Impact of Increased Minimum Wages on the Economies of American Samoa and the Commonwealth of the Northern Mariana Islands

Section 1. Introduction

Public Law 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, (May 25, 2007) amended the minimum wage provision of the Fair Labor Standards Act of 1938, as amended (29 U.S.C. §201 et seq.), raising the Federal minimum wage from $5.15 per hour to $7.25 per hour in three increments over two years.  In addition, the legislation specified that the minimum wage rates applicable in the jurisdiction of  American Samoa be increased in fifty-cent-per-hour increments beginning July 24, 2007 and annually thereafter on May 25 until the amounts reach conformity with the U.S.  In the jurisdiction of CNMI, the applicable minimum wage is specified to increase in fifty-cent-per-hour increments beginning July 25, 2007 and annually thereafter on May 26 until reaching conformity with the U.S.  Federal minimum wage amount (currently $5.85 per hour and scheduled to increase to $6.55 per hour as of July 24, 2008 and $7.25 per hour as of July 24, 2009). The legislation also required the Secretary of Labor to prepare a report describing the observed impacts of the increases to the minimum wages of American Samoa and the CNMI on the local economies of the islands and projecting likely future impacts.[1]  This report is in response to that requirement.

This report was prepared under the supervision of Leon R. Sequeira, Assistant Secretary for Policy, and Deb Misir and Susan Howe, Deputy Assistant Secretaries for Policy, by Ronald E. Bird, Ph.D., Chief Economist of the U.S. Department of Labor, with assistance from Jay Berman, James Carter, David Langdon, Regina Powers, and Mary Ziegler of the Office of the Assistant Secretary for Policy and Mario Distasio of the Employment Standards Administration.  The U.S. Department of Interior, Office of Insular Affairs, provided generous and valuable assistance to facilitate the identification, compilation and interpretation of relevant data sources.  The staff of the Government Accountability Office provided useful suggestions regarding information sources based on their contemporaneous research regarding other economic issues affecting CNMI.  The Honorable Benigno R. Fitial, Governor of the Commonwealth of the Northern Mariana Islands, and the Honorable Togiola T.A. Tulafono, Governor of American Samoa, generously directed their staffs to provide available information and access to knowledgeable sources to fulfill the information needs of the DOL research team.  The Honorable Congressman Faleomavaega of American Samoa and his staff also provided valuable assistance.  Extensive interviews were conducted with persons knowledgeable regarding the economies of CNMI and American Samoa.  In total, 26 interviews were conducted regarding the recent economic trends, current conditions and available data sources.  The DOL research team also reviewed the extensive academic research literature regarding the economic impact of minimum wage regulations in the United States to identify information that could be applicable to consideration of the economic impact of minimum wage increases scheduled for American Samoa and the Commonwealth of the Northern Mariana Islands.

This report is limited to addressing the two issues contained in the Congressional mandate:  (1) the impact on living standards and employment to the present date of the fifty-cent-per-hour increase in the minimum wages that became effective July 24, 2007 in American Samoa and July 25, 2007 in the CNMI; and (2) the projected impacts of the future increases scheduled under the legislation.

The Department’s research was limited by two significant factors: 

1. Short Time Frame. The reporting time-frame specified in the legislation – no later than 8 months from the date of enactment (May 25, 2007) – did not provide sufficient time to observe actual effects of the minimum wage increases.  The initial increases of fifty cents per hour went into effect on July 24, 2007 in American Samoa and July 25, 2007 in the CNMI.  The specified delivery date for this report was January 25, 2008.  The period following the initial increase was too short for significant observable effects to materialize.  Adjustments of employment arrangements and of patterns of living standards typically do not occur instantaneously following a change in a key economic parameter.  Immediate changes may be too small in scale to observe, and it may require the passage of many months before cumulative effects become large enough to observe.  In particular, a lack of significant observed adverse employment effects in the months since the initial increase is not indicative that such effects will not emerge in the future – especially as subsequent increases are implemented over time.

2. Lack of timely labor market data. The Bureau of Labor Statistics (BLS) does not collect monthly (or other period) data describing labor market conditions in either American Samoa or the CNMI.  In contrast, the monthly survey of employers in the rest of the United States (the BLS Current Employment Statistics program) provides detailed monthly information by industry sector regarding the total level of payroll employment, payroll hours of production and non-supervisory workers, and hourly and weekly earnings of production and non-supervisory workers.  This survey provides national estimates as well as estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and over 400 metropolitan areas and divisions.  The monthly survey of households (the Current Population Survey (CPS), a joint program of BLS and the Census Bureau) provides detailed national estimates of labor force participation, employment and unemployment.  The CPS also collects data on wage and salary workers’ median usual weekly earnings and publishes quarterly earnings estimates.  Both surveys have been important sources of data for research regarding the impact of minimum wage increases in the United States over the past fifty years.  The lack of such data for American Samoa and the CNMI significantly impairs efforts to measure or to project the impacts of scheduled minimum wage increases for these territories.

It was not feasible to conduct field investigations in connection with this study.  Had there been time and resources to conduct survey data collection in the field, travel by the research team to the islands could have been useful.  However, meaningful field observations would have required data collection from both employers and households over many successive months in order to discern effects of the initial and subsequently scheduled minimum wage increases.  In addition, a systematic data collection effort would have required approval of a survey under the terms of the Paperwork Reduction Act.  Given the short reporting timeframe, design and implementation of field surveys were not practical.

This report is comprised of two subsequent sections.  Section Two includes:  (a) a summary of the economic situation of American Samoa prior to the initial scheduled minimum wage increase; (b) a discussion of possible impacts observed since the implementation of the initial fifty-cent increase in the minimum wages since July 24, 2007 in American Samoa; and (c) a discussion of projections of possible future impacts.  Section Three comprises a similar discussion regarding the CNMI. 

[1] Public Law No. 110-28, sec. 8104, 121 Stat. 112, 189 (2007).

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