Executive Summary
This report was prepared by the U.S. Department of Labor in response to
the requirement of Public Law 110-28, the U.S. Troop Readiness, Veterans’ Care,
Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. That law
states that the Secretary of Labor shall report to Congress the findings of a
study assessing and projecting the impacts of increases in the minimum wages
applicable to the territories of American Samoa and the Commonwealth of the
Northern Mariana Islands (CNMI) under the Fair Labor Standards Act (FLSA).
Pursuant to P.L. 110-28, the minimum wages applicable to American Samoa
and the Commonwealth of the Northern Mariana Islands (CNMI) were increased fifty
cents per hour on July 24 and July 25, 2007, respectively. In addition, the
minimum wages applicable to these territories will further increase annually
hereafter by fifty cents per year until parity with the projected U.S. minimum
wage of $7.25 per hour is reached. For the CNMI, the minimum wage was increased
fifty cents per hour to $3.55 on July 25, 2007 and will rise to $7.25 per hour
by 2015. For American Samoa current minimum wages vary by industry, with the
most significant being the minimum wage for the tuna canning industry, which is
currently $3.76 per hour, reflecting the initial fifty-cent increase on July 24,
2007. The minimum wage for American Samoa will increase across the board to
$7.25 per hour by 2014.
This report is limited to
addressing the two questions contained in the Congressional mandate:
(1) what has been the impact
on living standards and employment to the present date of the
fifty-cent-per-hour increase in the minimum wages of each territory that became
effective July 2007; and
(2) what are the projected
impacts of the future increases scheduled under the Act?
The ability of the Department
to answer these questions was constrained by the short time frame available for
observation of emerging effects and by the lack of timely labor market data for
both territories.
American Samoa
American Samoa is a small
island group in the South Pacific, about 2,300 miles south of Hawaii. The
population of American Samoa is 68,200, of which 38.7 percent is under the age
of 15. The largest sources of private employment in American Samoa are two tuna
canneries. These canneries export tuna primarily to the U.S. market, and their
output accounts for about two-thirds of the total U.S. supply of canned tuna.
Tuna exports from American Samoa in 2006 totaled 20.7 million cases, valued at
$431.5 million. The tuna canneries account for 4,757 jobs – 27.3 percent of
total employment in American Samoa.
Today, the majority of
cannery workers earn the minimum wage, and in 2006, the average wage earned by
workers in the fish processing and canning industry covered by the FLSA was
$3.60 per hour. The average wage in 2006 for all workers in American Samoa
covered by the FLSA was $5.26 per hour. Nearly 80 percent of workers covered by
the FLSA earned under $7.25 per hour. By comparison, if the U.S. minimum wage
were increased to the level of the 75th percentile of hourly-paid
U.S. workers, it would be raised to $16.50 per hour.
At present, the tuna
canneries continue in operation, but there is concern that they will be closed
prior to the escalation of the minimum wage to $7.25 per hour in 2014 and that
production will be shifted to facilities outside U.S. jurisdiction where labor
costs are significantly lower. An input-output model analysis commissioned by
the government of American Samoa (conducted by McPhee and Associates) has
estimated that closure of the tuna canneries will cause a total loss of 8,118
jobs – 45.6 percent of total employment – including both direct effects (5,538
jobs) and indirect effects (2,580 jobs).
Commonwealth of the Northern Mariana Islands
The Commonwealth of the Northern Mariana Islands (CNMI) is the U.S.
territory closest to eastern Asia. The CNMI is about 1,500 miles east of
Japan. Its population reached 69,221 in 2000, but had declined to 63,419 by
2003, and evidence suggests that the population decline is continuing. The CNMI
economy developed rapidly in the 1990s, based on tourism and a garment industry
in which labor supply was comprised largely of foreign temporary workers. In
2000, non-citizens accounted for 88.8 percent of private sector employment. The
minimum wage in CNMI was (and still is today) lower than the U.S. minimum wage,
but higher than comparable wages in China, the Philippines, Vietnam, and other
Asian countries.
In the past, the CNMI economy benefited from tariff-free, unrestricted
access to U.S. markets, compared to competitors in Asia and elsewhere who
benefited from lower wages but faced U.S. tariffs and import quotas. However,
both the tourism and the garment industries in the CNMI are now in decline. The
garment industry has been shrinking since 2000 in the face of increasing global
competition, and especially since the lifting of import quotas and resulting
liberalization of textile and garment trade into the U.S. in 2005. The tourist
industry has suffered sporadic decline since the mid-1990s.
The scheduled minimum wage increases for the CNMI are expected to add
further challenges to an already declining economy. With both of its major
industries declining simultaneously, the CNMI economy is in overall decline, and
its current economic situation makes it especially vulnerable to additional
shocks. While data are not available to precisely quantify the impact of the
recent and scheduled future increases in the minimum wage, it seems likely that
the current economic decline may be made worse. General experience in the U.S.
and elsewhere has shown that potential adverse employment effects of minimum
wage increases can be masked or offset to some degree by an expanding economy
that is generating net employment growth. In a declining economy, any adverse
effects on employment will not be offset.
One indicator of the potential labor market impact
of increases in the minimum wage is the proportion of employees affected. Data
from the CNMI 2004 household and expenditure survey show that 68.2 percent of
wage earners in the CNMI earned no more than $4.99 per hour and that 79.5
percent earned no more than $7.99 per hour. Therefore, the scheduled increase
in the minimum wage to $7.25 (by 2015) will likely affect at least 75 percent of
wage and salary workers in the CNMI. By comparison, in the mainland U.S. the 75th
percentile mark is $16.50 for wage and salary workers who are paid hourly rates.
Because the CNMI has such a large proportion of
temporary, non-citizen workers in its labor force, it is likely that future job
losses will cause non-citizen temporary workers who lose their jobs to return to
their countries of origin or look for work elsewhere. This would contribute to
the trend of declining population that has been evident since 2000. Because
citizens of CNMI are U.S. citizens, they have access to the U.S. labor markets,
including Guam, Hawaii and the U.S. mainland. It is possible that movements of
workers from the CNMI into these U.S. labor market areas may increase as the
minimum wage schedule for the CNMI is implemented. This could lead to
additional population declines in the CNMI.
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