In 1940, annual income per capita was $118, and agricultural workers made as little as 6 cents an hour. By 1978, income per capita was $2,600, and the average hourly farm wage at least $1.65—in each case, far below the US average, but also in each case a vast improvement over former times.
The island's most important industrial products are pharmaceuticals, electronics, apparel, and food products. The sugar industry has gradually lost ground to dairy production and other livestock products in the agricultural sector. Tourism is the backbone of a large service industry, and the government sector has also grown. Tourist revenues and remittances from workers on the US mainland largely counterbalance Puerto Rico's chronic trade deficit. Federal funds to the government and directly to the people have been important to the Puerto Rican economy.
Puerto Rico's major problem is lack of jobs for an expanding population, a problem exacerbated when rising unemployment in the US persuades Puerto Ricans to return to the island. From its former dependence on subsistence agriculture, Puerto Rico became a center for low-wage textile manufacturing, then a home for refining cheap crude oil from abroad—mainly Venezuela. The sharp rise of overseas oil prices that began in 1973 devastated this economic sector. Since then, high-technology industries have become a major presence on the island. For instance, along with the development of the Port of the Americas on the southwestern coast of the island, a "techno-economic" corridor is being envisioned on the western coast, which will take advantage of the excellent highway system linking the port and the leading engineering university to the airport in Aguadilla, with the longest runway in the Caribbean.
Section 936 of the US internal revenue code, passed in 1976 and discontinued in 1996, established a substantial tax credit for income of US corporations doing business in Puerto Rico and possessions of the US. Some corporations were also allowed to import their products into the US duty-free. Section 936 was replaced with Section 30A, which allowed companies to claim 60% of wages and capital investment as non-taxable income. Pharmaceutical companies and high-tech industries based in Puerto Rico were to have an advantage over NAFTA member Mexico, whose low wages in low-skill labor-intensive jobs competed with Puerto Rican jobs. Due to the elimination of Section 936, however, many companies in Puerto Rico closed.
The downturn in the US economy that began in 2001 negatively impacted the Puerto Rican economy more severely than the mainland economy. The 11 September 2001 terrorist attacks on the US also had an adverse effect on the Puerto Rican tourist industry. However, by 2003, the economy was showing signs of stabilizing: unemployment stood at 11.9% in the first quarter of 2003, down from over 13% in 2002. The GDP growth rate, at 0.5% in 2002, was forecast for 2003 at 2.7%.