A fundamental aspect for the study of Puerto Rican economy is the relative contribution of each sector to production, income and employment. Available statistics allow the analysis of the transformation of the labor market from a long term perspective, taking the second half of the twentieth century as a starting point. The evolution of the economy in Puerto Rico has been influenced not only by the rhythm of rapid growth of industrial urban sectors but, mainly, by structural change. This new macroeconomic structure is evidenced particularly in the role of agriculture, manufacturing, government, services, and trade.
In Puerto Rico, since the middle of the last century, the sectors that contributed most to the GNP (Gross National Product) were agriculture, trade and manufacturing, with 18.3%, 19.9% and 16.5% respectively. There is no doubt that back then, Puerto Rican society was still eminently agricultural, and that commercial activity (wholesale and retail) also played a leading role. Since 1960, however, two processes seem irreversible: the decrease in agricultural activity, on one hand; and the growth of manufacturing, on the other. By that year this latter sector already occupied first place in terms of its contribution to the GNP, followed by trade; agriculture had reduced its proportion to hardly 9.7%, almost half of what it had contributed ten years before. The drastic reduction in the contribution of agriculture to production and national income was accompanied by a similar tendency in employment in that sector.
In contrast, there is no doubt that the most remarkable thing was the growth of manufacturing. In 1980 this sector had already duplicated its relative contribution to the GNP in comparison with 1950. In 2005 manufacturing contributed 40.4% of production. Such an unprecedented increase had been the main characteristic of the strategy of Puerto Rico”s economic development since the beginning of Operation Bootstrap. In other words, during the last years, the Puerto Rican economy has focused on the manufacturing sector, with a growing participation of trade, services, finances, and government.
The described process of structural change defines the transformation of the labor market. A glance at the distribution of employment in the industrial• sector is revealing. In 1950 agriculture generated 36.2% of the country”s total employment. The proportion of jobs contributed by agriculture decreased to 22.8% in 1960 and to 9.9% in 1970. During the last three decades of the twentieth century and the first years of this century, the tendency remained; in the 2005 fiscal year only 26,000 registered people had jobs in the agricultural sector, 2.1% of the total employment rate.
Contrary to what public administrators expected, official data confirmed that the most productive sector-manufacturing-is not the one to generate the most jobs/employment. In 1950, jobs in this sector totaled 106,000 people, which represented 17.8%. Interestingly, in 1960 the number of manufacturing employees decreased to 91,000, and then increased to 132,000 in 1970, to arrive at a maximum of 168,000 in 1990, and decrease to 134,000 in the 2003 fiscal year. This tendency in manufacturing contrasts with the mentioned contribution of 40% to the gross domestic production. It should be noted that what explains absolute and relative reduction in manufacturing employment has been the internal transformation of that sector, due to the technological factor and the new international division of labor.
Industries such as construction and transportation have increased their participation. During the decade of the 1990s, 23,000 jobs were added to construction, while the employment figure in transportation remained unaffected. In 2004 construction registered 88,000 work positions, while transportation reached 30,000 in 2002.
The trade sector increased its participation substantially in terms of employment: from 90,000 positions in 1950 (15.1% of the total) to 261,000 in the 2005 fiscal year (21% in that year). In the case of financial and other services and government, continuous tendencies of growth in employment were observed. “Financial” jobs increased from 3,000 in 1950 to 43,000 in 2005; jobs in the service sector grew from 77,000 to 349,000 during the same period. This increase transformed the service industry into the sector with most jobs in the Puerto Rican economy, with 28% of the total, which confirms its re-orientation during the past two decades.
To complete our sector analyses of the composition of the labor market, in 1950 the government had 7.6% of the work force, or 45,000 positions. The figure increased uninterruptedly reaching 274,000 employees in 2005, which means that the public sector is now the second largest employer. The two recessions between 1973 and 1983 explain why government employment grew at that rate. Funds were channeled through recently inaugurated federal programs that created jobs (not necessarily permanent ones) in municipalities, state agencies, and public corporations.
It is obvious that the sector that produces the most—manufacturing—is not the one that creates the most jobs; while, the second sector with the most jobs—government—has never been the most productive one. Consequently, there is no relationship between production and relative contribution to the job market although in both cases its absolute contribution to the GNP increased. With the exception of trade and construction, the rest of the industrial sectors show the same tendency.
On the other hand, the internal transformation of manufacturing has been very deep. In 1950, when manufacturing contributed 16.5% of the GNP, clothing, food, and light manufacturing generated most of the net income. In other words, during the first two decades of Operation Bootstrap, manufacturing did not increase its contribution to income, national product, or employment. As soon as the “second” transformation of manufacturing took place (starting in 1970) it decreased the relative contribution to total employment but the contribution of this sector to the country”s net income increased spectacularly. This was due to the dramatic growth of the areas of chemical products and machinery. In 1999 almost 84% of the manufacturing income ($20,826 million of a total of $24,905 million) was generated by those two production areas. That year manufacturing contributed 44.1% to the GNP, while the activities that generated the most income were intensive in capital; they created few jobs but received large revenues from sales and other sources that would mostly be transferred to their headquarters in the U.S.
In conclusion, economic tendencies reveal why manufacturing transformed into a booster sector in a relatively short period of time, although it wasn”t necessarily the activity that transformed the labor market. Nevertheless, during the second half of the twentieth century the role of other industrial sectors began to depend more on manufacturing. The way these sectors have been interrelated has defined the structure of employment during the past sixty years. But the transfers of federal funds, the role of government at all levels of social life and other factors and variables have also been crucial. Phenomena like the underground economy, providing multiple jobs, and the unprecedented increase in the number of people with part-time employment are just a few of the variables that stand out.
Edwin Irizarry Mora
University of Puerto Rio- Río Piedras
Author: Proyectos FPH
Published: January 16, 2008.
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