PUERTO RICO CHEMICAL INDUSTRY EMPLOYMENT RATE UP 22.4%

Executive Summary

PUERTO RICO CHEMICAL INDUSTRY EMPLOYMENT RATE UP 22.4% since 1980, making it the second fastest growing manufacturing industry in the commonwealth, according to a recent General Accounting Office report. Employment in the chemicals business rose from approximately 15,600 in 1980 to 19,100 in 1988, following only the electrical equipment industry, which rose 26.7% during the eight years. The growth in the chemicals and electrical equipment industries reflects an employment shift from labor-intensive to capital-intensive manufacturing sectors. Among the 15 manufacturing industries cited in the GAO report, only six showed any growth in employment during the eight year period and only chemicals and electrical equipment had gains of more than 6%. Apparel, the largest manufacturing industry, remained static during the period with roughly 33,600 employees. The report, requested by Senate Energy and Natural Resources Committee Chairman Bennett Johnston (D-La.), updates a 1981 review of the political and economic evolution of the commonwealth and the potential effects of changing its political status. Johnston introduced a bill in April that would allow Puerto Rican citizens to choose between statehood, independence or enhanced commonwealth status. The report points out that the shift to capital-intensive manufacturing industries and growth in other segments have resulted in a drop in employment in manufacturing from 20% of total employment in the commonwealth in 1980 to 18% in 1988. Manufacturing, however, is the dominant contributor to the island's income, generating $ 9.4 bil. (62% of total net income) in 1988. "Spurred almost entirely by investments of U.S. firms, manufacturing has become the most important sector in Puerto Rico's economy," GAO observed. (PARAGRAPH)Despite improvement in Puerto Rico's economic condition in recent years, the report observes that "new jobs will need to be created in the future to improve the standard of living and the employment rate." In 1988, the island's per capita personal income was $ 5,157, less than half that of Mississippi, the state with the lowest per capita income. The report observes that the Section 936 tax credit is "one of the most significant tax provisions affecting Puerto Rico." Sen. Pryor (D-Ark.) has been the most recent critic in Congress of Section 936 tax breaks for pharmaceutical companies with operations in Puerto Rico. At a July 18 hearing on drug pricing, for example, the Senate Aging Committee chairman questioned the industry's defense of high R&D costs by pointing to Section 936 and other tax breaks ("The Pink Sheet" July 24, p. 4). In a recent statement on the Senate floor on prescription drug prices, Pryor said pharmaceutical companies' taxes have dropped 27% over the last four years. "The Treasury Department's revenue loss for tax incentives to employ Puerto Rican pharmaceutical company workers is more than six times larger than those for the high-tech industry, and 19 times larger than those for apparel makers," he pointed out.