How Public Benefits May Be Shaping Puerto Rico’s Job Market

Puerto Rico’s labor market has been moving in the right direction.

The island’s labor-force participation rate reached 45.2% in June 2026, up from 44.7% a year earlier, according to Puerto Rico’s Department of Labor and Human Resources. The civilian labor force continued growing in July, reaching about 1.25 million people, according to federal data.

But Puerto Rico still has the lowest labor-force participation rate of any U.S. jurisdiction, and a new study suggests one reason may be hiding in the way public benefits interact with work.

Researchers studying recipients of Puerto Rico’s Nutrition Assistance Program, known locally as PAN and federally as NAP, found that many working-age adults are earning money — but outside the island’s formal job market or for relatively few hours.

And for some, researchers found, the prospect of losing public assistance can make a formal job look financially risky.

That can have consequences far beyond an individual household. When workers avoid formal employment, limit their hours or turn to informal work to preserve benefits, employers have a smaller formal workforce to draw from, government collects less tax revenue and Puerto Rico’s already-low labor-force participation becomes harder to improve.

A study of the workers Puerto Rico is trying to bring into formal jobs

The findings come from CRECE’s August 2026 report, Inspiring Work: A Comprehensive Analysis of Welfare, Work, and Self-Sufficiency in Puerto Rico, written by Teresita Nolla and Ciení Rodríguez-Troche.

CRECE partnered with Puerto Rico-based research firm Gaither International. Researchers surveyed 500 able-bodied PAN recipients and also conducted qualitative interviews. The quantitative portion focused specifically on recipients outside the formal workforce, rather than PAN participants as a whole.

That distinction matters: the results shouldn't be read as describing everyone who receives food assistance in Puerto Rico.

Instead, the study zeroes in on a particularly important group for Puerto Rico’s economy — working-age people who could potentially enter or increase their participation in the formal labor market.

CRECE estimates that roughly 250,000 able-bodied people receiving PAN are absent from the formal workforce.

The study’s conclusion about one of the obstacles is unusually direct:

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Many aren't choosing between working and not working

One of the most interesting findings is that the workers researchers surveyed weren't necessarily sitting on the sidelines.

Eighty-nine percent said they contributed to household expenses through formal or informal work. Among those working, however, the average was only 18.7 hours per week, and the study describes much of the employment as sporadic.

Even more telling for Puerto Rico's job market: 66% reported participating in informal income-producing activities.

Among households earning less than $10,000 annually, that climbed to 81%.

That could mean selling prepared food, performing maintenance or construction work, caregiving, beauty services or taking other jobs outside conventional payroll employment.

The informal economy can provide crucial income. But from a labor-market perspective, there is a tradeoff.

Workers operating outside the formal economy may not appear in employment statistics, contribute payroll and other taxes in the same way, receive employer protections or benefits, or fill conventional vacancies that businesses need staffed.

CRECE argues that this ultimately reduces both the formal workforce and the tax base.

Why benefits can influence the decision to take a job

The problem isn't simply that assistance makes working less appealing. It is what happens when earnings rise.

Many income-tested programs reduce or eliminate assistance as a household earns more. Ideally, additional wages leave the family better off even as assistance declines.

But sometimes benefits decline quickly enough that a worker's total resources barely increase — or can temporarily decrease — after taking a job, adding hours or earning a raise.

That's the benefits cliff.

Among the PAN recipients surveyed by CRECE, 51% said they feared taking a formal job could worsen their financial position because their PAN benefits would be reduced. Another 69% said they would prefer benefits to decrease gradually as they move into full-time employment rather than face an abrupt cutoff.

And food assistance isn't the only consideration.

Seventy-six percent of respondents received health coverage through Plan Vital, Puerto Rico's Medicaid-funded health program, and the researchers found that fear of losing health benefits was another obstacle to formal work. Respondents also identified child care, transportation, low wages, debt and limited employment opportunities as barriers.

That means the decision facing a worker may not be as straightforward as comparing a PAN payment against a paycheck.

A household could be calculating wages against changes in food assistance, health coverage, housing assistance, child-care costs, transportation and other expenses at the same time.

That matters in a labor market that needs more workers

Puerto Rico has made substantial progress since its labor-force participation rate fell to around 40% a decade ago.

As of June 2026, the island's participation rate stood at 45.2%. And federal Bureau of Labor Statistics data show Puerto Rico had roughly 958,000 non-farm wage-and-salary jobs in July 2026.

Yet participation remains exceptionally low.

CRECE's earlier 2025 examination of Puerto Rico's labor market argued that rising wages can create an unusual tension for low-income workers: higher earnings make employment more attractive, but can simultaneously cause assistance to decline.

That can discourage some workers from increasing their hours or moving into higher-paying formal jobs when the net financial gain appears too small.

The result is essentially a labor-market mismatch.

Puerto Rico can have businesses looking for employees and able-bodied residents earning money or expressing willingness to work — while benefit rules, low wages and other barriers make connecting the two more difficult.

In the new survey, 70% of respondents said they were able to work in any job.

That suggests at least some of Puerto Rico's participation challenge isn't simply about whether potential workers exist. It's about whether formal employment offers a sufficiently clear financial advantage.

Puerto Rico has already tried one way around the cliff

There is an important qualification: starting a job does not automatically mean a PAN recipient immediately loses all food assistance.

Puerto Rico has experimented with transitional policies specifically designed to reduce that problem.

Through the Cuna de Talentos initiative, eligible PAN participants entering employment can receive temporary earned-income exclusions, allowing benefits to decline more gradually as they establish themselves in the workforce.

For qualifying participants, the program can disregard 100% of new earned income during the first six months, 66% during months seven through 12 and 33% during months 13 through 18 when determining PAN eligibility.

That's essentially an attempt to replace a cliff with a ramp.

But workers can participate in several programs simultaneously, each with different income limits and eligibility rules. Fixing the transition in one program therefore doesn't necessarily eliminate the combined effect of changes in food, health, housing and other assistance.

Other Puerto Rico research has found the same broader problem

CRECE isn't the only organization examining this issue.

A separate 2026 study from Puerto Rico's Instituto del Desarrollo de la Juventud, titled Entre la espada y la pared, examined how PAN, Plan Vital, TANF and housing benefits interact with employment for families with children.

That research likewise found that benefit eligibility rules can discourage formal employment or additional earnings, although the size and timing of the effect varies considerably by program and household.

It also highlighted another problem: families often don't know in advance exactly what will happen to their benefits if their earnings change.

For the labor market, that uncertainty matters.

If a worker believes accepting more hours could jeopardize food, housing or medical coverage — even when the actual benefit reduction might be smaller — uncertainty itself can discourage the move into formal employment.

Benefits aren't the only reason Puerto Rico has a participation problem

It would be a mistake to conclude from the CRECE study that public assistance explains Puerto Rico's entire labor-force participation gap.

Puerto Rico also faces an aging population, migration, caregiving responsibilities, skills mismatches, transportation problems, relatively low wages and other longstanding economic challenges.

And because CRECE intentionally surveyed able-bodied PAN recipients outside formal employment, its research cannot establish how much of Puerto Rico's overall participation rate is caused by benefits.

CRECE is also an organization that explicitly promotes free-market policy solutions, which is useful context when considering its recommendations.

What the study does offer is evidence that, among the very population Puerto Rico hopes to bring into formal employment, benefit loss is a meaningful consideration in employment decisions.

And the scale is difficult for policymakers to ignore.

The challenge: make work pay without removing the safety net too quickly

CRECE recommends greater use of transitional benefits, job training, financial education and transportation assistance, along with changes intended to make formal employment and entrepreneurship easier. It also supports strengthening work requirements when paired with support services.

There are legitimate policy debates over exactly how those reforms should work.

But the underlying labor-market problem is relatively simple.

If someone earning additional money sees food, health, housing or other assistance fall at nearly the same time, the effective value of taking that job can be much smaller than the paycheck suggests.

That can leave Puerto Rico with an unusual economic problem: people who are capable of working and, in many cases, already are working, while remaining outside the formal workforce employers and the broader economy depend upon.

For Puerto Rico, reducing the benefits cliff isn't therefore only a social-services issue. It's a workforce issue.