The increase in costs could threaten the construction boom in Puerto Rico
The increase in costs could threaten the construction boom in Puerto Rico
Miguel Córdoba had trouble finding a stable job as a carpenter and maintenance personnel before Hurricane Maria devastated Puerto Rico last year. Now, the 52-year-old man says he makes 40-hour work weeks for a taxpayer-funded housing program that repairs damaged homes.
His salary has almost doubled, too, thanks to a new minimum wage law enacted last summer by the governor of Puerto Rico, Ricardo Rosselló, along with an increase in the demand for construction labor in this United States territory. . Mr. Córdoba spent his summer days fixing roofs and windows and installing toilets, sinks and cabinets in the houses, mainly in eastern Puerto Rico, where Hurricane Maria came ashore.
The construction workforce, estimated at approximately 33,000 before Hurricane Maria, you need to double to keep up The demand to rebuild roads, houses and other infrastructure damaged in last year's storm season, said Emilio Colón-Zavala, president of the Puerto Rico Builders Association. Cement sales, a proxy for construction activity, increased for eight consecutive months after Hurricane Maria to 33% above pre-storm levels.
Puerto Rico's construction industry is booming, driven by federal funds for disaster relief and joint insurance proceeds projected at a total of $ 82 billion over time. The influx has turned construction into a bright spot for an island economy devastated by the loss of population, a declining manufacturing base and the largest municipal bankruptcy in the history of the United States. UU
Since the hurricane, federal agencies have committed $ 4.8 billion for recovery work in Puerto Rico until last August, according to the Center for a New Economy, a group of experts based in San Juan. While financial planners do not know the exact scale of federal assistance over the next decade, the United States government has already made some firm commitments, including a $ 18.5 billion grant to rebuild housing and other infrastructure.
Meanwhile, the construction industry is considering the rising costs. Not only have wages increased, but material costs have increased since the Trump administration imposed tariffs on steel and aluminum from Canada, Mexico and the European Union, and Chinese products such as electrical appliances, electrical equipment and other materials critical for the reconstruction efforts of Puerto Rico.
Puerto Rico depends heavily on Chinese imports, and 72% of those products are subject to new or additional tariffs implemented this year, according to KPMG LLP, a trade and customs consultancy.
More expensive labor and supplies are changing financial projections and potentially reducing the number and size of feasible projects, said Stephen Spears, president of the Puerto Rico chapter of the United States Associate General Contractors.
The governor of Puerto Rico, Ricardo Rosselló, argued that increasing the wages of construction workers could convince workers to enter the construction industry at a time when they needed them urgently.
Photo:
Carlos Giusti / Associated Press
"If you have a $ 100 million project, you now have a $ 135 million project," Spears said. "Suddenly, those dollars that were estimated and delegated to us for the reconstruction of the island will have a much smaller impact."
Governor Rosselló, through an executive order in late July, raised the minimum hourly wage in government-funded construction to $ 15 per hour from $ 8.25. He argued that the measure could persuade workers in the construction industry and persuade workers to stay in Puerto Rico instead of migrating to the continental United States.
In August, the supervisory board of Puerto Rico said that the new minimum wage could "filter into the broader economy" and be applied to jobs that are not covered by federal taxpayers, "making it more expensive to undertake the large amount of private reconstruction required. on the island and probably reduce the employment of construction workers for private projects. "
Contractors and developers say that the new salary level also runs the risk of delaying the completion of vital repairs. The governor's order will raise overall construction costs between 8% and 20.5% and contribute between 0.5% and 1.2% to general inflation, according to the economic consultancy Ténicos Studies, based in San Juan. The supervisory board of Puerto Rico expects inflation to remain below 1.6% until fiscal year 2023.
The higher costs mean fewer completed projects each year and a "smaller and weaker private construction sector when federal funds eventually run out," according to a study of Technical Studies commissioned by business groups in Puerto Rico and reviewed by The Wall Street Journal A government project to improve roads in western Puerto Rico will cost 24.75% more due to the new salary mandate, found Estudios Ténicos.
While the $ 15 per hour floor of Puerto Rico applies only to public construction, both supporters and critics say the effects could be extended to the private sector, forcing small businesses to raise wages to retain workers. and potentially force some to consolidate.
However, the minimum wage increase enjoys significant popular support in a territory where construction workers earned an average hourly wage of $ 8.69 last year compared to $ 13.79 in Florida, according to the Bureau of Labor Statistics .
Edison Severino, organizer of the International Union of Laborers of North America, or Liuna, said that a higher minimum wage was needed to encourage people working in the large underground economy or who have stopped looking for jobs to re-join to the formal labor force.
The labor participation rate of Puerto Rico oscillates around 40%, lower than the rate of the Dominican Republic in the United States of 63%.
"You need to motivate people to work," said Severino. "You are not encouraging people to get up and work if what they do is minimal."
Write to Andrew Scurria in Andrew.Scurria@wsj.com and Julie Wernau in Julie.Wernau@wsj.com
Corrections and Amplifications
KPMG LLP is a trade and customs consultancy. An earlier version of this article incorrectly indicated the name of the company as KPMG LLC.
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