A colleague of mine who is deeply concerned about the problems in Puerto Rico dropped by to ask if I could explain a puzzling pattern in the data. When he looked at government wage rate statistics for Puerto Rico, the data suggested that increasing the minimum wage had raised the average and median wages on the Island, thus making it appear that raising the minimum wage had improved island living standards. But being an island native, he knew that the opposite was true. The imposition of a federal minimum wage in reality had turned Puerto Rico into an economic basket case. Working age islanders were fleeing to the mainland in search of new opportunities and a better life. So, could I explain how raising the minimum wage could increase the wages of workers but at the same time lower Puerto Rico’s standard of living?

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