production in the form of intermediate and final goods and services, so essential to continued economic growth. Just as important, however, is the recognition aspect of employment ( Sen 1984). Work provides a sense of worth and contribution to society at large. What is often not appreciated enough is that individuals have different conceptions of various types of work. For example, in modern industrial societies, nonwage work, such as household labor, tends to be discounted. Moreover, many types of informal sector activities, some of which are compensated on a wage basis, form no part of the standard government accounting system. Although the data that form the basis of this chapter rely on government interpretations of work and work effort (via published information), we should not lose sight of the fact that this focus often does not coincide perfectly with reality.
This chapter focuses on two important factors that have influenced the rate of job creation in Puerto Rico. This first is foreign direct investment (FDI), and the second is the statutory minimum wage rate. Both are largely determined by laws enacted in the United States. The former responds primarily to provisions in the United States Internal Revenue Code that exempt U.S. firms from paying federal taxes on their income from island operations, and the latter is determined by the Fair Labor Standards Act of 1938.