Sectors and workers most vulnerable to the effects of Covid-19 in Puerto Rico

23 de marzo, 2020

The Covid-19 will have a large impact on our economy. Estimates from local economists point to a GDP drop between 2.6% and 5.2% in FY 2020 ($2.5B to $5B). However, this confinement period will not affect all businesses and employees in Puerto Rico equally. In this information «capsule&quot we will identify the employee groups most vulnerable to the effects of Covid-19 amongst the main sectors of our economy

In Figure 1 we can see how the self-employed represent a large portion of our labor force (155k or 15% of total employees). In fact, this number increased significantly after Hurricane María, as laid-off employees decided to start their own businesses. The self-employed are particularly vulnerable to periods of sudden decreases in sales or business volumes, because often they operate with limited liquidity and do not have the financial capacity to absorb large losses. Accordingly, the recently announced $500 for each self-employed as part of the Executive urgent economic package is a measure in the right direction.

Regarding payroll employees, the Retail Trade sector is the main employer in the Island with ~125k workers (12.5% of total employment, see Figure 1). With some exceptions like supermarkets, grocery stores or pharmacies, this sector is one of the most impacted by the lockdown and its businesses are generally small. ~70% of retail businesses have less than 10 employees (select «A-Retail Trade&quot in right chart of Figure 1). Additionally, the retail sector workers have, on average, low salaries. Only «Mining, quarrying, and oil and gas extraction&quot, «Agriculture, forestry, fishing and hunting&quot, and «Accommodation and food services&quot have lower salary levels. Again, the recently approved measure to provide $1,500 to small and middle firms will help. Additionally, these small and middle businesses will need liquidity to operate during the confinement period. The approved measures to eliminate the IVU and professional services retentions and penalties are directed to address this problem.

Public Administration, which excludes teachers and other education professionals as well as public health staff, is the second largest category in terms of total employment. The Governor announced that all public sector employees that are part of the central government will continue to receive their pay checks during this period. However, municipal employees (51.5k in total) are likely to be at risk considering that: 1) Most municipalities are running with a fiscal deficit, 2) they are expected to see reductions in central government transfers as part of the Puerto Rico Fiscal Plan, and 3) they may have to contribute to the municipal employees retirement and Medicaid funding if Law 29 is invalidated. The measures considered in the stimulus package, which include $50M to municipalities to compensate for losses caused by the emergency period, may not be enough to cover for the reduction in municipal license tax and IVU revenues.

The other industries with a large number of Puerto Rican employees are «Health Care and Social Assistance&quot (9.2% of total), «Education Services&quot (8.4% of total), «Accommodation and Food Services&quot (7.5% of total), «Administrative and Support and Waste Management and Remediation Services&quot1 (7.0% of total), and «Manufacturing&quot (6.6% of total). The Executive Team has correctly announced measures in most of these sectors. Particularly relevant is the up to $4,000 bonus to all nurses and $2,500 bonus to health technicians, as well as the purchase of tablets, software and training for approximately 325k teachers, students and school directors to facilitate the teaching process. The stimulus package also includes $30M for public hospitals to purchase equipment. However, private hospitals are suffering because emergency rooms and inpatient areas are at very low occupancy levels. As pointed out in a previous V2A Insight2, the hospital sector was already operating under financial stress before Covid-19. Additional measures from the executive may be required for the hospital sector, particularly if Covid-19 cases grow rapidly in the Island. The planned Federal stimulus package will likely include $130B for hard-hit hospitals and Puerto Rico hospitals could benefit from that funding.

The tourism industry, which is included in the «Accommodation and Food Services&quot sector, is likely to suffer significantly for a long period of time despite the potential Executive measures (including $55M for the Destination Marketing Organization), as tourists around the world and, particularly Americans, reduce their traveling. The hotel sector depends on the high season business to subsidize the low season period. Aside from hotels that may close altogether, some may decide to remain closed until October. That will have an impact on employees, tourism related businesses, and government revenues. On the opposite side, there will be a renewed interest in having stronger supply chains which will be an opportunity for Puerto Rico to bring manufacturing activities to the Island to supply the US market. This seems to be the reason for the planned incentives to the Pharma and Biopharma industries.

According to the Metropolitan Policy Program at the Brookings Institution, some groups of workers are particularly likely to lack both paid leave and the ability to work from home: 1) Part-time workers, 2) the youngest and oldest people in the workforce (those under the age of 25 and over the age of 65), and 3) workers who fall below the 25th percentile of earnings. These groups are more vulnerable to the effects of Covid-19. As shown in Figure 2, in Puerto Rico there are ~69k employees with less than 25 years of age and ~29k employees with 65 or more years of age, representing in total around 10% of the workforce. Additionally, there are approximately 205k employees working less than 35 hours representing 22% of the Puerto Rico workforce. The stimulus package extends unemployment benefits to part-time workers but additional measures may be needed to help these vulnerable populations.

In conclusion, the measures taken by the local authorities seem to be correctly addressing the difficulties of the local business participants, which are largely concentrated in the self-employed and the small and middle businesses. Some incentives and economic measures are also rightly targeted to key sectors like Health, Education, Tourism and Manufacturing. Additional measures to help the most vulnerable workers as well as relief measures from the Federal Government could also help cushion the impact of Covid-19. The US Congress is in the process of passing a $2-trillion package that will include $250B for direct payments to individuals and families, $350B in small business loans, $250B in unemployment insurance benefits, and $500B billion in loans for distressed companies, in addition to $130B for hard-hit hospitals mentioned above. In the coming days we will see how Puerto Rico can benefit from this stimulus package.

Notes

1 Includes office administration, hiring and placing of personnel, document preparation and similar clerical services, solicitation, collection, security and surveillance services, cleaning, and waste disposal services

2https://www.v2aconsulting.com/news-detail/128-137-difficult-times-for-the-hospital-sector-in-puerto-rico/

Sources

Puerto Rico Department of Labor and Human Resources

Governor of Puerto Rico Executive Office (La Fortaleza, https://www.fortaleza.pr.gov/content/mensaje-de-la-gobernadora-sobre-medidas-econ-micas-ante-la-amenaza-del-covid19)

ABC News «Which Workers Are Most Vulnerable To The Economic Costs Of The Coronavirus? &quot (https://fivethirtyeight.com/features/which-workers-are-most-vulnerable-to-the-economic-costs-of-the-coronavirus/)

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