This blog has recounted before the phenomenon of governments using their power to promote the interests of organized labor. In fact, we even wrote a report about one version of this practice as it relates to government-funded development projects. Unfortunately, that practice is just one example of such dubious policies, as a recent development in Puerto Rico–still reeling from last year’s Hurricane Maria—illustrates.
On July 30, Governor Ricardo Rosselló signed Executive Order 2018-33, which increases the minimum wage to $15 an hour for construction industry employees working on government-funded projects as well as requiring the use of project labor agreements on such projects over $2 million. It also mandates enforcement of a law requiring the use of cement produced in Puerto Rico.
As is invariably the case, the governor was prodded by organized labor—in this case the Laborers International Union of North America—to issue the order, which he justified with lofty language that ignores its economic implications, not to mention reality, to say the least.
The order claims that “[i]n the United States, it is typical for construction workers to earn over $70.00 per hour, while a worker doing the same job in Puerto Rico earns $7.25,” yet readily available data from the Bureau of Labor Statistics (BLS) reveal how misleading that statement is. According to BLS’s most recent Occupational Employment Statistics, the national mean wage for construction laborers is $18.70, and even in the highest-paying state (Illinois), the mean wage for the same category is $27.55, which is still a fraction of the executive order’s fanciful claim.
In addition to being incorrect about the facts, the executive order blithely ignores the implications of inflating the minimum wage to $15 per hour, in this case without even a phase-in more common in other jurisdictions that have enacted wage hikes. The BLS data show that the mean wage for construction laborers in Puerto Rico is $8.91 (and the lowest percentile just under $8 per hour), which means that employers will be forced to nearly double many of their employees’ wages when working on government construction contracts.
While that may sound good to the governor and his allies, in reality it will drive up the cost of public projects significantly and more importantly wreak havoc on the economy, as previous experiences with federal minimum wage raises demonstrated not so long ago.
Meanwhile, the executive order’s requirement to use project labor agreements simply amounts to a gift to organized labor by requiring contractors working on government-funded construction projects to hire workers through union hiring halls and pay union wages and benefits—in other words, it creates a union monopoly. That too invariably spikes the cost of public projects, and the U.S. Chamber has consistently opposed their use.
A coalition of business groups including the Puerto Rico Chamber of Commerce have asked the Financial Oversight and Management Board for Puerto Rico, which was created by Congress to bring stability to the economy there, to revoke the governor’s executive order. The board has the authority to require prior approval for such actions. It remains to be seen whether said approval will be granted. In any case, on the road to recovery from Hurricane Maria, the executive order is leading Puerto Rico down the wrong path.