Nobel Prize-winning economist Paul Krugman surprised a host on Bloomberg Business on Monday when he said that he believes Puerto Rico’s $7.25 minimum wage is too high.
Krugman, who is also a New York Times columnist and a professor at the City University of New York, was discussing debt issues facing both Puerto Rico and Greece. Bloomberg host Joe Weisenthal asked Krugman about claims made by conservatives that part of the U.S. territory’s woes stem from it having the same minimum wage as the U.S.
Though not a conservative, Krugman agreed with that theory.
“The minimum wage is too high…their productivity is about a third of the U.S. average,” he said. “I’m in favor of a higher U.S. minimum, but not tripling it. So the Puerto Rican minimum wage probably is too high. I wouldn’t recommend that level relative to productivity in the U.S.”
Biggest surprise of the episode was Krugman saying Puerto Rico's minimum wage is too high.
— Joseph Weisenthal (@TheStalwart) July 13, 2015
Though Krugman did not make a direct connection between Puerto Rico’s minimum wage and the island’s slagging economy, he did acknowledge it has a historically high unemployment rate.
“They always have high unemployment, but it’s higher now,” Krugman said.
Puerto Rico’s unemployment rate is currently 12.2 percent, more than double the national rate. West Virginia and Washington D.C. have the next highest unemployment rates in the nation, at 7.2 percent and 7.3 percent respectively.
As Washington Post columnist Charles Lane wrote last week, Puerto Rico’s above-market wage is responsible in part for its high unemployment rate and its struggles to pay its $72 billion debt. The high wage creates a need for black-market labor, which goes untaxed and cuts into Puerto Rico’s tax revenue.
Puerto Rico’s minimum wage was held at a lower rate than the rest of the U.S. until 1974, when Congress passed a law which brought its minimum wage up to the federal level by 1983.
Lane said that a $15 minimum wage, which some U.S. activists are calling for, would further hamper the Puerto Rican economy.
Krugman said that while Puerto Rico is “certainly doing badly” — its governor is asking creditors to allow it to delay repaying its debt — its situation is nowhere near as dire as that in Greece, which recently defaulted on a 1.6 billion Euro loan payment.
“They are cushioned because they are part of the United States,” said Krugman of Puerto Rico, adding that “because of the programs that America has for everybody receives aid on a scale that would be utterly inconceivable in Europe.”