The adoption of the so-called “employment at will” doctrine may not be the right solution for Puerto Rico’s low labor participation rate and stagnant economy, because it fails to address other underlying problems, according to an analysis by the H. Calero Consulting firm
“Employment at will” is a contractual relationship between employer and employee whereby an employee can be dismissed at any time for any reason without justification and the employee may quit their job without justification.
This is the model that the Financial Oversight and Management Board for Puerto Rico and the government have agreed to implement by repealing Law 80, a process already underway at the Legislature.
Senate Bill 1011 and House Bill 1634 seek to make Puerto Rico’s labor force more competitive by repealing Law 80, cutting government mandated benefits such as the Christmas bonus and the reduction of sick and vacation days.
“Adopting ‘Employment at will’ in Puerto Rico fails to address the underlying causes of reduced labor participation, lack of jobs, and high and persistent unemployment,” H. Calero stated.
“Hiring and firing costs are not the principal problem holding business back in Puerto Rico. Rather, it is lack of business opportunities for investment, a complex bureaucratic permitting system, limited financing for working capital and a fragile electrical infrastructure, among other factors,” the economist firm stated.
In recent weeks, lawmakers have been holding hearings on the bills to repeal Law 80, getting feedback from public and private sector representatives. Last week, the heads of several trade groups testified at the House, backing Bill 1634 saying doing away with the law would promote economic and social development.
While the government has said repealing Law 80 will not create the jobs Puerto Rico needs, the Oversight Board argues doing so will contribute 1 percent to the island’s GNP. However, in its analysis, H. Calero affirmed the federally appointed body “has not produced solid documentation that repeal of this law will generate more jobs, raise labor participation, or generate the alleged 1 percent GNP growth at some future date.”
“Puerto Rico’s’s federally mandated Oversight Board is currently engaged in a political tug-of-war with the island’s government over the steps needed to battle ongoing unemployment, generate jobs, and increase labor participation. According to many analysts and business persons, one thing is clear, the time for labor reform is now,” H. Calero noted.
As is broadly known, Puerto Rico’s labor market is facing a crisis, with a labor force participation rate ranking dead last when compared with other U.S. mainland states. Adopting the “Employment at Will” model would put the island in line with 49 out of 50 U.S. jurisdictions, with the exception of Montana.
“Puerto Rico’s labor reform proposal comes up short when compared to Germany, Sweden, and Denmark’s labor reforms. Comprehensive labor reforms in other high income, western countries include a wide array of tactics not included in Puerto Rico’s labor reform proposal,” the firm noted.
“Some of these are: labor flexibility for employers; benefits for employees; and incentives for labor participation. These economies share the same goal as Puerto Rico: to foster employment,” the analysis noted.
And while repealing Law 80 is what is grabbing the attention at the moment, the Senate also has Bill 919 on its list, which proposes the “Labor Reform Law of 2018.” Among other things, the proposal would gradually raise the island’s minimum wage, contingent on the increase of the island’s labor participation rate. However, small and medium sized businesses would be exempt from these pay raises.