José Carrión III and part of the Oversight Board during a meeting. (horizontal-x3)
José Carrión III and part of the Oversight Board during a meeting. (GFR Media)

Puerto Rico needs to repeal Law 80 because the labor reform approved by Governor Ricardo Rosselló Nevares a year ago was insufficient, and because adopting the “at will” employment regime along with earned income tax credit (EITC), among other measures, has allowed other countries and jurisdictions to become more competitive and to grow.

Essentially, this is what the Oversight Board has raised in a memorandum on the labor reform -based on scientific literature- seeking to show that instead of affecting workers, the flexibilization of the labor markets will result in more investment and better jobs.

The Board released the memorandum last Monday and sent it to legislative presidents, Thomas Rivera Schatz and Carlos "Johnny" Méndez, just the day before Rosselló Nevares submitted the A-77 administration bill to the Legislative Assembly and, that if approved , would end the legal framework that has prevailed for hiring employees in the private sector since 1976.

Lobbying in the Legislature 

Until yesterday, negotiations between La Fortaleza and New Progressive Party legislators (PNP) to achieve the elimination of Law 80 were advanced, to the point that in the House, Rosselló Nevares gained the endorsement of 23 representatives.

Sources assure that the three remaining votes to pass the bill will be achieved despite fierce opposition from representatives Gabriel Rodríguez Aguiló, José "Quiquito" Meléndez and Urayoán Hernández.

The scenario in the Senate is different. There, two major forces are making moves to both ends: Senate president, Thomas Rivera Schatz, and the governor.

For example, Rivera Schatz fiercely opposes the measure. In the Senate, they need 16 votes to pass the bill.

Popular Democratic Party and Puerto Rican Independence Party representatives have said that they will vote against the bill.

With this bill, Rosselló Nevares has fulfilled his part of the agreement he made with the Board just over a week ago. This, after the federal entity certified its own fiscal plan and demanded that Rosselló Nevares proceed with the repeal of Law 80, cut pensions and set limits to the tax reform to which the president opposed.

The controversy ended when Rosselló Nevares, at the Board´s request, agreed to repeal Law 80, which scope had already been limited by Rosselló Nevares last year with the labor reform.

As El Nuevo Día revealed, in exchange for the statute, the Board accepted not to eliminate the Christmas bonus, vacation and sick leave benefits. The federal entity also agreed to grant additional funds to municipalities, to certain government agencies and to keep next fiscal year´s Legislature budget intact.

The vision of the Board 

"Unless Puerto Rico substantially increases its labor force participation and employment, incomes will always fall far below mainland states and outmigration will continue to draw Puerto Ricans away from the island of their birth," states the memorandum, that includes studies on the subject.

For the Board, implementing “at will” employment or creating work requirements for the participants in the Nutritional Assistance Program (SNAP) is not a matter of choosing, but of breaking paradigms that have ruled the way in which the Government and the Puerto Rican society work.

For example, it is about ensuring that the labor participation rate increases in order for people to pay taxes. According to the Board, it is also necessary to reduce companies operating costs for them to expand operations and create more jobs.

In turn, and according to the Board´s memorandum, it is also urgent to encourage those who work but do not report it, to do so, and to achieve this, they points out to the earned income tax credit effectiveness (EITC).

For Andrew Wolfe, the Board´s economist, these measures should help the Puerto Rican gross product to grow by almost 1 percent and would bring about $ 319 million to the treasury after six years. However, that growth would be lower as a result of the agreement with Rosselló Nevares, which excluded the Christmas bonus and paid leaves.

The Board´s memorandum clarifies that the estimates will be adjusted when the fiscal plan is certified.

Previous Reforms

The Board´s document states that Puerto Rico has already reformed labor laws when, last year, Rosselló Nevares approved Law 4, a statute that, among other things, limited Law 80. Also, according to the report, Puerto Rico also adopted EITC before.

But in both cases, and although the Board stresses that such strategies do not work on their own, what was done by Rosselló Nevares and before by former governors Aníbal Acevedo Vilá and Luis Fortuño did not work. For the Board, when the laws that protect workers are modified, there are successful cases such as Spain, Portugal, India, Slovenia, Mexico.

And there are also cases like Peru, where “a 10% increase in costs associated with employee dismissal reduced long-run employment rates by 11% between 1987 and 1990”. 

The Board even sent to the Legislature a report that refutes that economies are "in a race to the bottom", one of the alledged balances of globalization. According to the report, economies do not compete with others by eliminating protection for workers, but economies that have implemented less restrictive employment protection rules increase foreign direct investment (FDI) more than those that have not.

Opposing views

However, the memo published by the Board did not convince economist José Alameda.

"They say that Law 80 has a significant cost, but no amount is indicated," said Economics Professor at the University of Puerto Rico in Mayagüez.

Alameda stated that, based on the figures provided by the government, the number of lawsuits associated to Law 80 in Puerto Rico would hardly be one every 300 workers. "I do not think that is significant," said Alameda, who added that it is not clear whether eliminating the statute will open the door to other litigation under the Civil Code, neutralizing the positive effect that needs to be adjusted.

For Alameda, one of the main challenges to achieve economic growth is that labor costs do not affect all industrial activities in the same way.

As an example, the economist said that, in the middle of the crisis, multinationals such as Walgreens and Costco significantly expanded operations on the island, even with Law 80.

Alameda is skeptical about the premise that Puerto Rico should repeal Law 80 and adopt employment at-will to join the conditions of the states where Puerto Ricans move. He argues that, although in other states there is no law similar to Law 80, each government state has different minimum wage requirements and different laws to address worker-employer differences.

In contrast, for economist Antonio Rosado, repealing statutes such as Law 80 and minimum wage is what Puerto Rico needs.

"Finally, the Board is on the right track," Rosado said, noting that while suggesting the repeal of Law 80, they include public investment figures in the budget that had not been seen in years.

Rosado thinks that companies are willing to invest and, therefore, to create more jobs, in exchange for more productivity.

"They say that they want to protect workers, but when you put wages and benefits that are not comparable to the complexity of the tasks, that is not productive," said Rosado, noting that this undermines a company's interest in investing.

For Rosado, wages remain low in Puerto Rico, in relation to mainland states, due to the challenge of mobility.

In general terms, Rosado said that Puerto Rican workers, except high-skilled workers, do not perceive that they have opportunities in the mainland and prefer to remain on the island even if the pay is lower.

According to Rosado, employee recruitment and training is one of the most important and expensive investments and because of this, contrary to the perception of the repeal of Law 80, the company is not in position to dismiss employees.

"Companies are not interested in laying off people who are productive, they are interested in laying off those who are not," said Rosado.


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