On the other hand, the application of the U.S. statutory minimum wage to Puerto Rico has had a considerable impact on the Puerto Rican labor market. The impact is far larger on the island than it is in the United States. The disemployment and unemployment effects have, however, been tempered by mass emigration during the 1950s and the creation of a network of social programs and transfers during the 1970s. Migration kept unemployment from rising during the 1950s, and employment growth on the island was sufficient to absorb the growth of the nonmigrant labor force. The slowdown in employment growth was more evident during the 1970s following the changes in the manner in which minimum wages applied to Puerto Rico. The structure of transfer payments, especially the advent of the Food Stamp Program, cushioned the negative labor market effects of minimum wage hikes.
The cross-section data for the first part of this chapter were compiled from a number of different sources. Most, however, were taken from the U.S. Bureau of the Census, Census of Manufactures of 1977, for both Puerto Rico and the United States. The following variables of Equation (4.2) were taken from this source: (1) firm size as measured by value of shipments divided by the number of establishments per industry group; (2) four-firm concentration ratios in U.S. industries; (3) labor cost as measured by total payroll divided by employment for both U.S. and Puerto Rican industries; (4) fuel cost measured by cost of electricity divided by value added in U.S. and Puerto Rican industries; and (5) labor productivity measured by value added in manufacturing divided by employment in both U.S. and Puerto Rico. The capital-intensity and relative profits variable of Equation (4.3) was taken from U.S. Department of Commerce ( 1979), and both were measured as industry dummy variables. They were collected from detailed studies of Puerto Rican and U.S. industries and reflect trends in these variables over the past years as well as current values. The profits variable of Equation (4.2) was taken from unpublished data of the Puerto Rico Economic Development Administration (EDA) and reflects profit-to-sales ratios in wholly exempt firms in Puerto Rico promoted by this agency. The dependent variable of Equation (4.2)