to McConnell (2008), Gross Domestic Product (GDP) is a measure of the total
market value of final goods and services produced in given a year. The main purpose of calculating the GDP is
to determine economic productivity, as it is states in the article “Chapter
5 National Income Accounting: Measuring Output,” 2007. GDP evaluates
expenditures about gaining factors (income). The article discusses changes in
Puerto Rico’s economy and the solutions different authors have recommended. Also,
it makes a comparison between the Puerto Rican and US GDP and the islands dependency.
When referring to nominal and real GDP, an analysis of fiscal growth reveals
that fiscal policy is critical in the determination of solutions to economic wellbeing.
Puerto Rico’s economy
has had many downfalls since the 1970s, in contrast to increases in the 50s and
60s. The articles suggested that this downfall was a consequence of US dependency
and low labor force participation. Additionally, both articles conclude that the
heavy reliance on benefit programs lowered labor rates on the island. As of
2000, at 31 percent, Puerto Rico had the lowest employment to population ratio
in the Americas and the Caribbean as the article “Restoring Growth in
Puerto Rico: The Economic and Policy Challenges” claims. (Soto-Class & Lamba-Nieves, 2006).
The articles strongly state that raising
employment is crucial to restoring economic growth and failure will result in a
reduction in GDP for years to come. It is important to compare GDP measurements
in Puerto Rico and in the United States. In the US, consumption (2/3 of GDP) is
the main component, investment, government spending and the net exports.
(Soto-Class & Lamba-Nieves, 2006) The process excludes investment or public
area inventory changes (University of Phoenix, 2015). In contrast, Puerto Rico,
follows the same method of measurement for GDP, they use the domestic
investment component in a distinct perspective. Mainly because fixed domestic
investments and inventory changes provided by both the private and public
sectors of the island’s economy.
article, “Who Is Responsible for A Living Wage” states: “…either employers can
pay employees enough to live on or the taxpayers will need to pick up the tab.”
The issue is, if employers pay all their employees a living wage instead of the
stablished minimum wage, this could lead to a higher unemployment. Since most
small business would not be able to assure many medium salaries; they will
employ fewer workers. This fact could negatively impact the country’s overall
Derek Thompson in his article, “This is the American worker’s saga” says that the
stuff people are making is getting cheaper, but the stuff people need is
getting more expensive. That’s why people in Puerto Rico feel so squeezed.
LaBossiere’s article reflects every aspect of what Thompson emphasizes in that
thought. He makes a clear point that the worker-class struggles each day more
and more to keep up with the essential necessities, but work much more hours
than in previous decades and, paradoxically, live in desperate poverty. Low
income families hardly can pay for the main necessities: shelter, food, and
The goal of raising employment through
government stimulus and fiscal policy is attained through public transfers from
the United States. These transfers represent 25 percent of Puerto Ricans
income. The federally sponsored Food Stamp Program was put in place in 1975. Soto-Class
& Lamba-Nieves state that the way this and other federal programs were
introduced and administered caused labor force participation to decline.
The article hypothetically speaks of a
single mother with 2 children. It states that if she has no income and
qualifies for all transfers, she would earn more in entitlements than if she
worked part time 20 hours per week. Also, she would only earn $37 per month
more if she worked full time at minimum wage.
This demonstrates the negative effect that fiscal policy had
incentivizing Puerto Ricans to not work.
The article also states that the low
employment rate of Puerto Rican males can be attributed to several factors;
emigration of highly employable candidates to the US for higher wages, the
lucrativeness of disability insurance and NAP (Nutrition Assistance Program)
transfers from the US federal government (Soto-Class & Lamba-Nieves, 2006).
Moreover, in the article, “Chapter 5
National Income Accounting: Measuring Output”, a contrast between nominal and
real GDP was not directly discussed, so other studies where needed to develop a
contrast. A study concluded that the economic growth in Puerto Rico in the
decade of the 80’s decade had a GDP of an average 0.3% (Soto-Rodríguez,
2014). The GDP percentage is consistent
with the findings of the Federal Reserve Bank of New York, which took into
consideration the 4.8% average inflation ratio for that period. Accordingly, by considering the inflation
ratio the percentage in question is the real GDP and not nominal. The difference between one and the other is
that the real GDP takes into consideration the inflation ratio to find growth
and nominal does not.
GDP Growth in Puerto Rico has remained
stalled since recent years, 2006 according to the conclusions of a study
conducted by Enchautegi and Freeman (2006, 181). The economic growth study shows that a
variety of factors did contribute, which was that the GNP was increasing much
less rapidly than the GDP and the employment growth remained alarming since
As far business cycles and economic
forecasts Puerto Rico has an uphill battle.
According to Maria Enchautegi and Richard Freeman in the year 2000
Puerto Rico only had 31% of its population employed, a disturbing figure, which
became the lowest employment to population ratio in the Americas (2006, 152).
Close ties between the advance
technologies and conditions in the United States has helped Puerto Ricans
lifestyle. However, financial
comparisons with GDP growth, years of economic ups and downs that were a result
of US territory status financially damaged Puerto Rican culture. This is
because Puerto Rico ties their government with the US federal government and
many American traditions.
relationship between Puerto Rican income and consumption is such that low-income
levels will never halt consumption (just reduce) and are generally a result of
a high unemployment rate. Consumers will draw on future income or savings; in
other words, credit or savings to support the household income. The income-saving relationship in Puerto Rico
is relatively low, since 25% of the residents receive federal funds as personal
income, which does not allow much room for savings. The federal funds are the main cause of the
depressed labor force participation that is conducive to poor savings
relationships, which in term develops high interest rates when consumers use
credit to compensate the household income.
The multiplier effect in Puerto Rico refers to the increase in the final
income which arises from the spending injection of the autonomous
consumption. Every dollar that is spent
as a marginal propensity to consume, therefore, consumption will exceed income
for the lowest earning segment of the workforce.