American Samoa and Commonwealth of the Northern Mariana Islands
Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began Gao ID: GAO-11-427 June 23, 2011In 2007, the United States enacted a law incrementally raising the minimum wages in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) until they equal the U.S. minimum wage. American Samoa's minimum wage increased by $.50 three times, and the CNMI's four times before legislation delayed the increases, providing for no increase in American Samoa in 2010 or 2011 and none in the CNMI in 2011. As scheduled, American Samoa's minimum wage will equal the current U.S. minimum wage of $7.25 in 2018, and the CNMI's will reach it in 2016. Recent economic declines in both areas reflect the closure of one of two tuna canneries in American Samoa and the departure of the garment industry in the CNMI. GAO is required to report in 2010, 2011, 2013, and biennially thereafter on the impact of the minimum wage increases. This report updates GAO's 2010 report and describes, since the increases began, (1) employment and earnings, and (2) the status of key industries. GAO reviewed federal and local information; collected data from employers through a questionnaire and from employers and workers through discussion groups; and conducted interviews during visits to each area.
In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available. GAO questionnaire responses show that tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Average inflation-adjusted earnings fell by 5 percent from 2008 to 2009 and by 11 percent from 2006 to 2009; however, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation. Private sector officials said the minimum wage was one of a number of factors making business difficult. In the tuna canning industry, future minimum wage increases would affect the wages of 99 percent of hourly-wage workers employed by the two employers included in GAO's questionnaire. The employers reported taking cost-cutting actions from June 2009 to June 2010, including laying off workers and freezing hiring. The employers attributed most of these actions largely to the minimum wage increases. Cannery officials expressed concern in interviews about American Samoa's dwindling global competitive advantage. Available data suggest that relocating tuna canning operations to a tariff-free country with lower labor costs would significantly reduce operating costs but reduce American Samoa jobs; however, maintaining some operations in American Samoa would allow continued competition for U.S. government contracts. Some workers said they were disappointed by the 2010 minimum wage increase delay; however, more workers expressed concern over job security than favored a wage increase with potential for layoffs. In the CNMI, employment fell 13 percent from 2008 to 2009 and 35 percent from 2006 to 2009. Average inflation-adjusted earnings rose by 3 percent from 2008 to 2009 and remained largely unchanged from 2006 to 2009. Over the same periods, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation. In discussion groups, private sector employers said minimum wage increases imposed additional costs during a time in which multiple factors made it difficult to operate. In the tourism industry, scheduled minimum wage increases through 2016 would affect 95 percent of workers employed by questionnaire respondents. Tourism employers reported that they took cost-cutting actions from June 2009 to June 2010 and planned to take additional actions, including laying off workers. Few of these tourism employers attributed past actions largely to the minimum wage increases, and one half or less did so for each of the planned actions. Available data suggest that hotels generally absorbed minimum wage costs rather than raise room rates. Hotel payroll will represent an increasing share of total operating costs due to the minimum wage increases. In discussion groups, some tourism employers expressed concern about the minimum wage increases, but others said the increases were needed and manageable and that the primary difficulty was the CNMI tourism industry's decline. Workers participating in GAO's CNMI discussion groups expressed mixed views regarding the minimum wage increases and said they would like pay increases but were concerned about losing jobs and work hours. GAO shared the report with relevant federal agencies and the governments of American Samoa and the CNMI. While generally agreeing with the findings, they raised a number of technical concerns that have been incorporated as appropriate.
GAO-11-427, American Samoa and Commonwealth of the Northern Mariana Islands: Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began
This is the accessible text file for GAO report number GAO-11-427
entitled 'American Samoa and Commonwealth Of The Northern Mariana
Islands: Employment, Earnings, and Status of Key Industries Since
Minimum Wage Increases Began' which was released on June 23, 2011.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to Congressional Committees:
June 2011:
American Samoa and Commonwealth Of The Northern Mariana Islands:
Employment, Earnings, and Status of Key Industries Since Minimum Wage
Increases Began:
GAO-11-427:
GAO Highlights:
Highlights of GAO-11-427, a report to congressional committees.
Why GAO Did This Study:
In 2007, the United States enacted a law incrementally raising the
minimum wages in American Samoa and the Commonwealth of the Northern
Mariana Islands (CNMI) until they equal the U.S. minimum wage.
American Samoa‘s minimum wage increased by $.50 three times, and the
CNMI‘s four times before legislation delayed the increases, providing
for no increase in American Samoa in 2010 or 2011 and none in the CNMI
in 2011. As scheduled, American Samoa‘s minimum wage will equal the
current U.S. minimum wage of $7.25 in 2018, and the CNMI‘s will reach
it in 2016. Recent economic declines in both areas reflect the closure
of one of two tuna canneries in American Samoa and the departure of
the garment industry in the CNMI.
GAO is required to report in 2010, 2011, 2013, and biennially
thereafter on the impact of the minimum wage increases. This report
updates GAO‘s 2010 report and describes, since the increases began,
(1) employment and earnings, and (2) the status of key industries. GAO
reviewed federal and local information; collected data from employers
through a questionnaire and from employers and workers through
discussion groups; and conducted interviews during visits to each area.
GAO shared the report with relevant federal agencies and the
governments of American Samoa and the CNMI. While generally agreeing
with the findings, they raised a number of technical concerns that
have been incorporated as appropriate.
What GAO Found:
In American Samoa, employment fell 19 percent from 2008 to 2009 and 14
percent from 2006 to 2009. Data for 2010 total employment are not
available. GAO questionnaire responses show that tuna canning
employment fell 55 percent from 2009 to 2010, reflecting the closure
of one cannery and layoffs in the remaining cannery. Average inflation-
adjusted earnings fell by 5 percent from 2008 to 2009 and by 11
percent from 2006 to 2009; however, the hourly wage of minimum wage
workers who remained employed increased by significantly more than
inflation. Private sector officials said the minimum wage was one of a
number of factors making business difficult. In the tuna canning
industry, future minimum wage increases would affect the wages of 99
percent of hourly-wage workers employed by the two employers included
in GAO‘s questionnaire. The employers reported taking cost-cutting
actions from June 2009 to June 2010, including laying off workers and
freezing hiring. The employers attributed most of these actions
largely to the minimum wage increases. Cannery officials expressed
concern in interviews about American Samoa‘s dwindling global
competitive advantage. Available data suggest that relocating tuna
canning operations to a tariff-free country with lower labor costs
would significantly reduce operating costs but reduce American Samoa
jobs; however, maintaining some operations in American Samoa would
allow continued competition for U.S. government contracts. Some
workers said they were disappointed by the 2010 minimum wage increase
delay; however, more workers expressed concern over job security than
favored a wage increase with potential for layoffs.
In the CNMI, employment fell 13 percent from 2008 to 2009 and 35
percent from 2006 to 2009. Average inflation-adjusted earnings rose by
3 percent from 2008 to 2009 and remained largely unchanged from 2006
to 2009. Over the same periods, the hourly wage of minimum wage
workers who remained employed increased by significantly more than
inflation. In discussion groups, private sector employers said minimum
wage increases imposed additional costs during a time in which
multiple factors made it difficult to operate. In the tourism
industry, scheduled minimum wage increases through 2016 would affect
95 percent of workers employed by questionnaire respondents. Tourism
employers reported that they took cost-cutting actions from June 2009
to June 2010 and planned to take additional actions, including laying
off workers. Few of these tourism employers attributed past actions
largely to the minimum wage increases, and one half or less did so for
each of the planned actions. Available data suggest that hotels
generally absorbed minimum wage costs rather than raise room rates.
Hotel payroll will represent an increasing share of total operating
costs due to the minimum wage increases. In discussion groups, some
tourism employers expressed concern about the minimum wage increases,
but others said the increases were needed and manageable and that the
primary difficulty was the CNMI tourism industry‘s decline. Workers
participating in GAO‘s CNMI discussion groups expressed mixed views
regarding the minimum wage increases and said they would like pay
increases but were concerned about losing jobs and work hours.
View [hyperlink, http://www.gao.gov/products/GAO-11-427] or key
components. For more information, contact David Gootnick at (202) 512-
3149 or gootnickd@gao.gov.
[End of section]
Contents:
Letter:
American Samoa Employment, Earnings, and Status of Key Industries:
CNMI Employment, Earnings, and Status of Key Industries:
Concluding Observations:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Background:
Appendix III: American Samoa:
Appendix IV: CNMI:
Appendix V: GAO Questionnaire Used in Report:
Appendix VI: Comments from the Department of Commerce:
Appendix VII: Comments from the American Samoa Government:
Appendix VIII: Comments from the Commonwealth of the Northern Mariana
Islands Government:
Appendix IX: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Research Methods and Scope and Limitations:
Table 2: American Samoa Key Findings:
Table 3: CNMI Key Findings:
Table 4: American Samoa Scheduled Minimum Wage Increases for Tuna
Canning Industry Workers and for Workers Paid the Lowest Minimum Wage:
Table 5: CNMI Scheduled Minimum Wage Increases:
Table 6: Median Wages for Hourly-wage Workers in the American Samoa
Tuna Canning Industry, June 2007 to June 2010:
Table 7: Distribution and Increased Annual Cost Since June 2010 per
Hourly-wage Worker in American Samoa Tuna Canning Industry Due to
Minimum Wage Increases:
Table 8: Median Wages for Hourly-wage Workers in the CNMI Tourism
Industry, June 2007 to June 2010:
Table 9: Distribution and Increased Annual Cost Since June 2010 per
Hourly-wage CNMI Tourism Worker Due to Minimum Wage Increases:
Table 10: CNMI Hotel Occupancy and Room Rates, 2006 through 2010:
Figures:
Figure 1: Map of American Samoa:
Figure 2: American Samoa Government Revenues and Expenditures,
Excluding Component Units, 2005-2009:
Figure 3: Citizenship Status of American Samoa Population, 1980-2005:
Figure 4: American Samoa Tuna Exports to the United States, 1997-2010:
Figure 5: Map of the CNMI:
Figure 6: CNMI Government Revenues and Expenditures, Excluding
Component Units, 2005-2009:
Figure 7: CNMI Textile Exports to the United States, 1997-2010:
Figure 8: CNMI Visitor Arrivals, 1990-2010:
Figure 9: Citizenship Status of CNMI Population, 1980-2005:
Figure 10: American Samoa Employment Based on SSA Data, 2006 through
2009:
Figure 11: American Samoa Average Nominal and Inflation-Adjusted
Earnings Based on SSA Data, 2006 through 2009:
Figure 12: Changes in Wages of Hourly-wage Workers Employed by
American Samoa Tuna Canning Questionnaire Respondents:
Figure 13: Comparison of Estimated Wage and Tariff Costs for Tuna
Canneries Using Alternate Business Models:
Figure 14: CNMI Employment Based on CNMI Government Tax Data, 2006
through 2009:
Figure 15: CNMI Average Nominal and Inflation-Adjusted Earnings Based
on CNMI Government Tax Data, 2006 through 2009:
Figure 16: Changes in Wages of Hourly-wage Workers Employed by CNMI
Hotel and Other Tourism Questionnaire Respondents:
Figure 17: Total CNMI Visitor Arrivals and Flight Seats Available,
Fiscal Years 2005 to 2010:
Figure 18: Estimated Average Impact of Minimum Wage Increases on CNMI
Hotels' Payroll Costs in 2010 and 2016, Relative to Average Payroll
and Other Costs in 2009:
Abbreviations:
BEA: Bureau of Economic Analysis:
CNMI: Commonwealth of the Northern Mariana Islands:
CPI: Consumer Price Index:
DHS: U.S. Department of Homeland Security:
DOC: U.S. Department of Commerce:
DOI: U.S. Department of the Interior:
DOL: U.S. Department of Labor:
FICA: Federal Insurance Contributions Act:
FLSA: Fair Labor Standards Act of 1938:
GDP: gross domestic product:
HIES: Household, Income, and Expenditures Survey:
SSA: Social Security Administration:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 23, 2011:
Congressional Committees:
In 2007, the United States enacted legislation that incrementally
applies the U.S. minimum wage to the U.S. insular areas of American
Samoa and the Commonwealth of the Northern Mariana Islands (CNMI).
[Footnote 1] The legislation raised the federal minimum wage in the
U.S. 50 states from $5.15 to $7.25 per hour over 3 years and, for the
first time, also mandated a series of $.50 per hour increases to the
minimum wages in both American Samoa and CNMI, beginning in July 2007,
that would bring them to parity with the federal minimum wage.
[Footnote 2] In 2010, the United States enacted a law delaying the
scheduled minimum wage increases in both areas, providing for no
increase in American Samoa in 2010 or 2011, and no increase in the
CNMI in 2011.[Footnote 3] To date since 2007, the minimum wages in
American Samoa have increased by $.50 three times, with the minimum
wage of the lowest paid workers now set at $4.18 and the minimum wage
of workers in the tuna canning industry set at $4.76. Over the same
period, the CNMI minimum wage has increased by $.50 four times, to
$5.05. Under current law, the minimum wage for American Samoa's lowest
paid workers will reach the federal minimum wage of $7.25 in 2018; in
the CNMI, this is set to occur in 2016.
The United States first adopted a federal minimum wage with passage of
the Fair Labor Standards Act of 1938 (FLSA). The FLSA states that its
goal is to eliminate labor conditions that hurt workers' health,
efficiency, and general well-being, noting that this should be
achieved both as rapidly as feasible and without substantially
curtailing employment or earning power.[Footnote 4] The 2007
legislation changed decades of federal law that had allowed both
American Samoa and the CNMI to apply minimum wage rates significantly
lower than the minimum wage for the U.S. 50 states. American Samoa's
minimum wage was set for each of 18 industries by the U.S. Department
of Labor (DOL) under biennial reviews, and its minimum wages in 2006
ranged from $2.68 to $4.09. The CNMI had authority to set its own
minimum wage under its 1976 Covenant with the United States, and its
minimum wage in 2006 was $3.05. Public and private sector officials
and workers in both areas have expressed concern about the impact of
the federal minimum wage increases on the local economies.
Since our last report in April 2010,[Footnote 5] the economies of both
American Samoa and the CNMI have continued to face major challenges,
and economic indicators show decline. Both governments face budget
shortfalls, with local spending exceeding revenues in most recent
years, and they have reduced the work hours of government employees
and taken other steps to reduce the shortfalls. Studies funded by the
U.S. Department of the Interior (DOI) have projected major additional
contraction of the two economies.[Footnote 6] American Samoa's private
sector economy is largely based on the tuna canning industry, and the
closure of one of its two tuna canneries in September 2009
significantly affected the labor market and economy. The recent
purchase of the closed facility by another company may provide
additional jobs, but operations planned in the short-term are more
limited than those before the facility closed. Before the first
minimum wage increase in 2007, about one-third of workers in American
Samoa were employed by the two canneries, and more than three-quarters
of cannery employees were foreign workers from neighboring Samoa, an
independent country. The CNMI's economy has been strongly affected by
the departure of its garment industry and decline in its tourism
industry. Until recently, the garment industry was central to the CNMI
economy and employed close to a third of all workers; however, by
early 2009, the last garment factory had closed. Both American Samoa
and the CNMI have tried to develop new industries, including through
initiatives funded by the U.S. government, but they have had
difficulty attracting additional investment. The CNMI also faces
uncertainty due to the application of U.S. immigration law to the
commonwealth, ending decades of the CNMI's control over its own
immigration system.[Footnote 7] U.S. law established federal control
of CNMI immigration on November 28, 2009,[Footnote 8] with provisions
affecting employers' access to foreign workers.[Footnote 9] In 2005,
foreign workers represented a majority of the CNMI labor force and
outnumbered U.S. citizens in most industries.
The American Recovery and Reinvestment Act of 2009 required that GAO
report annually on the impact of minimum wage increases in American
Samoa and the CNMI. In 2010, Congress changed the GAO reporting
requirement to 2011, 2013, and every 2 years thereafter until the
minimum wage in the respective territory meets the federal minimum
wage.[Footnote 10]
In our April 2010 report,[Footnote 11] we found that before the first
minimum wage increase in July 2007, 37 percent of all workers and
about three-quarters of private sector workers employed by American
Samoa questionnaire respondents earned wages close enough to the
minimum wage to be directly affected by the first increase.[Footnote
12] In the CNMI, 18 percent of all workers and about a third of
private sector workers were directly affected by the first increase.
For both areas, we found that most private sector workers would be
directly affected by the increases once the minimum wage reached
$7.25. In contrast, according to Bureau of Labor Statistics estimates,
in 2006 approximately 2.2 percent of all hourly workers in the U.S.
states earned the federal minimum wage of $5.15 or less. Among other
findings, we also found that employment had very likely declined in
both areas, largely due to the loss of one of two tuna canneries in
American Samoa and of the entire garment industry in the CNMI.
This report updates our 2010 report with an additional year of
information and describes, since the minimum wage increases began, (1)
employment and earnings, and (2) the status of key industries.
In preparing this report, we reviewed and analyzed existing
information from federal sources and from the American Samoa and CNMI
local governments. In addition, because key federal sources of data on
the U.S. labor market do not cover the insular areas, we collected our
own data in each area. See table 1 for the methods we used and the
scope and limitations of our work.
Table 1: Research Methods and Scope and Limitations:
Sources: Federal agencies;
Methods:
* The federal sources generally used to generate data on wages,
occupations, and employment status for the United States, including
the Current Population Survey and the Current Employment Statistics
program, do not cover these insular areas,[A] so we identified and
used other sources of data;
* We obtained 2009 Social Security Administration (SSA) data on the
earnings and employment of individual taxpayers in American Samoa and
the CNMI, to update our analysis of data for 2005 to 2008 in the
previous report;
* We interviewed officials from the U.S. Department of Commerce (DOC),
DOI, and DOL and from SSA;
* We reviewed relevant reports and data from DOL and other U.S.
government sources;
* We reviewed U.S. minimum wage laws and other relevant laws and
regulations;
Scope and limitations:
* The SSA data cover all types of workers in American Samoa and were
sufficiently reliable for our purposes, but they exclude CNMI workers
who are not subject to SSA withholding taxes, such as CNMI government
employees and some foreign workers.[B] We have chosen not to report
the CNMI SSA data because of these coverage gaps;
* We did not focus on the extent to which laws were properly enforced
or implemented, although we considered enforcement, as appropriate.
Sources: Governments of American Samoa and the CNMI;
Methods:
* The U.S. Bureau of Labor Statistics collects Consumer Price Index
data on the U.S. 50 states but not the insular areas. Therefore, we
relied on other sources of data to compare changes in earnings and
wage rates to changes in prices;
* We analyzed American Samoa administrative and survey data, including
Consumer Price Index data;
* We analyzed available CNMI administrative and survey data, including
Consumer Price Index data for both American Samoa and the CNMI and
CNMI data on the number and earnings of workers from the CNMI
Department of Finance's tax returns. The CNMI tax data provide ranges
of earnings for both public and private sector workers and for both
citizens and noncitizens in 2009, updating our analysis of data for
2005 to 2008;
* We analyzed data on federally funded income-based programs
administered by the insular area governments;
Scope and limitations: The scope of our study does not include workers
in the underground economy[C].
Sources: GAO questionnaires and site visits;
Methods:
* In American Samoa and the CNMI in 2010, we collected updated data on
employment, wage structure, past and planned employer actions, and
related topics covering 2009 and 2010 from employers in key industries
who had responded to our 2009 questionnaire.[D] We weighted employers'
responses by the number of workers they employ;
* During visits to American Samoa and the CNMI in October 2010, we
conducted interviews and discussion groups with government officials,
employers in a range of industries and sizes, other private sector
representatives, workers, and community members. We also established e-
mail accounts to obtain comments from the public;
Scope and limitations:
* Questionnaire responses are limited to the American Samoa tuna
canning industry and the CNMI tourism industry and are not
representative of all workers and employers in each industry or each
area;
* Results of discussion groups are not representative of all workers
and employers in each industry or area.
Source: GAO.
[A] The Office of Insular Affairs of DOI has provided technical
assistance to American Samoa and the CNMI to help with data
collection, including funding for the 2005 Household, Income, and
Expenditures Surveys (HIES) and past surveys. However, this assistance
has not generated the scope of data collected by federal sources for
the United States more generally. Although the U.S. Decennial Census
collects data on employment status in American Samoa and the CNMI,
Decennial Census data from 2010 were not available for our review.
[B] The SSA data do not cover CNMI government employees and foreign
workers from the Philippines and South Korea.
[C] The underground economy would include any employers that may not
comply with laws, including tax, minimum wage, immigration, and other
laws. We did not review compliance with laws as part of this study.
[D] In 2010, both of the American Samoa employers that received our
questionnaire provided responses, including the one tuna cannery and a
closely related business that manufactures and supplies cans. Ninety-
two percent of CNMI questionnaire recipients (12 of 13, with one
additional recipient having closed) responded, and respondents
included hotels and other employers in the tourism sector, such as
tour operators. In 2009, we collected detailed data from large
employers--those with at least 50 employees--through a questionnaire
that covered 2006 to 2009.
[End of table]
Our review had certain limitations in addition to those already noted.
In particular, although our approach yielded information on trends in
employment, wages, and earnings in both areas, it is difficult to
distinguish between the effects of minimum wage increases and the
effects of other factors, including the global recession beginning in
2009, fluctuations in energy prices, global trade liberalization, and
the application of U.S. immigration law to the CNMI. We conducted our
work from September 2010 to June 2011 in accordance with all sections
of GAO's Quality Assurance Framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for the findings in this
product. See appendix I for further details of our methodology,
appendix II for additional background, and appendix V for our
questionnaire.
American Samoa Employment, Earnings, and Status of Key Industries:
American Samoa Employment Fell Sharply in 2008-2009, and Employment
and Average Inflation-Adjusted Earnings Were Lower than in 2006:
* Employment. Social Security Administration (SSA) data show that from
2008 to 2009, the total number of people employed in American Samoa
declined 19 percent (from 19,171 to 15,434) and that over the entire
period from 2006 to 2009, employment declined 14 percent (from 17,852
to 15,434, with a peak of 19,171 in 2008). Data from 2010 on total
employment are not yet available. Questionnaire responses from the
tuna canning industry show that employment of their workers--most of
whom are foreign workers from independent Samoa--dropped by 55 percent
from 2009 to 2010, reflecting the September 2009 closure of one
cannery and layoffs in the remaining cannery.[Footnote 13] In
addition, we estimated that from 2,000 to 3,000 temporary federal jobs
funded beginning in June 2009 will end when federal funding is no
longer available.[Footnote 14] Private sector officials said minimum
wage was one of a number of factors, including the high cost of goods
and utilities, making it difficult to do business in American Samoa.
American Samoa government data show the minimum wage increases would
raise government payroll costs for its employees by about 1 percent
(about $9 million) over 7 years, and the American Samoa governor and
other public officials said they supported a return to biennial
reviews of minimum wage in American Samoa or other alternatives to the
scheduled increases.[Footnote 15]
* Inflation-adjusted earnings of those employed. Earnings data from
SSA and consumer price data show that from 2008 to 2009, average
inflation-adjusted earnings of those employed fell by 5 percent. This
resulted from a decrease in average earnings of 2 percent, and an
increase in prices of 3 percent. For the period from 2006 to 2009,
average inflation-adjusted earnings fell by 11 percent. This resulted
from a rise in average annual earnings of about 5 percent while local
prices rose by about 18 percent. Although earnings data do not allow
for a direct comparison of average and minimum wage annual earnings or
for tracking the earnings of workers who lost their jobs, the hourly
wage of minimum wage workers increased by more than inflation. The
inflation-adjusted earnings of minimum wage cannery workers who
retained their jobs and work hours rose by about 8 percent from 2008
to 2009 and by about 23 percent for the entire period from 2006 to
2009.
The American Samoa Tuna Canning Industry Has Continued to Lay Off
Workers and Has Considered Alternate Locations:
* Tuna canning wages. Without a minimum wage increase in American
Samoa in 2010, there was no increase in the median wage of tuna
canning workers--in both 2009 and 2010, the median tuna canning worker
wage was $4.76. Consistent with our last report, from 2007 to 2010,
the median wage among workers in the tuna canning industry employed by
questionnaire respondents rose by $1.46 (44 percent). Based on
questionnaire responses about workers' wages as of June 2010, the
future minimum wage increases would affect the wages of 99 percent of
current workers in the tuna canning industry by the time the minimum
wage reaches $7.25, increasing the average annual cost per worker in
2016 by $4,660 since June 2010.[Footnote 16]
* Tuna canning employer actions. The two employers in the tuna canning
industry reported in our questionnaire that they had taken cost-
cutting actions from June 2009 to June 2010, including laying off
workers, reducing overtime hours, freezing hiring, decreasing
benefits, temporarily closing, reducing operating capacity or
services, and raising prices, among other actions. They reported plans
to take the same types of cost-cutting actions by early 2012,
including laying off additional employees. They attributed most of
their past and planned actions largely to the minimum wage increases
and did so more often than they attributed their actions largely to
some other factors, such as transportation and shipping costs and
changes in business taxes and fees. However, they said a decrease in
the number of customers, such as wholesale customers, was another
important factor affecting their actions.
* Tuna canning industry analysis. In addition to the minimum wage
increases, cannery officials also expressed concern about American
Samoa's dwindling competitive advantage in the global tuna canning
industry and said that current operations in American Samoa were not
competitive with other models. Analysis of alternate models available
to the industry suggests that moving tuna cannery operations--
including unloading, loining (cleaning, cooking, and cutting), and
canning fish--from American Samoa to another tariff-free country with
lower labor costs would significantly reduce cannery operating costs.
However, given that tuna facilities in American Samoa are among few in
the United States that can meet the requirements of U.S. government
contracts, many of which require U.S.-sourced and processed fish,
maintaining some operations in American Samoa would allow the facility
to continue to compete for these contracts. Despite the advantages of
moving some operations to other countries, the remaining cannery's
lease obligation through 2013 and the cost of building new facilities
elsewhere may pose obstacles to near-term relocation. In addition, a
new tuna facility operator has hired a small number of workers
formerly employed by the cannery that closed, but it is unclear how
many additional workers they will hire.
* Tuna canning and other worker views. Some workers said they had
looked forward to the 2010 minimum wage increase and were disappointed
to see the increase delayed. However, more workers, particularly tuna
canning workers, expressed concern over job security than favored a
minimum wage increase with the potential for subsequent layoffs.
See table 2 for key findings and appendix III for detailed findings
and tables on American Samoa.
Table 2: American Samoa Key Findings:
Employment.
All sectors: Percentage change in numbers employed, 2008-2009:
19 percent decrease,[A] as well as direct loss of 2,000 jobs due to
September 2009 cannery closure; full extent of employment change from
loss of cannery unknown[B].
All sectors: Percentage change in numbers employed, 2006-2009:
14 percent decrease[A].
Tuna canning industry: Percentage change in numbers employed, 2009-
2010:
55 percent decrease[C].
Tuna canning industry: Percentage change in numbers employed, 2007-
2010:
59 percent decrease[C].
Inflation-adjusted earnings:
Percentage change in average inflation-adjusted earnings of those
employed, 2008-2009:
5 percent decrease[A,D].
Percentage change in average inflation-adjusted earnings of those
employed, 2006-2009:
11 percent decrease[A,D].
Estimated percentage change in inflation-adjusted earnings of minimum
wage cannery earners who kept employment and work hours, 2008-2009:
8 percent increase[B,D].
Estimated percentage change in inflation-adjusted earnings of minimum
wage cannery earners who kept employment and work hours, 2006-2009:
23 percent increase[B,D].
Tuna canning wages:
Percentage of hourly-wage tuna canning workers employed by
questionnaire respondents in 2010 with wages affected by the May 2009
minimum wage increase:
69 percent[C].
Percentage of hourly-wage tuna canning workers employed by
questionnaire respondents in 2010 who would be affected by minimum
wage increases through 2016 (when tuna canning minimum wage reaches
$7.25):
99 percent[C].
Tuna canning employer actions:
Tuna canning employers that laid off workers from 2009 to 2010 and
attribution to past minimum wage increases:
* The two employers in the tuna canning industry reported laying off
hourly-wage workers;
* Employers attributed most of their actions largely to the past
minimum wage increases[C].
Tuna canning employers that planned to lay off additional workers by
early 2012 and attribution to the minimum wage increases:
* The two employers in the tuna canning industry planned additional
layoffs of hourly-wage workers;
* Employers attributed most of their planned actions largely to the
minimum wage increases[C].
Tuna canning and other worker views:
More workers, particularly tuna canning workers, expressed concern
over job security than favored a minimum wage increase with the
potential for subsequent layoffs[E].
Source: GAO analysis of data from GAO tuna canning industry
questionnaire, SSA, Consumer Price Index, and GAO discussion groups.
Notes: Employers responding to GAO's first questionnaire in 2009
included the two tuna canning employers, as well as other employers
with 50 or more employees. Questionnaire updates in 2010 covered the
two tuna canning employers and excluded employers in other industries,
smaller employers, and employers that had closed between 2007 and the
date of our questionnaire. Based on U.S. Economic Census data, our
respondents represented about 17 percent of the American Samoa private
sector workforce in 2007. In addition, they represented about 100
percent of the tuna canning-related workforce. American Samoa
questionnaire respondents provided hourly wage data on a total of
1,869 workers as of June 2010. Responses are not necessarily
representative of all American Samoa workers and employers. Because
one respondent covered a large percentage of workers employed by the
two questionnaire respondents, these employers' responses
significantly affected reported questionnaire data.
[A] GAO analysis of SSA data.
[B] GAO estimate.
[C] GAO analysis of responses to GAO's American Samoa tuna canning
employer questionnaire.
[D] GAO analysis of Consumer Price Index data.
[E] GAO analysis of American Samoa discussion group results.
[End of table]
CNMI Employment, Earnings, and Status of Key Industries:
CNMI Employment Fell in 2008-2009 and Has Decreased Substantially
since 2006, and Average Inflation-Adjusted Earnings Have Remained
Largely Unchanged:
* Employment. From 2008 to 2009, the total number of people employed
fell by about 13 percent, according to CNMI government tax data. For
the entire period from 2006 to 2009, the number employed fell 35
percent. The decrease largely reflected the early 2009 closure of the
CNMI's last remaining garment factories, which employed many foreign
workers.[Footnote 17] In addition, we estimated that less than 1,000
temporary federal jobs funded beginning in June 2009 will end when
federal funding is no longer available.[Footnote 18] In the tourism
industry, employment among GAO questionnaire respondents fell 8
percent from 2009 to 2010 and fell 14 percent over the entire period
from 2007 to 2010. Private sector employers reported in discussion
groups some layoffs and hiring freezes, and they said minimum wage
increases imposed additional costs during a time in which multiple
factors made it difficult to operate. They also expressed concerns
about the departure of the garment industry, decline of the tourism
industry, population loss, and changes to immigration law. According
to CNMI government payroll data, about 17 percent of government
workers are paid at or below $7.25 and would be affected by the
minimum wage increases by 2016.
* Inflation-adjusted earnings of those employed. From 2008 to 2009,
based on CNMI government tax data and consumer price data, inflation-
adjusted average earnings of those employed rose by 3 percent. This
resulted from a 7 percent increase in average earnings, with a 3.5
percent increase in prices. Over the entire period from 2006 to 2009,
average inflation-adjusted earnings remained largely unchanged, with a
slight drop of .5 percent. This resulted from a 19 percent increase in
average earnings and a 19.5 percent increase in prices. Although
earnings data do not allow for a direct comparison of average and
minimum wage annual earnings or for tracking the earnings of workers
who lost their jobs, the hourly wage of minimum wage workers increased
by more than inflation. The inflation-adjusted earnings of minimum
wage workers who retained their jobs and work hours rose by about 9
percent from 2008 to 2009, and by about 25 percent for the entire
period from 2006 to 2009.
The CNMI Tourism Industry Has Experienced Declines in Visitor
Arrivals, and Hotels Have Absorbed Minimum Wage Increases Rather than
Raising Room Rates:
* Tourism wages. From June 2007 to 2010, a period that included three
minimum wage increases, the median wage among workers employed by CNMI
tourism industry questionnaire respondents rose by 95 cents (26
percent). In addition, in the tourism industry, the 2007 through 2010
wage increases narrowed the wage gap between the lowest and highest
paid employees of questionnaire respondents by 52 percent. Employers
said in interviews that the wage compression had lowered morale for
more senior employees. Based on questionnaire responses about workers'
wages as of June 2010, the future minimum wage increases would affect
the wages of 95 percent of current workers in the CNMI tourism
industry by the time the minimum wage reaches the U.S. minimum wage of
$7.25, increasing the average annual cost per worker in 2016 by $4,707
since June 2010.[Footnote 19]
* Tourism employer actions. Hotel and other employers in the CNMI
tourism industry responding to our questionnaire reported having taken
cost-cutting actions from June 2009 to June 2010, including reducing
hours, freezing hiring, decreasing benefits, and raising prices of
goods or services. Employers also reported plans to take the same
types of cost-cutting actions by early 2012, as well as laying off
workers. Few employers--weighted by numbers of employees--attributed
their past actions largely to the minimum wage increases, and one half
or less did so for each of the planned actions. Employers noted other
factors, including changes in immigration law and a decrease in the
number of customers, that largely contributed to their actions.
* Hotel industry analysis. Due to competition from other vacation
destinations and to declining visitor arrivals, CNMI hotels have
generally absorbed minimum wage costs rather than raise room rates.
Both visitor arrivals and flight seats available to the CNMI declined
from 2005 to 2010, and the greatest declines in both by country were
from Japan--the CNMI's largest tourism market. Industry data show that
since 2006 the hotel occupancy rate has remained between 58 and 64
percent, while inflation-adjusted room rates declined by about 12
percent from 2006 to 2009. If observed trends continue, scheduled
minimum wage increases will increase the share of hotels' total
operating costs attributable to payroll from approximately 29 percent
of operating costs in 2010 (with minimum wage increases representing
about 1 percent of total operating costs) to 34 percent in 2016 (with
minimum wage increases representing about 8 percent of the total). In
discussion groups, some hotel and other tourism employers and managers
expressed concern about the minimum wage increases, but others said
the minimum wage increases were needed and manageable and that the
primary difficulty was the CNMI tourism industry's general decline.
* Tourism and other worker views. Workers participating in our CNMI
discussion groups expressed mixed views regarding the minimum wage
increases and said they would like pay increases but were concerned
about losing jobs and work hours. Participants said they wanted to
receive the pay increases to help meet rising prices, including for
utilities and consumer goods. However, they said they had observed
that while some workers received pay increases, others lost jobs or
work hours.
See table 3 for key findings and appendix IV for detailed findings and
tables on the CNMI.
Table 3: CNMI Key Findings:
Employment:
All sectors: percentage change in numbers employed, 2008-2009:
13 percent decrease[A].
All sectors: percentage change in numbers employed, 2006-2009:
35 percent decrease[A].
Tourism industry: percentage change in numbers employed by
questionnaire respondents, 2009-2010:
8 percent decrease[B].
Tourism industry: percentage change in numbers employed by
questionnaire respondents, 2007-2010:
14 percent decrease[B].
Inflation-adjusted earnings:
Percentage change in average inflation-adjusted earnings of those
employed, 2008-2009:
3 percent increase[A,C].
Percentage change in average inflation-adjusted earnings of those
employed, 2006-2009:
0.5 percent decrease[A,C].
Estimated percentage change in inflation-adjusted earnings of minimum
wage earners who kept employment and work hours, 2008-2009:
9 percent increase[D].
Estimated percentage change in inflation-adjusted earnings of minimum
wage earners who kept employment and work hours, 2006-2009:
25 percent increase[D].
Tourism industry wages:
Percentage of hourly-wage tourism workers employed by questionnaire
respondents in 2010 with wages affected by September 2010 minimum wage
increase:
73 percent[B].
Percentage of hourly-wage tourism workers employed by questionnaire
respondents in 2010 who would be affected by minimum wage increases
through 2016 (when minimum wage reaches $7.25):
95 percent[B].
Tourism employer actions:
Percentage of tourism employers that laid off hourly workers from 2009
to 2010 and percentage of those employers that attributed the action
largely to the minimum wage increases (weighted by numbers of workers):
* Employers representing 3 percent of workers employed by
questionnaire respondents laid off hourly-wage workers;
* Of those, none attributed layoffs largely to the minimum wage
increases[B].
Percentage of tourism employers that planned to lay off additional
workers by early 2012 and percentage of those employers that
attributed the planned action largely to the minimum wage increases
(weighted by numbers of workers):
* Employers representing 62 percent of workers employed by private
sector questionnaire respondents planned additional layoffs of hourly-
wage workers;
* Of those, none attributed their plans largely to the minimum wage
increases[B].
Tourism and other worker views:
CNMI workers said they would like pay increases but were concerned
about losing jobs and work hours[E].
Source: GAO analysis of data from GAO tourism industry questionnaire,
CNMI government, Consumer Price Index, and GAO discussion groups.
Notes: Employers responding to GAO's first questionnaire in 2009
included hotels and other tourism-related employers, as well as other
employers with 50 or more employees. Questionnaire updates in 2010
covered hotels and other tourism-related employers and excluded
employers in other industries, smaller employers, employers that did
not respond to the 2009 questionnaire, and employers that had closed
between 2007 and the date of our questionnaire, including garment
factories. Based on 2007 U.S. Economic Census data, respondents
represented about 8 percent of the total CNMI private sector workforce
and hotels represented 48 percent of the accommodation workforce. CNMI
questionnaire respondents provided hourly wage data on a total of
1,567 workers as of June 2010. Responses are not necessarily
representative of all CNMI workers and employers. Percentages of
employers reporting actions are weighted by each employer's total
number of workers in 2009. Percentages of employers that attributed
each action largely to minimum wage increases are weighted to reflect
those employers' number of workers relative to all workers employed by
respondents that reported the action.
[A] Based on CNMI tax data.
[B] Based on responses to GAO's CNMI tourism industry questionnaire.
[C] Based on analysis of Consumer Price Index data.
[D] Based on GAO estimate.
[E] Based on discussion group results.
[End of table]
Concluding Observations:
Since the minimum wage increases began in 2007, both American Samoa
and the CNMI have experienced substantial decreases in employment,
largely resulting from the loss of one of two tuna canneries in
American Samoa and, in the CNMI, loss of the garment industry. The
local economies of both these insular areas differ from the U.S.
economy in a number of ways, including that the percentage of workers
paid the minimum wage is much higher than in the U.S. 50 states.
In American Samoa, tuna canning employers responding to our
questionnaire attributed most past actions such as layoffs, work hour
reductions, and hiring freezes largely to the minimum wage increases.
CNMI tourism employers responding to our questionnaire also took
actions including reducing hours, freezing hiring, and decreasing
benefits. Few attributed past actions and one half or less attributed
each of the planned actions to the minimum wage increases. In both
areas, employers in discussion groups said the minimum wage increases
were one of multiple factors making it difficult to conduct business.
The economic declines in American Samoa and the CNMI are substantial,
and both areas face budget shortfalls that may threaten their ability
to fund public services and make investments in support of future
economic development. In addition, the expiration of federal
assistance and temporary jobs funded through the Recovery Act and
other programs will likely expose greater challenges. Both areas have
tried to identify opportunities for new industries and growth, but so
far neither has succeeded in attracting significant new investment.
Identifying new growth opportunities and maintaining needed
infrastructure and services in the meantime will require substantial
effort by the private sector and by both the local and federal
governments.
Agency Comments and Our Evaluation:
We provided a draft of this report to officials in DOC, DOI, DOL, SSA,
and in the governments of American Samoa and the CNMI for review and
comment. We received written comments from DOC, the American Samoa
government, and the CNMI government, which are reprinted in appendixes
VI, VII, and VIII, respectively. We also received technical comments
from DOI and DOL, which we incorporated as appropriate. SSA had no
comments. We shared excerpts of the draft with several private sector
entities and experts and incorporated their comments as appropriate.
Following are summaries of the written comments from DOC, the American
Samoa government, and the CNMI government, with our responses.
* Department of Commerce. In its written comments, DOC said it
appreciated the opportunity to provide comments, and it provided
additional technical comments.
* American Samoa. In its written comments, the American Samoa
government generally agreed with our findings. However, it stated that
employment losses and other aspects of economic decline in American
Samoa are greater than the report suggests and constitute an economic
depression. It stated that application of the U.S. minimum wage to
American Samoa, pursuant to the scheduled increases mandated by
Congress, continues to have devastating effects on American Samoa's
economy and labor market. The American Samoa government also compared
the economy and minimum wage increases in American Samoa to those in
the U.S. states and concluded that the minimum wage increases caused
severe employment decline in American Samoa. In addition, the American
Samoa government recommended in its written comments and in a January
2011 letter that GAO explore alternative methods for setting minimum
wage levels in American Samoa and issue recommendations. The
government provided several alternative methods for consideration.
While we considered these suggestions and summarized them in the
report, our research objectives and methodology were developed in
response to the legislative mandate and in discussions with
congressional requesters. These objectives and methodology were
designed to provide sufficient information and analysis to support
congressional deliberation on minimum wage in American Samoa and the
CNMI. In its written comments, the American Samoa government asked GAO
or other federal entities to consider the following recommendations:
terminate increases in the minimum wage immediately in American Samoa;
conduct a thorough analysis of why adverse economic effects of the
minimum wage increases were greater in American Samoa than in the
United States; and determine procedures for addressing minimum wage in
American Samoa in a way that avoids future economic disasters.
Appendix VII provides our more detailed evaluation of the American
Samoa government's letter.
* CNMI. In its written comments, the CNMI government said the draft
report fairly characterized current conditions in the CNMI and stated
that the findings were similar to those in our last report. It noted
that CNMI businesses were struggling to survive as they faced multiple
factors, including the contracting economy, uncertainties surrounding
the application of U.S. immigration law, rising energy costs, and the
global recession. It raised several questions and concerns regarding
the report methodology. First, the CNMI government questioned that for
some key past and future actions, such as reducing regular work hours
and freezing hiring, no CNMI employers attributed the actions to the
minimum wage increases. We note that, as stated in the report, we
present the weighted percentage of employers who attributed each
action to the minimum wage increases "to a large extent" (not those
who attributed the action to the minimum wage increases "to a small
extent" or "to a moderate extent"). The CNMI government cited several
of the limitations of the tourism industry questionnaire, as described
in this report, and recommended that the reporting method be improved
to gather a clearer picture regarding minimum wage increases and to
improve data integrity. However, for any questionnaire based on self-
reported data, we cannot eliminate the possibility that some
employers' views of the minimum wage increases may have influenced
their responses. In addition, the CNMI government stated that the
analyses of CNMI residents' living standards should be strengthened,
as required by congressional mandate. Although the original mandate
(2009) specifically required us to study minimum wage effects on
living standards, the current mandate (2010) does not. However, the
report includes qualitative findings related to living standards based
on discussion groups with employers and with workers, as well as
quantitative findings on the inflation-adjusted earnings of average
and minimum wage workers. Last, the CNMI government stated that it
appreciated the delay in the minimum wage but was concerned about
other factors. It recommended that this and future reports provide
recommendations to Congress, federal agencies, and the local
government on managing these challenges. Appendix VIII provides our
more detailed evaluation of the CNMI government's letter.
We are sending copies of this report to interested congressional
committees. We also will provide copies of this report to the U.S.
Secretaries of Commerce, the Interior, Labor, to the Commissioner of
Social Security, and to the Governors of American Samoa and the CNMI.
In addition, the report will be available at no charge on the GAO Web
site at [hyperlink, http://www.gao.gov].
If you or your staffs have questions about this report, please contact
David Gootnick at (202) 512-3149 or gootnickd@gao.gov, or Tom McCool
at (202) 512-2642 or mccoolt@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this
report are listed in appendix IX.
Signed by:
David Gootnick:
Director, International Affairs and Trade:
Signed by:
Tom McCool:
Director, Center for Economics, Applied Research and Methods:
List of Committees:
The Honorable Jeff Bingaman:
Chairman:
The Honorable Lisa Murkowski:
Ranking Member:
Committee on Energy and Natural Resources:
United States Senate:
The Honorable Tom Harkin:
Chairman:
The Honorable Michael B. Enzi:
Ranking Member:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable John P. Kline:
Chairman:
The Honorable George Miller:
Ranking Member:
Committee on Education and the Workforce:
House of Representatives:
The Honorable Barbara Mikulski:
Chairwoman:
The Honorable Kay Bailey Hutchison:
Ranking Member:
Subcommittee on Commerce, Justice, Science, and Related Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Jack Reed:
Chairman:
The Honorable Lisa Murkowski:
Ranking Member:
Subcommittee on Interior, Environment, and Related Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Tom Harkin:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Subcommittee on Labor, Health and Human Services, Education, and
Related Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Frank R. Wolf:
Chairman:
The Honorable Chaka Fattah:
Ranking Member:
Subcommittee on Commerce, Justice, Science, and Related Agencies:
Committee on Appropriations:
House of Representatives:
The Honorable Michael K. Simpson:
Chairman:
The Honorable James P. Moran:
Ranking Member:
Subcommittee on Interior, Environment, and Related Agencies:
Committee on Appropriations:
House of Representatives:
The Honorable Denny Rehberg:
Chairman:
The Honorable Rosa DeLauro:
Ranking Member:
Subcommittee on Labor, Health and Human Services, Education, and
Related Agencies:
Committee on Appropriations:
House of Representatives:
The Honorable John Fleming:
Chairman:
The Honorable Gregorio Kilili Camacho Sablan:
Ranking Member:
Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs:
Committee on Natural Resources:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report updates our 2010 report on American Samoa and the
Commonwealth of the Northern Mariana Islands (CNMI)[Footnote 20] with
an additional year of information and describes, since the minimum
wage increases began, (1) employment and earnings, and (2) the status
of key industries.
To describe employment and earnings, we analyzed earnings data from
the Social Security Administration (SSA) and tax data from the CNMI
government, and we adjusted the earnings data using Consumer Price
Index (CPI) data for each area. We also analyzed responses from GAO's
questionnaire of large employers in the American Samoa tuna canning
and CNMI tourism industries. To describe the status of key industries,
we collected responses through the industry questionnaire. For both
objectives, we conducted discussion groups with employers and workers
and interviews with public officials. We provide additional
information on each data source below.
In preparing this report, we interviewed officials from the U.S.
Departments of the Interior (DOI), Commerce (DOC), and Labor (DOL), as
well as from SSA. We reviewed relevant reports and data from DOL and
other U.S. government sources. We also reviewed U.S. minimum wage laws
and other relevant laws and regulations. We did not focus on the
extent to which laws were properly enforced or implemented, although
we considered enforcement as appropriate. The scope of our study also
does not include workers in the underground economy.[Footnote 21]
Site Visits:
As noted previously, the federal sources generally used to generate
data on wages, occupations, and employment status for the United
States, including the Current Population Survey and the Current
Employment Statistics program, do not cover these insular areas.
[Footnote 22]
Because these data sources were unavailable, we collected our own data
in each area. During visits to American Samoa and the CNMI in October
2010, we conducted interviews and discussion groups with government
officials, employers in a range of industries and sizes, other private
sector representatives, workers, and community members to obtain views
and information on the minimum wage increases and related topics. In
each area, we established e-mail accounts to obtain comments from the
public. We also collected detailed data from large employers in the
American Samoa tuna canning and CNMI tourism industries through a
questionnaire, as described below.
In American Samoa, we visited the island of Tutuila and interviewed
officials in the Office of the Governor, the Department of Commerce,
the Department of Human Resources, the Department of the Treasury, the
Department of Program Planning and Budget Development, the Office of
Samoan Affairs, the Department of Legal Affairs, and other American
Samoa agencies. We met with officials of DOI's Office of Insular
Affairs. We also interviewed representatives of the private sector,
including representatives from the tuna canneries, and workers.
In the CNMI, we visited the island of Saipan and interviewed officials
in the Office of the Governor, the Department of Commerce, and the
Marianas Visitors Authority. We were not able to meet with some other
CNMI agencies, and the Office of the Governor said the officials were
not available because they had just returned to work following a
government shutdown. We met with officials of DOI's Office of Insular
Affairs and of DOL. We also interviewed representatives of the private
sector, including representatives from hotels, and workers. In
addition, we held a phone interview with the Tinian Chamber of
Commerce.[Footnote 23]
Employer Questionnaire:
In American Samoa and the CNMI in 2010, we collected updated data on
employment, wage structure, past and planned employer actions, and
related topics covering 2009 and 2010 from employers in key industries
who had responded to our 2009 questionnaire. We weighted employers'
responses by the number of workers they employed. Questionnaire
responses are limited to the American Samoa tuna canning industry and
the CNMI tourism industry and are not representative of all workers
and employers in each industry or each area.
For our 2009 questionnaire, we defined a large employer as one that
employed 50 or more workers in recent years. The employers selected to
receive the 2009 questionnaire comprised for-profit, not-for-profit,
and public sector employers. We sent the questionnaire only to
employers with 50 or more workers because we did not have sufficiently
reliable frames from which to draw a probability sample of employers
and because we could contact only a limited number of employers in
each area, given available resources. By limiting our questionnaire to
the largest employers, we were able to concentrate data collection
efforts on those who employed a disproportionately large percentage of
the workforce.[Footnote 24]
In accordance with other federal employment surveys and with our 2009
questionnaire, our 2010 large-employer questionnaire asked for wage
data for the pay period containing June 12. The questionnaire asked
separately for data regarding workers paid an hourly wage and workers
paid an annual salary. The questionnaire also included detailed
questions about changes in benefits, about employers' past and
possible future actions, and about the extent to which employers
attributed these actions to past and future minimum wage increases.
(The questionnaire is reproduced in appendix V.) Because our
questionnaire collected wage data as of June 12 of each year, the data
do not reflect the CNMI's September 30, 2010, minimum wage increase.
Before sending the 2009 questionnaire to employers, we pretested it
over the phone with three employers in the CNMI and two in American
Samoa to make sure that the questions were clear and comprehensive,
the data were readily obtainable, and the questionnaire did not place
an undue burden on employers.[Footnote 25] While we eliminated some
2009 questions for the 2010 questionnaire, revisions to remaining
questions were minor and did not require additional pretesting.
Most employers received the questionnaire by e-mail in an attached
Microsoft Word form that they could return electronically after
marking checkboxes or entering responses in open-answer boxes.
Employers returned questionnaires by e-mail, mail, or fax.
We conducted nonresponse follow-up in person and by phone while in the
insular areas. We also contacted nonrespondents by e-mail and phone.
In addition, we contacted respondents to clarify responses and request
any missing data.
Because of the lack of data on the entire workforce, it is difficult
to precisely state the percentage of the workforce that our
questionnaire represents. In 2010, both of the American Samoa
employers that received our questionnaire provided responses--
including the one remaining tuna cannery and a closely related
business that manufactures and supplies cans--resulting in a response
rate of 100 percent (both in terms of respondents and
employees).[Footnote 26] Based on Social Security data, our
respondents in 2010 represented about 12 percent of the total
workforce in 2009. Based on U.S. Economic Census data, our respondents
represented about 17 percent of the private sector workforce in 2007.
In all, American Samoa questionnaire respondents provided hourly wage
data on a total of 1,869 workers as of June 2010.
In the CNMI, 12 of 14 employers completed the questionnaire. We
confirmed that one employer had closed, and thus we did not count the
employer in the final unweighted response rate of 92 percent (12 of
13). Respondents included hotels and other employers in the tourism
sector, such as tour operators. Based on CNMI tax data, our
respondents represented about 6 percent of the total workforce in
2009. Based on Economic Census data, our respondents represented about
8 percent of the total private sector workforce in 2007. Our hotel
respondents represented about 48 percent of workers in the CNMI
accommodations industry, also based on Economic Census data. In all,
CNMI questionnaire respondents provided hourly wage data on a total of
1,576 workers as of June 2010.
In reporting the percentages for questionnaire responses throughout
our report, we weighted each percentage to reflect the proportion of
workers employed by the responding employers relative to all workers
employed by all questionnaire respondents. As a result, the responses
of larger employers affect our findings more than those of smaller
employers. We determined the number of employees at each employer by
summing the number of hourly and salaried workers that employers
reported in questionnaire responses. In addition to asking a direct
question about number of employees, the questionnaire asked
respondents to complete a separate table listing the number of
employees at each wage or salary level. Separate tables were required
for hourly wage and salaried workers. To apply the weights, we cross-
multiplied the number of employees by the employer response, then
divided by the total number of employees in the sample. For example,
if three of five employers attributed an action to the minimum wage to
a moderate extent, the unweighted response would be 60 percent.
However, if those three employers represented 300 of 400 employees,
the weighted response that we report would be 75 percent.
For our analyses of the effect of minimum wage increases, we obtained
information on earnings and employment for both hourly wage and
salaried workers during the pay periods that included June 12, 2010,
from our questionnaire. We analyzed these responses in conjunction
with data we collected from the same employers in 2009 regarding the
pay periods that included June 12, 2007, 2008, and 2009. For hourly
wage workers, respondents were asked to provide the number of
employees paid at each wage rate, and the number of both regular and
overtime hours worked during the pay period. For salaried workers,
respondents were asked the number of full-time and part-time workers
paid at each salary level. However, we focused on the effect of
minimum wage increases on hourly wage workers. Hourly wage workers
represented about 98 percent of American Samoan workers and 90 percent
of workers in the CNMI. One employer, which represented fewer than 20
employees, did not provide complete information on the distribution of
hourly wage employees and so was excluded from analyses requiring that
information. To determine the number of workers affected by each
minimum wage increase, we assumed that all workers employed by
questionnaire respondents were legally required to receive the minimum
wage. If some are not covered or are exempt, the minimum wage
increases would affect fewer workers.
After recording the questionnaire data, we verified all keypunched
records by comparing them with the corresponding questionnaires and
corrected the errors we found. Less than 0.5 percent of the data items
we checked had random keypunch errors that would not have been
corrected during data processing. Analysis programs were also
independently verified. However, we did not independently verify that
the wage and other information provided to us was correct.
The questionnaire responses cannot be used to make inferences about
all employers and workers in each insular area, or about all employers
and workers in the covered industries. First, because the lists of
employers that received the questionnaire were intended to include
only those in the American Samoa tuna canning and CNMI tourism
industries who had responded to our 2009 questionnaire (with more than
50 employees), the lists were not representative of all employers or
of all employers in those industries. Second, we were unable to survey
employers that had closed between 2007 and our questionnaire date,
including those in the CNMI garment industry. Third, some nonresponse
bias may exist in some of the questionnaire responses, since
characteristics of questionnaire respondents may differ from those of
nonrespondents and nonrecipients in ways that affect the responses
(e.g., if those that employ a larger number of workers would have
provided different responses than those that employ a smaller number).
Last, it is possible that some employers' views of the minimum wage
increases may have influenced their responses.
In addition, the one tuna cannery in American Samoa employed a large
percentage of workers employed by the two questionnaire respondents;
as a result, this employer's responses substantially affected our
reported questionnaire data. Among CNMI employer responses, two hotels
accounted for more than half of workers employed by questionnaire
respondents, so those hotels' responses substantially affected our
questionnaire results.
To study CNMI hotel minimum wage and payroll costs in relation to
operating costs, we analyzed data provided by CNMI tourism
questionnaire respondents on 2009 annual payroll before deductions for
taxes and benefits, Social Security and Medicare contributions under
the Federal Insurance Contributions Act (FICA), payments for employee
benefits, and other operating expenses. For this and other analyses in
this report, we excluded nonwage labor costs due to the minimum wage
increases, such as increases in employer payroll tax contributions
under FICA. For 2011, employers must contribute the equivalent of 6.2
percent of employee wages to Social Security and 1.45 percent to
Medicare, up to $106,800 in employee wages.
SSA Data:
We obtained 2009 SSA data (as of October 2010) on the earnings and
employment of individual taxpayers in American Samoa and the CNMI, to
update our analysis of data for 2005 to 2008 (as of August 2009) in
the previous report. While the SSA data cover all types of workers in
American Samoa and were sufficiently reliable for our purposes, three
large groups of people in the CNMI were not required to report
earnings to SSA and thus are excluded from the SSA data--CNMI
government workers and immigrant workers from the Philippines and
Korea. In 2008, these three groups represented approximately half of
all CNMI workers, according to CNMI government tax data. We have
chosen not to report the CNMI SSA data due to these coverage gaps.
For American Samoa, SSA told us that all employees were subject to SSA
withholding--no group was systematically excluded. In our prior
report, we determined that the data were generally consistent with
information from other sources, including local American Samoa W-2
data and our questionnaire results. We used SSA data to review trends
in employment in American Samoa since the federal minimum wage
increases were implemented, including to determine two aspects of
employment of American Samoa workers from 2005 to 2009. First, we used
SSA data to determine the level of employment. Our count of employed
people was based on the number of people that had positive reported
earnings to SSA. Second, we reported the average earnings per employed
person in American Samoa (excluding those with zero earnings). In
addition, we estimated the proportion of employed persons that dropped
out of our sample in the following year.
Because of data limitations, we were unable to report earnings that
had not been reported to SSA, either because of a failure on the part
of the employer or because the earnings were not subject to SSA
withholding. We also were unable to report on earnings that exceeded
the SSA withholding cap. In addition, because our data was as of
October 2010, our sample did not include those individuals for whom W-
2 records were entered into Social Security files created after
October.
To assess the reliability of the data, we interviewed agency officials
at SSA. To the extent possible, we compared employment counts from the
SSA data to counts from other sources. In addition, the counts of
American Samoa employment and earnings differ from those in our prior
report because of the inclusion of additional earnings from late W-2
filers. We updated our analysis to better isolate the earnings of
individuals working in American Samoa. We determined that the
available data were adequate and sufficiently reliable for the
purposes of depicting trends in employment and earnings in American
Samoa.
Discussion Groups:
We conducted structured discussion groups with Chamber of Commerce
members in American Samoa and the CNMI to collect information on the
impact of the minimum wage increases on employers.[Footnote 27]
Employers represented a range of industries and sizes, and we
determined that the most effective and least burdensome method of
collecting information from smaller employers would be to conduct
discussion groups. For each discussion group, the Chamber of Commerce
invited members to participate. In the CNMI, we also held discussion
groups with members of the Hotel Association of the Northern Mariana
Islands and with hotel human resource managers. The number of
participants in each group ranged from 7 to about 18 business owners
or managers.
To collect information on workers' views of the minimum wage
increases, we conducted structured discussion groups with various
worker and community groups with different organizational
affiliations. In each case, we asked the organizations' leadership to
invite members to the discussion groups. In American Samoa, we
conducted two worker discussion groups at the remaining cannery, one
group with recipients of the U.S. Department of Agriculture's Women,
Infants, and Children program, and one group with participants in a
nonprofit organization providing job training to laid-off cannery
workers. In the CNMI, we conducted one discussion group with U.S.
Department of Agriculture Nutrition Assistance Program recipients and
two discussion groups at the public library and publicized to
employers, including members of the Hotel Association of the Northern
Mariana Islands. The number of participants in each group ranged from
4 to 11.
All discussion groups were moderated by a GAO employee following a
structured guide with open-ended questions about the minimum wage
increases and related topics. Discussion groups are generally designed
to obtain in-depth information about specific issues that cannot be
easily obtained from single interviews. Methodologically, they are not
designed to provide results generalizable to a larger population or
provide statistically representative samples or quantitative
estimates. They represent the views only of the participants in our
groups and may or may not be representative of the population of
employers and workers in these insular areas. Therefore, the
experiences of other employers and workers may be different from those
who participated in our discussion groups. In addition, the groups and
participants in the groups were not random samples of employers and
workers in these insular areas.
Local Administrative Data:
The U.S. Bureau of Labor Statistics collects CPI data on the U.S. 50
states but not the insular areas. Therefore, we relied on other
sources of data to compare changes in earnings or wage rates to
changes in prices.
We analyzed American Samoa administrative and survey data, including
CPI data. We analyzed CNMI administrative and survey data, including
CPI data and CNMI data on the number and earnings of workers from the
CNMI Department of Finance's tax returns. The CNMI tax data provide
ranges of earnings for both public and private sector workers and for
both citizens and noncitizens in 2009, allowing us to update our
analysis of data for 2005 to 2008. The CNMI tax data provide ranges of
earnings, including all payments to employees such as overtime, shift
differentials, cash housing and meal allowances, bonuses, etc.
We obtained historical data on the CPI from both areas in order to
estimate inflation-adjusted earnings.[Footnote 28] For both American
Samoa and the CNMI, we used quarterly CPI data from the first quarter
of 2006 to the fourth quarter of 2009. To produce an annual CPI
series, we averaged the four quarters in each year. In addition, for
American Samoa, because the CPI was rebased in the fourth quarter of
2007, we recalculated the quarterly index series from the fourth
quarter of 2008 back to the fourth quarter of 2007 by finding a
rebasing factor such that the old and new indexes in the fourth
quarter of 2007 were identical.
For both CNMI and American Samoa, we interviewed agency officials and
contractors responsible for producing the quarterly CPI estimates.
During our interviews and review, we noted irregularities in the CNMI
CPI data. After we brought this to the responsible agency officials'
attention, they determined that there had been an error in the
published CNMI CPI, and they provided to us a corrected index that did
not exhibit the same irregularities. The revised CPI's inflation rate
was approximately four percentage points lower than the one previously
published. The CNMI CPI data cover the island of Saipan; CPI data for
2006 to 2009 were not available for the islands of Tinian and Rota.
We also analyzed industry data. For example, to determine hotel room
prices and hotel occupancy rates in the CNMI, we collected data from
the Hotel Association of the Northern Mariana Islands and conducted
related interviews and correspondence. In addition, the Marianas
Visitors Authority provided data on flight seats and arrivals by
country of residence. We found the data used to be reliable and
relevant for the purposes of our report.
Data Reliability and Limitations:
In general, to establish the reliability of the data that we used for
reporting trends and statistics for both American Samoa and the CNMI,
we systematically obtained information about the way in which data
were collected and tabulated. When possible, we checked for
consistency across data sources. While the data had some limitations,
we determined that the available data were adequate and sufficiently
reliable for the purposes of our review.
Our review had certain limitations in addition to those already noted.
In particular, although our approach yielded information on trends in
employment, wages, and earnings in both areas, it is difficult to
distinguish between the effects of minimum wage increases and the
effects of other factors, including the global recession beginning in
2009, fluctuations in energy prices, global trade liberalization, and
the application of U.S. immigration law to the CNMI. In addition, our
review of minimum wage increases is limited to American Samoa and the
CNMI, and we did not study minimum wage increases in the U.S. economy
more broadly.
We conducted our work from September 2010 to June 2011 in accordance
with all sections of GAO's Quality Assurance Framework that are
relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence
to meet our stated objectives and to discuss any limitations in our
work. We believe that the information and data obtained, and the
analysis conducted, provide a reasonable basis for the findings in
this product.
[End of section]
Appendix II: Background:
American Samoa:
American Samoa comprises five volcanic islands and two coral atolls
with a combined land area of 76 square miles--slightly larger than
Washington, D.C.--located about 2,600 miles southwest of Hawaii (see
figure 1). In 2005, American Samoa had a population of about 63,780.
[Footnote 29] Its capital, Pago Pago, is on the main island of
Tutuila, which consists mostly of rugged terrain with relatively
little level land; most economic activity and government operations in
American Samoa take place in the Pago Pago Bay area.
Figure 1: Map of American Samoa:
[Refer to PDF for image: map]
Source: Map Info (map).
[End of figure]
American Samoa-U.S. Relations:
U.S. interest in the Samoan islands began in 1872 with the efforts of
the U.S. Navy to establish a naval station in Pago Pago harbor. The
protectorate over all the Samoan islands established by the United
States, Britain, and Germany ended in 1899, when the islands composing
American Samoa were placed under U.S. control. The U.S. Naval Station
was established in 1900.[Footnote 30] From 1900 through 1904, the U.S.
government negotiated control over American Samoa,[Footnote 31] and
the U.S. Navy subsequently took responsibility for federal governance
of the territory. In 1951, governance was transferred to the Secretary
of the Interior.[Footnote 32] In 1960, American Samoa residents
adopted their own constitution. Amendments to the constitution of
American Samoa can only be made by the U.S. Congress.[Footnote 33]
Persons born in American Samoa are U.S. nationals but may apply to
become naturalized U.S. citizens.[Footnote 34] U.S. noncitizen
nationals from American Samoa have the right to travel freely, live,
and work throughout the United States. American Samoa exercises
authority over its immigration system and customs through locally
adopted laws.[Footnote 35]
Additionally, the U.S. government has supported American Samoa's
economy through trade and tax policies that, respectively, have
provided tariff-free access to the United States for tuna canned in
American Samoa and have reduced federal taxes on income earned by
qualifying U.S. corporations investing in American Samoa.[Footnote 36]
However, changes to various free trade agreements within the last
decade have lowered U.S. tariffs on tuna exported from several other
countries, reducing the American Samoa canneries' competitive
advantage.[Footnote 37] U.S. tax policies, designed to encourage
certain U.S. corporations to invest in the U.S. insular areas and
create jobs, expired and were recently extended through 2011.[Footnote
38]
American Samoa Government Fiscal Condition:
The American Samoa government, excluding component units, spent
approximately $146.6 million in grants from several federal agencies
in fiscal year 2009, according to the most recent American Samoa
Single Audit Report.[Footnote 39] American Samoa has received federal
funds under the American Recovery and Reinvestment Act (Recovery Act)
that temporarily supplement local government revenues.[Footnote 40]
Excluding component units, local government spending exceeded revenues
each year from 2005 to 2009, except for fiscal year 2008 (see figure
2). From 2005 to 2009, the American Samoa government's budget deficit
averaged 4 percent of total revenues. In 2010, government revenues
were lower than expected, and local government officials have
projected a $7 million shortfall in local revenues for fiscal year
2011. The governor of American Samoa has submitted revenue generating
measures for legislative approval; in February 2011, the governor
implemented a reduction-in-work-hours plan for select local government
employees whose salaries are paid by local revenues. In March 2011,
the governor signed into law a 2 percent increase in the wage tax that
is intended to raise local revenues.
Figure 2: American Samoa Government Revenues and Expenditures,
Excluding Component Units, 2005-2009:
[Refer to PDF for image: combined vertical bar and line graph]
Fiscal year: 2005;
Total expenditures excluding component units: $192.5 million;
Total revenues excluding component units: $182.0 million.
Fiscal year: 2006;
Total expenditures excluding component units: $202.3 million;
Total revenues excluding component units: $195.2 million.
Fiscal year: 2007;
Total expenditures excluding component units: $179.0 million;
Total revenues excluding component units: $172.0 million.
Fiscal year: 2008;
Total expenditures excluding component units: $200.8 million;
Total revenues excluding component units: $201.0 million.
Fiscal year: 2009;
Total expenditures excluding component units: $222.0 million;
Total revenues excluding component units: $211.2 million.
Source: GAO analysis of American Samoa Single Audit Reports, 2005-2009.
Note: Revenues and expenditures data shown above exclude the following
component units: the American Samoa Government Employees Retirement
Fund, the American Samoa Economic Development Authority, the American
Samoa Power Authority, the American Samoa Community College, Lyndon B.
Johnson Tropical Medical Center, and the American Samoa
Telecommunications Authority. In addition, the above data exclude some
other funds, such as the proprietary fund.
[End of figure]
American Samoa Economy:
The U.S. Department of Commerce's Bureau of Economic Analysis (BEA)
estimated that in 2007 American Samoa's gross domestic product (GDP)
was $532 million. From 2002 to 2007, real GDP increased at an
estimated average annual rate of 0.4 percent while per capita real GDP
decreased at an estimated average annual rate of 1.9 percent.[Footnote
41]
Key Industries:
The tuna canning industry and the government sector have been American
Samoa's two largest employers.[Footnote 42] In 2006, about a third of
American Samoa's workforce was employed by the two tuna canneries;
about a third was employed by other businesses, many supporting the
tuna industry; and about a third worked in the government sector.
[Footnote 43] Noncitizens, mostly from the independent state of Samoa,
compose approximately a third of American Samoa's population of 63,780
in 2005 (see figure 3) and roughly four-fifths of the canneries'
employees. Many citizens of the independent state of Samoa reside in
American Samoa on a long-term basis, including spouses and relatives
of American Samoans.
Figure 3: Citizenship Status of American Samoa Population, 1980-2005:
[Refer to PDF for image: stacked vertical bar graph]
Year: 1980[A];
Neither U.S. citizens nor nationals (percentage): 11,514 (36.7%);
U.S. citizens or nationals (percentage): 20,783 (64.3%);
Total population: 32,297.
Year: 1985;
Neither U.S. citizens nor nationals (percentage): NA;
U.S. citizens or nationals (percentage): NA;
Total population: NA.
Year: 1990;
Neither U.S. citizens nor nationals (percentage): 17,031 (36.4%);
U.S. citizens or nationals (percentage): 29,742 (63.6%);
Total population: 46,773.
Year: 1995;
Neither U.S. citizens nor nationals (percentage): NA;
U.S. citizens or nationals (percentage): NA;
Total population: NA.
Year: 2000;
Neither U.S. citizens nor nationals (percentage): 20,251 (35.3%);
U.S. citizens or nationals (percentage): 37,040 (64.7%);
Total population: 57,291.
Year: 2005;
Neither U.S. citizens nor nationals (percentage): 21,370 (33.5%);
U.S. citizens or nationals (percentage): 42,410 (66.5%);
Total population: 63,780.
[Text box:
U.S. Census Bureau 2010 midyear population estimate: 66,000.
In 2008, the American Samoa Department of Commerce estimated that from
45 to 55 percent of the population was foreign born. End text box]
Sources: GAO analysis of decennial U.S. Census data and 2005 (draft)
report by American Samoa government on household, income, and
expenditures survey (bar chart); U.S. Census Bureau, Population
Division, International Database (text box, 2010); and Immigration and
Population Growth in the Territory of American Samoa from 1980 to 2008”
Analysis and Trends, January 20, 2009 (text box, 2008).
Note: Comparable data were not available for years 1985 and 1995. U.S.
Decennial Census data from 2010 were not available for our review.
[A] For 1980, the definition of U.S. citizen includes people born in
the United States, the CNMI, Guam, and American Samoa. Persons with
place of birth not reported are classified as not U.S. citizens.
[End of figure]
The tuna canning industry, a mainstay of the American Samoa economy
since the 1950s, maintained a relatively constant flow of exports to
the United States until 2008, despite competition from other
countries. From 2008 to 2010, tuna exports from American Samoa to the
United States declined, as shown in figure 4. Tuna exports represented
97 percent of the total value of American Samoa's commodity exports
(over $312 million) to the United States in 2010.
Figure 4: American Samoa Tuna Exports to the United States, 1997-2010:
[Refer to PDF for image: line graph]
Year: 1997;
Tuna exports: $403.9 million.
Year: 1998;
Tuna exports: $451.0 million.
Year: 1999;
Tuna exports: $446.5 million.
Year: 2000;
Tuna exports: $426.3 million.
Year: 2001;
Tuna exports: $400.8 million.
Year: 2002;
Tuna exports: $470.6 million.
Year: 2003;
Tuna exports: $467.6 million.
Year: 2004;
Tuna exports: $408.9 million.
Year: 2005;
Tuna exports: $445.9 million.
Year: 2006;
Tuna exports: $445.1 million.
Year: 2007;
Tuna exports: $451.5 million.
Year: 2008;
Tuna exports: $579.7 million.
Year: 2009;
Tuna exports: $471.1 million.
Year: 2010;
Tuna exports: $302.0 million.
Source: GAO analysis of U.S. Department of Commerce data.
[End of figure]
In addition, the canneries have provided many indirect benefits to
other industries and the economy in American Samoa. For example, many
businesses exist to support the canneries, such as the company that
manufactures the cans. Maintenance for the canneries and for the
vessels that supply the canneries also brings business and jobs to the
island. Cannery workers spend money at local establishments, such as
restaurants and retail stores. Additionally, exported cannery products
and delivery of materials to the canneries reduced the shipping cost
of bringing other goods to American Samoa.
Chicken of the Sea International,[Footnote 44] which operated one of
the two canneries in American Samoa, closed its cannery operations in
the territory at the end of September 2009.[Footnote 45] Chicken of
the Sea relocated canning facilities to the U.S. state of Georgia
while outsourcing the more labor-intensive processes, including
cleaning and cooking the tuna loins (a low-tariff U.S. import), to
countries with lower labor costs. The remaining tuna cannery,
StarKist,[Footnote 46] has expressed concerns about the costs of
operating in American Samoa.
On October 5, 2010, Tri Marine International acquired the former
Chicken of the Sea tuna cannery in American Samoa.[Footnote 47] While
provisions in the company's local tax exemption certificate indicate
opportunities for new employment and investment, expected short-range
employment is well below the certificate's benchmark targets,
according to the company.[Footnote 48]
On September 29, 2009, a tsunami following a strong earthquake left 34
people dead in American Samoa. Although the two tuna canneries were
mostly spared, the tsunami caused severe damage to homes, businesses,
and water and electrical infrastructure. The federal government issued
a disaster declaration and has assisted with tsunami recovery efforts.
As of September 21, 2010, the Federal Emergency Management Agency had
provided more than $37.4 million in grant assistance for housing and
disaster-related needs.[Footnote 49]
Local government and private sector officials have expressed interest
in developing American Samoa's tourism industry in an effort to spur
future economic development in the territory. In 2008, the American
Samoa government created the American Samoa Visitors Bureau; in 2009,
DOI funded the creation of a Tourism Master Plan--a written report
that proposes next steps and discusses challenges for developing
tourism in American Samoa.[Footnote 50] However, some public and
private sector officials have indicated that challenges exist in
developing the island's tourism industry, including restrictive
immigration policies, lack of promotional material, and insufficient
flight frequency. They also said that American Samoa is competing with
neighboring Pacific islands with more developed tourism industries.
Personal Income and Poverty Rates:
Current federal data on income and poverty levels in American Samoa do
not exist; however, the most recent available data show that American
Samoa had lower income and higher poverty rates than the mainland
United States. For example:
* In 2004, the median household income in American Samoa was $22,930,
[Footnote 51] while the U.S. 50-state and District of Columbia median
household income was $44,334.[Footnote 52]
* In 2004, the poverty rate for persons age 25 and older in American
Samoa was 49.9 percent,[Footnote 53] while the U.S. 50-state and
District of Columbia poverty rate for all persons was 12.7 percent.
[Footnote 54]
Commonwealth of the Northern Mariana Islands:
Part of the Mariana Islands Archipelago in Micronesia, the CNMI is a
chain of 14 islands in the western Pacific Ocean--just north of Guam
and about 3,200 miles west of Hawaii (see figure 5). Most of the CNMI
population--65,927 in 2005,[Footnote 55] with recent estimates of
decline--resides on the island of Saipan, with additional residents on
the islands of Tinian and Rota.
Figure 5: Map of the CNMI:
[Refer to PDF for image: map]
Source: Map Info (map).
[End of figure]
CNMI-U.S. Relations:
The United States took control of the Northern Mariana Islands from
Japan during the latter part of World War II, and after the war the
U.S. Congress approved the Trusteeship Agreement making the United
States responsible to the United Nations for the administration of the
islands.[Footnote 56] Later, the Northern Mariana Islands sought self-
government and permanent ties with the United States. In 1976, after
almost 30 years as a trust territory, the District of the Mariana
Islands entered into a covenant with the United States establishing
the island territory's status as a self-governing commonwealth in
political union with the United States.[Footnote 57] This covenant
grants the CNMI the right of self-governance over internal affairs and
grants the United States complete responsibility and authority for
matters relating to foreign affairs and defense affecting the CNMI.
[Footnote 58] The covenant initially made many federal laws applicable
to the CNMI, including laws that provide federal services and
financial assistance programs.[Footnote 59] The covenant preserved the
CNMI's exemption from certain federal laws that had previously been
inapplicable to the Trust Territory of the Pacific Islands, including
federal immigration laws, with certain limited exceptions,[Footnote
60] and certain federal minimum wage provisions. However, under the
terms of the covenant, the federal government has the right to apply
federal law in these exempted areas without the consent of the CNMI
government.[Footnote 61]
Until recently, the CNMI retained legislative authority over most
aspects of immigration, regulating entry into the CNMI through a
permit system. In 2008, federal legislation amended the U.S.-CNMI
Covenant to establish federal control of CNMI immigration; the law
includes several provisions affecting access to the CNMI by foreign
workers, tourists, and foreign investors that were implemented
beginning in November 2009.[Footnote 62] As we reported in August
2008, the potential impact of the legislation's implementation on the
CNMI's labor market will largely depend on decisions that the U.S.
Departments of Homeland Security (DHS) and DOL make in implementing a
program to provide foreign workers temporary permits to work in the
CNMI.[Footnote 63] Although modest reductions in CNMI-only permits for
foreign workers would cause minimal impact, any substantial and rapid
decline in the availability of CNMI-only work permits for needed
workers would have a negative effect on the economy, given foreign
workers' prominence in key CNMI industries. As of May 2011, DHS had
not issued final regulations for workers, nor has it made a permanent
decision regarding access for visitors from Russia and China. It
issued regulations for foreign investors in December 2010.[Footnote 64]
CNMI Government Fiscal Condition:
The CNMI government, excluding component units, spent approximately
$64 million in grants from several federal agencies in fiscal year
2009, according to the most recent CNMI Report on the Audit of
Financial Statements.[Footnote 65] The CNMI has received federal funds
under the American Recovery and Reinvestment Act that temporarily
supplement local government revenues.[Footnote 66]
Excluding component units, local government spending exceeded revenues
each year from 2005 to 2009 (see figure 6). From 2005 to 2009, the
CNMI government's budget deficit averaged 15 percent of total
revenues. In October 2010, the CNMI government partially shut down due
to a budget impasse. The shutdown was in effect for 10 days, and the
local government has since enacted austerity measures, including
eliminating paid holidays for government employees and reducing full-
time employees' schedules by 16 hours per 2-week pay period.[Footnote
67] Since June 2010, the local government has also occasionally
delayed payroll and is currently considering laying off employees.
Additionally, the CNMI government has struggled to make payments to
various local government departments and units. For example, the
Northern Mariana Islands Retirement Fund actuarial assessment for
fiscal year 2008 reported unfunded pension liabilities of about $530
million.[Footnote 68] In December 2010, the CNMI government owed
unpaid utility bills to the Commonwealth Utilities Corporation,
resulting in disconnected power and water service for some local
government departments, and the Marianas Visitors Authority had
unfunded liabilities of about $2 million. The Commonwealth Utilities
Corporation has been operating under a state of emergency since August
2008.
Figure 6: CNMI Government Revenues and Expenditures, Excluding
Component Units, 2005-2009:
[Refer to PDF for image: combined vertical bar and line graph]
Fiscal year: 2005;
Total expenditures excluding component units: $334.4 million;
Total revenues excluding component units: $308.5 million.
Fiscal year: 2006;
Total expenditures excluding component units: $320.8 million;
Total revenues excluding component units: $297.3 million.
Fiscal year: 2007;
Total expenditures excluding component units: $289.1 million;
Total revenues excluding component units: $244.3 million.
Fiscal year: 2008;
Total expenditures excluding component units: $329.3 million;
Total revenues excluding component units: $281.2 million.
Fiscal year: 2009;
Total expenditures excluding component units: $277.6 million;
Total revenues excluding component units: $230.2 million.
Source: GAO analysis of CNMI Reports on the Audit of Financial
Statements, 2005-2009.
Note: Revenues and expenditures data shown above exclude the following
component units: the Public School System, the Northern Mariana
Islands Retirement Fund, the Northern Mariana Islands Government
Health and Life Insurance Trust Fund, the CNMI Workers' Compensation
Commission, the Commonwealth Ports Authority, the Commonwealth
Development Authority, the Commonwealth Utilities Corporation, the
Marianas Public Land Trust, the Northern Marianas College, and the
Marianas Visitors Authority. In addition, the above data exclude some
other funds, such as the fiduciary fund.
[End of figure]
CNMI Economy:
BEA estimated that the CNMI's GDP in 2007 was $962 million. From 2002
to 2007, real GDP decreased at an estimated average annual rate of 4.2
percent. Per capita real GDP increased at an estimated average annual
rate of 0.5 percent at least partly because of population loss.
[Footnote 69]
Key Industries:
For years, the garment and tourism industries were the mainstay of the
CNMI's economy, generating employment and bringing revenue from
outside the CNMI.[Footnote 70] For example, in 1999, these two
industries accounted for about 85 percent of the CNMI's total economic
activity and 96 percent of its exports.[Footnote 71]
Several developments in international trade caused the CNMI's garment
industry to decline dramatically. In January 2005, in accordance with
a World Trade Organization 10-year phaseout agreement, the United
States eliminated quotas on textile and apparel imports from other
textile-producing countries, exposing the CNMI apparel industry's
shipments to the United States to greater competition.[Footnote 72]
Subsequently, the value of CNMI textile exports to the United States
dropped from a peak of $1.1 billion in 1998 to close to zero in 2010
(see figure 7).[Footnote 73] The number of licensed CNMI apparel
manufacturers decreased rapidly, from 34 firms in 1999 to 6 firms as
of July 2008. By the end of the first quarter of 2009, the last
garment factory in the CNMI had closed.
Figure 7: CNMI Textile Exports to the United States, 1997-2010:
[Refer to PDF for image: line graph]
Year: 1997;
Textile exports: $797.9 million.
Year: 1998;
Textile exports: $1.066 billion.
Year: 1999;
Textile exports: $1.048 billion.
Year: 2000;
Textile exports: $1.025 billion.
Year: 2001;
Textile exports: $946.7 million.
Year: 2002;
Textile exports: $815.3 million.
Year: 2003;
Textile exports: $823.8 million.
Year: 2004;
Textile exports: $807.4 million.
Year: 2005;
Textile exports: $677.0 million.
Year: 2006;
Textile exports: $495.5 million.
Year: 2007;
Textile exports: $316.7 million.
Year: 2008;
Textile exports: $103.9 million.
Year: 2009;
Textile exports: $4.5 million.
Year: 2010;
Textile exports: $0.002 million.
Source: GAO analysis of U.S. Department of Commerce data.
[End of figure]
In addition, the CNMI economy has been negatively affected by trends
and uncertainty in the tourism industry--the CNMI's primary private
sector industry. For example, tourism in the CNMI declined after
peaking in the mid 1990s, beginning with the Asian financial crisis in
the late 1990s. In 2003, according to CNMI officials, tourism slowed
for several months in reaction to the severe acute respiratory
syndrome epidemic, which originated in Asia, and the war in Iraq.
Total visitor arrivals to the CNMI dropped from a peak of 726,690 in
1997 to 368,186 in 2010, a decline of 49 percent, as shown in figure
8. Japan, Korea, Russia, and China are the CNMI's primary visitor
markets, with Japan representing the largest share of any country and
Russia and China representing emerging markets. CNMI government
officials reported declines in Japanese visitor arrivals following the
March 2011 earthquake and tsunami in Japan, and they expressed concern
about the impact on the CNMI's tourism industry. The tourism industry
also may be affected by the November 28, 2009, implementation of a
joint visa waiver program for visitors to the CNMI and Guam, as part
of the application of U.S. immigration law.[Footnote 74] While an
interim final rule currently governs the operation of the Guam-CNMI
Visa Waiver Program, DHS has not issued final regulations for this
program.
Figure 8: CNMI Visitor Arrivals, 1990-2010:
[Refer to PDF for image: line graph]
Year: 1990;
Visitor arrivals: 417,146.
Year: 1991;
Visitor arrivals: 424,459.
Year: 1992;
Visitor arrivals: 488,330.
Year: 1993;
Visitor arrivals: 536,263.
Year: 1994;
Visitor arrivals: 583,557.
Year: 1995;
Visitor arrivals: 654,375.
Year: 1996;
Visitor arrivals: 721,935.
Year: 1997;
Visitor arrivals: 726,690.
Year: 1998;
Visitor arrivals: 526,298.
Year: 1999;
Visitor arrivals: 491,602.
Year: 2000;
Visitor arrivals: 526,111.
Year: 2001;
Visitor arrivals: 497,696.
Year: 2002;
Visitor arrivals: 424,932.
Year: 2003;
Visitor arrivals: 458,444.
Year: 2004;
Visitor arrivals: 531,584.
Year: 2005;
Visitor arrivals: 529,557.
Year: 2006;
Visitor arrivals: 443,812.
Year: 2007;
Visitor arrivals: 395,360.
Year: 2008;
Visitor arrivals: 396,497.
Year: 2009;
Visitor arrivals: 375,808.
Year: 2010;
Visitor arrivals: 368,186.
Source: GAO analysis of Marianas Visitors Authority arrivals data.
[End of figure]
During the expansion of the CNMI garment and tourism industries prior
to 1995, the CNMI economy became dependent on foreign labor, as the
CNMI government used its authority over its own immigration policy to
bring in large numbers of foreign workers and investors. In 1995, two-
thirds of the CNMI working population were temporary residents,
including about 93 percent of workers in the garment industry and
slightly over 72 percent in the tourism industry. In contrast, in the
same year, U.S. citizens and permanent residents of the CNMI held
about 96 percent of jobs in the public sector. As a result, the CNMI
economy developed a two-tiered wage structure, with U.S. citizens and
permanent residents earning 3.5 times more in 1995 than temporary
residents.[Footnote 75] However, with the decline of the garment and
tourism industries, the number and proportion of noncitizens in the
CNMI labor force and population have decreased (see figure 9). In
2005, noncitizen workers in the CNMI were predominantly from China or
the Philippines. As noted above, the application of U.S. immigration
law might result in further changes in the composition of the CNMI's
workforce.
Figure 9: Citizenship Status of CNMI Population, 1980-2005:
[Refer to PDF for image: stacked vertical bar graph]
Year: 1980[A];
Neither U.S. citizens nor nationals (percentage): 3,703 (22.1%);
U.S. citizens or nationals (percentage): 13,077 (77.9%);
Total population: 16,780.
Year: 1985;
Neither U.S. citizens nor nationals (percentage): NA;
U.S. citizens or nationals (percentage): NA;
Total population: NA.
Year: 1990;
Neither U.S. citizens nor nationals (percentage): 23,263 (53.7%);
U.S. citizens or nationals (percentage): 20,082 (46.3%);
Total population: 43,345.
Year: 1995;
Neither U.S. citizens nor nationals (percentage): 31,357 (53.3%);
U.S. citizens or nationals (percentage): 27,489 (46.7%);
Total population: 58,846.
Year: 2000;
Neither U.S. citizens nor nationals (percentage): 39,089 (56.5%);
U.S. citizens or nationals (percentage): 37,132 (43.5%);
Total population: 69,221.
Year: 2005;
Neither U.S. citizens nor nationals (percentage): 32,749 (49.7%);
U.S. citizens or nationals (percentage): 33,178 (50.3%);
Total population: 65,927.
[Text box:
U.S. Census Bureau 2010 midyear population estimate: 48,000.
In 2009 the CNMI Department of Labor reported that guest workers
accounted for 16,500 (59 percent) of the CNMI workforce of 28,000
persons. End of text box]
Sources: GAO analysis of decennial U.S. Census data (1980, 1990,
2000); report by CNMI government on population, labor force, and
unemployment (1995); and report by CNMI government on household, income,
and expenditures survey (2005) (bar chart); U.S. Census Bureau,
Population Division, International Data
Note: Comparable data were not available for 1985. U.S. Decennial
Census data from 2010 were not available for our review.
[A] For 1980, the definition of U.S. citizen includes people born in
the United States, CNMI, Guam and American Samoa. Persons with place
of birth not reported are classified as not a U.S. citizen.
[End of figure]
In addition, the CNMI's economy may be affected in the future by the
planned build-up of the U.S. military in neighboring Guam. By 2014,
the U.S. Department of Defense intends to relocate 8,600 Marines and
additional military units, as well as an estimated 9,000 dependents
from Okinawa, Japan, to Guam, increasing Guam's current population by
an estimated 25,000 active duty military personnel and dependents.
[Footnote 76] The Department of Defense plans to use the island of
Tinian to conduct training operations and construct firing ranges.
Local government officials expect the build-up to have a small
positive impact on the CNMI in the immediate future, with potentially
greater positive impacts in the medium-to long-term. However, while it
is possible that the build-up will result in new businesses and
tourism opportunities for the CNMI, some local private sector
officials anticipate that the build-up will have little to no economic
benefit for the commonwealth.
In an effort to explore opportunities for future economic development,
the local government has identified potential growth industries,
including call centers, agriculture, and aquaculture. The CNMI's
Comprehensive Economic Development Strategic Plan, 2009-2014 outlines
a number of developmental projects in various industries.[Footnote 77]
However, the plan indicates that many challenges exist to implementing
these projects and notes that, despite past studies and efforts to
identify new industries, the CNMI has had difficulty attracting new
investors and developing new industries.
Personal Income and Poverty Rates:
Current federal data on income and poverty levels in the CNMI do not
exist; however, the most recent available data show that the CNMI had
lower income and higher poverty rates than the mainland United States.
For example:
* In 2004, the CNMI median household income was $17,138,[Footnote 78]
while the U.S. 50-state and District of Columbia median household
income was $44,334.[Footnote 79]
* In 2004, the CNMI poverty rate for all persons was 53.5
percent,[Footnote 80] while the U.S. 50-state and District of Columbia
poverty rate for all persons was 12.7 percent.[Footnote 81]
Minimum Wage Increases:
U.S. Minimum Wage Law:
The federal minimum wage was first enacted as part of the Fair Labor
Standards Act of 1938 (FLSA). That first federally mandated minimum
wage had repercussions in the U.S. Virgin Islands and Puerto Rico that
led the United States, in 1940, to revise the application of the law
in those territories; the overarching goal of the FLSA continued to be
pursued there, but at a slower pace than in the U.S. 50 states. As of
July 2009, the federal minimum wage was set at $7.25 per
hour.[Footnote 82] Federal minimum wage laws apply generally to any
employee engaged in commerce, with limited exceptions and
exemptions.[Footnote 83] Certain employees who would otherwise be
covered under the FLSA definitions are exempted by law from the
minimum wage requirements--for example, employees involved with
seafood at sea are exempt.[Footnote 84] Employees not covered by FLSA
include, for example, individuals engaged in agriculture, if the
employer is an immediate family member.
DOL's Wage and Hour division enforces a variety of U.S. labor laws,
including laws related to minimum wage, overtime pay, child labor, and
family medical leave. The division uses a number of enforcement
strategies, including investigations and partnerships with external
groups, such as states, foreign consulates, and employee and employer
organizations.
Minimum Wage Law in American Samoa:
From the passage of the FLSA in 1956 to 2007, employers in American
Samoa were allowed to pay their employees at hourly rates less than
the federal minimum wage. During that period, rates were set by
special industry committees established by the U.S. DOL, through
biennial reviews conducted with the participation of island
stakeholders that included representatives of government, key
industries, and workers.[Footnote 85] The special industry committees
system continued to exist until May 2007, when Congress required an
incremental increase in the minimum wage for all industries in
American Samoa, at $.50 per year in each industry, until it reaches
the full federal minimum wage.[Footnote 86] In 2010, the U.S. enacted
a law delaying the scheduled minimum wage increases for 2 years,
providing for no increase in 2010 or 2011.[Footnote 87] For example,
if the current federal minimum wage of $7.25 remains unchanged, the
minimum wage for American Samoa tuna canning industry workers will
reach $7.25 in 2016 (see table 4).
Table 4: American Samoa Scheduled Minimum Wage Increases for Tuna
Canning Industry Workers and for Workers Paid the Lowest Minimum Wage:
Date: Before July 25, 2007;
Minimum wage (tuna canning industry): $3.26;
Lowest minimum wage: $2.68.
Date: July 25, 2007;
Minimum wage (tuna canning industry): $3.76;
Lowest minimum wage: $3.18.
Date: May 25, 2008;
Minimum wage (tuna canning industry): $4.26;
Lowest minimum wage: $3.68.
Date: May 25, 2009;
Minimum wage (tuna canning industry): $4.76;
Lowest minimum wage: $4.18.
Date: September 30, 2010;
Minimum wage (tuna canning industry): $4.76 (no change);
Lowest minimum wage: $4.18 (no change).
Date: September 30, 2011;
Minimum wage (tuna canning industry): $4.76 (no change);
Lowest minimum wage: $4.18 (no change).
Date: September 30, 2012;
Minimum wage (tuna canning industry): $5.26;
Lowest minimum wage: $4.68.
Date: September 30, 2013;
Minimum wage (tuna canning industry): $5.76;
Lowest minimum wage: $5.18.
Date: September 30, 2014;
Minimum wage (tuna canning industry): $6.26;
Lowest minimum wage: $5.68.
Date: September 30, 2015;
Minimum wage (tuna canning industry): $6.76;
Lowest minimum wage: $6.18.
Date: September 30, 2016;
Minimum wage (tuna canning industry): $7.25;
Lowest minimum wage: $6.68.
Date: September 30, 2017;
Minimum wage (tuna canning industry): no change;
Lowest minimum wage: $7.18.
Date: September 30, 2018;
Minimum wage (tuna canning industry): no change;
Lowest minimum wage: $7.25.
Source: GAO review of American Samoa Industry Committee wage
categories, H.R. Rep. No. 111-386, Pub.L. No. 110-28, and Pub. L. No.
111-244.
Note: Under Pub.L. No. 110-28, any future changes to the minimum wage
enacted under U.S. law also will apply to American Samoa and the CNMI.
Wage rates vary for workers in the 17 industries other than tuna
canning.
[End of table]
Minimum Wage Law in the CNMI:
Under the terms of the CNMI-U.S. covenant, the CNMI was exempt from
the minimum wage provisions of the FLSA and maintained control over
its own minimum wage system.[Footnote 88] Legislative changes to the
federal minimum wage in 2007 specified that the CNMI would be subject
to the federal minimum wage, through a staged $.50 incremental
approach. The law raised the CNMI minimum wage from $3.05 to $3.55 per
hour in July 2007 and required a $.50 increase every year thereafter
until the FLSA-CNMI minimum wage equals the full federal minimum wage.
[Footnote 89] In 2010, the U.S. enacted a law delaying the scheduled
minimum wage increase for 1 year, providing for no increase in 2011
[Footnote 90] (see table 5).
Table 5: CNMI Scheduled Minimum Wage Increases:
Date: Before July 25, 2007;
Minimum wage in the CNMI: $3.05.
Date: July 25, 2007;
Minimum wage in the CNMI: $3.55.
Date: May 25, 2008;
Minimum wage in the CNMI: $4.05.
Date: May 25, 2009;
Minimum wage in the CNMI: $4.55.
Date: September 30, 2010;
Minimum wage in the CNMI: $5.05.
Date: September 30, 2011;
Minimum wage in the CNMI: $5.05 (no change).
Date: September 30, 2012;
Minimum wage in the CNMI: $5.55.
Date: September 30, 2013;
Minimum wage in the CNMI: $6.05.
Date: September 30, 2014;
Minimum wage in the CNMI: $6.55.
Date: September 30, 2015;
Minimum wage in the CNMI: $7.05.
Date: September 30, 2016;
Minimum wage in the CNMI: $7.25.
Source: GAO review of H.R. Rep. No. 111-386, Pub. L. No. 110-28, and
Pub. L. No. 111-244.
Note: Under Pub. L. No. 110-28, any future changes to the minimum wage
enacted under U.S. law also will apply to American Samoa and the CNMI.
[End of table]
Prior Studies of Minimum Wage Increases in American Samoa and the CNMI:
The federal government has conducted or funded several reports on
minimum wage increases in American Samoa and the CNMI in recent years.
* In May 2007, DOL's Wage and Hour Division issued a report on the
minimum wage in American Samoa as part of DOL's biennial review
process under the special industry committees.[Footnote 91] The report
analyzes American Samoa's wage and employment structure based on a
2006 employment and wage survey, and it provides the numbers of
employees in each industry who would be affected by a range of
possible minimum wage increases. The report stated that the average
hourly wage in the fish canning industry was $3.60 and in the American
Samoa government was $7.75. It found that 50 percent of American Samoa
workers were paid less than $4 per hour.
* In January 2008, DOL issued a report on the economic impact of
minimum wage increases in both American Samoa and the CNMI,[Footnote
92] as required by a 2007 law.[Footnote 93]
- For American Samoa, the study noted concern that the tuna canneries
would close before the minimum wage reached the U.S. federal minimum
wage of $7.25 per hour, causing substantial job losses. The report
stated that over three-quarters of American Samoa workers earned under
$7.25 per hour and that 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.
- For the CNMI, the study found that although data were not available
to precisely quantify the impact of the scheduled minimum wage
increases, it seemed likely that the CNMI's existing economic decline
would be made worse and that the CNMI population would continue to
decline.
* DOI-funded studies of the American Samoa and CNMI economies,
including the minimum wage increases.[Footnote 94]
- A February 2008 study assessing the relationships between different
sectors of the American Samoa economy found that a doubling of
American Samoa's minimum wage in a 7-year period could result in the
end of the fish processing industry, which represented approximately
one-half of American Samoa's economic base, and serious consequences
for the economy.[Footnote 95] The authors predicted that costs would
rise due to minimum wage increases in other industries, and
transportation, energy, and utility costs would increase because the
canneries would no longer be available to share those costs. They
found that, under a worst-case scenario, American Samoa could lose 46
percent of all jobs in the territory. In this scenario, rising minimum
wages would cause a complete closure of American Samoa's tuna
canneries. A long recovery period would follow, with high unemployment
rates, business closures or cutbacks, and declines in local revenue
collection. They found that local government would be unable to
adequately address the situation, requiring outside assistance.
- An October 2008 study of the CNMI economy examined the impact of
both federal immigration policy and the minimum wage increases.
[Footnote 96] In framing this analysis, the study found that lifting
of quotas on garment imports to the United States had rendered the
CNMI's garment industry unfeasible and estimated that the loss of
16,800 garment jobs could ultimately cost the CNMI economy about
25,200 jobs, about 60 percent of peak employment in 2004. The study
projects the combined effect of the closure of the garment industry
with the implementation of the federal minimum wage and an application
of federal immigration policy, whereby almost the entire foreign
workforce is removed from the CNMI economy. In this projection, the
employment of U.S.-qualified residents increases by 21 percent from
2005 to 2015, but real wages and salaries of U.S.-qualified residents
fall by 19 percent. In addition, immigration-policy changes quickly
remove foreign workers on government-approved contracts from the
economy, and U.S.-qualified residents take jobs in the tourism
industry. Despite the increased minimum wage, most of the jobs are
projected to pay lower wages than U.S.-qualified residents had come to
expect. The study also provides an alternative projection under which
the minimum wage is held at $4.05, foreign labor is not restricted,
and an aggressive promotion program successfully doubles visitor
arrivals by 2015. In this projection, the employment of U.S.-qualified
residents increases by 4 percent from 2005 to 2015, and real wages and
salaries of U.S.-qualified residents increase by 15 percent. The
authors suggested, among other recommendations, that the law extending
the minimum wage requires further analysis and notes that officials
are seeking to modify the scheduled increases. Possible modifications
discussed include lengthening the period over which the minimum wage
is increased, basing increases on measures of worker productivity, or
using a special program for adjustment as had previously been done in
American Samoa.
[End of section]
Appendix III: American Samoa:
In American Samoa, SSA data show that total employment fell 19 percent
from 2008 to 2009 and fell 14 percent from 2006 to 2009, though it
increased in some years. Data from 2010 on total employment are not
yet available. Questionnaire responses show that tuna canning
employment dropped by 55 percent from 2009 to 2010, reflecting the
September 2009 closure of one cannery and layoffs in the remaining
cannery. In addition, we estimated that from 2,000 to 3,000 temporary
federal jobs funded beginning in June 2009 will end when federal
funding is no longer available. Average inflation-adjusted earnings in
American Samoa fell by 5 percent from 2008 to 2009 and by 11 percent
from 2006 to 2009. However, over both periods, the minimum wage
increased by significantly more than inflation. Private sector
officials said the minimum wage was one of a number of factors making
it difficult to do business, and public officials said they supported
returning to biennial reviews of minimum wages or other alternatives
to the scheduled increases. In the tuna canning industry, without a
minimum wage increase in American Samoa in 2010, there was no increase
in the median wage of tuna canning workers, which was $4.76 in both
2009 and 2010. The most recent minimum wage increase in May 2009
affected the wages of 69 percent of hourly-wage cannery workers.
Future minimum wage increases would affect the wages of 99 percent of
current cannery workers. The two canning industry employers included
in our questionnaire reported taking cost-cutting actions from June
2009 to June 2010, including laying off workers, reducing overtime
hours, freezing hiring, and decreasing benefits, as well as raising
prices. The employers reported plans to continue taking cost-cutting
actions in 2011. The employers attributed most of their past and
planned actions largely to the minimum wage increases. Cannery
officials we interviewed expressed concern about American Samoa's
dwindling competitive advantage in the global tuna canning industry.
Though the cannery faces some near-term obstacles to relocating, our
analysis suggests that relocating tuna cannery operations from
American Samoa to a tariff-free country with lower labor costs would
significantly reduce cannery operating costs and reduce American Samoa
jobs; however, maintaining some operations in American Samoa would
allow the facility to continue to compete for U.S. government
contracts. Some workers said they were disappointed to see the minimum
wage increase delayed in 2010 and 2011; however, more workers
expressed concern over job security than favored a minimum wage
increase with the potential for subsequent layoffs.
American Samoa Employment Fell Sharply in 2008-2009, and Employment
and Average Inflation-Adjusted Earnings Were Lower than in 2006:
American Samoa Employment Declined 2006-2009, though Employment
Increased in Some Years:
Overall American Samoa employment declined from 2006 to 2009, based on
Social Security data; however, employment increased in some years. As
shown in figure 10, employment grew from 2006 to 2008 but then fell in
2009 to a level lower than in 2006. Specifically, available data show
that from 2008 to 2009, the total number of people employed in
American Samoa fell by 19 percent (from 19,171 to 15,434)[Footnote 97]
and that over the entire period from 2006 to 2009, employment fell by
14 percent (from 17,852 to 15,434, with a peak of 19,171 in 2008).
Figure 10: American Samoa Employment Based on SSA Data, 2006 through
2009:
[Refer to PDF for image: line graph]
Year: 2005;
Employment: 17,769.
Year: 2006;
Employment: 17,852.
Year: 2007;
Employment: 18,878.
Year: 2008;
Employment: 19,171.
Year: 2009;
Employment: 15,434.
Source: GAO analysis of Social Security Administration data.
[End of figure]
Because Social Security data are not available for 2010, we are unable
to report on the overall level of employment for the year. However,
the cannery that closed in September 2009 employed approximately 2,000
workers, and there were layoffs in the remaining cannery--most of
these losses do not appear in the 2009 SSA data.[Footnote 98] For the
tuna canning industry, questionnaire responses from the remaining
cannery and a closely related business show that employment of their
workers--most of whom are foreign workers from independent Samoa--
dropped by 55 percent from 2009 to 2010 (from 4,125 to 1,869) and
dropped by 59 percent for the entire period from 2007 to 2010 (from
4,593 to 1,869).[Footnote 99]
In addition, we estimated that from 2,000 to 3,000 jobs funded by the
U.S. Census Bureau, the Recovery Act, and recovery efforts after the
2009 tsunami were temporary and will end when federal funding is no
longer available.[Footnote 100] As a result, counts of the total
number employed during this period will be higher than the number of
long-term positions. The temporary jobs were funded beginning in June
2009, and the great majority of those were disaster recovery positions
related to the tsunami. In addition, the Census Bureau employed
enumerators and managers to assist with collection of 2010 Decennial
Census data, and Recovery Act funds supported workers on
infrastructure projects and in other fields.
In discussion groups, private sector employers generally opposed
additional minimum wage increases but said that a number of other
factors made it difficult to do business in American Samoa. For
example, they said increases in prices of utilities, shipping, and raw
materials; an outdated tax structure; low levels of investment; and
business licensing problems also make it difficult to establish and do
business in American Samoa. They said that federal tsunami recovery
assistance, Recovery Act funds, and Decennial Census employment
provided relief and increased business, particularly in the
construction industry, temporarily obscuring the full force of
American Samoa's economic downturn. As this temporary relief period
ends, employers expect that American Samoa's economic situation will
worsen. They also said that, with fewer tuna exports, they expect
increases in shipping wait-times and costs. Many employers supported
the 2010 and 2011 delays in the minimum wage increases, and some said
it is important to use the 2-year delay to address business
challenges. For example, they said that while it is difficult to
develop tourism in American Samoa, it is important to try. They also
said they were concerned about the fiscal status of the local
government and the possibility of harmful tax increases.
An American Samoa government analysis found that the minimum wage
increases would raise the government's wage and salary costs for its
employees by about 1 percent (about $9 million) over 7 years.[Footnote
101] Public officials said they supported a return to biennial reviews
of minimum wage in American Samoa or other alternatives to the
scheduled increases. In January 2011, the American Samoa governor
signed a letter saying that the federal minimum wage increases had had
devastating effects on American Samoa employment and the economy. The
letter urged consideration of alternative methods of determining
minimum wages in American Samoa, including the previous DOL biennial
review process or some modification, or amending laws to specify the
conditions to be considered in determining the minimum wage.[Footnote
102]
Average Inflation-Adjusted Earnings of Those Employed Have Fallen
Since 2006:
Average earnings of workers who maintained employment rose from 2006
to 2009, but available data show that the increase was not sufficient
to overcome the increase in prices. As shown in figure 11, based on
SSA and consumer price data, from 2008 to 2009 (the most recent year
available), average inflation-adjusted earnings fell by 5 percent.
This decline resulted from a decrease in average earnings of 2
percent, and an increase in prices of 3 percent. For the period from
2006 to 2009, average inflation-adjusted earnings fell by 11 percent,
due to a rise in average annual earnings of about 5 percent with an 18
percent increase in prices.[Footnote 103]
Figure 11: American Samoa Average Nominal and Inflation-Adjusted
Earnings Based on SSA Data, 2006 through 2009:
[Refer to PDF for image: multiple line graph]
Year: 2006;
Nominal earnings: $11,389;
Inflation adjusted earnings: $11,389.
Year: 2007;
Nominal earnings: $11,628;
Inflation adjusted earnings: $11,217.
Year: 2008;
Nominal earnings: $12,197;
Inflation adjusted earnings: $10,638.
Year: 2009;
Nominal earnings: $11,967;
Inflation adjusted earnings: $10,117.
Source: GAO analysis of Social Security Administration data and
American Samoa Consumer Price Index data.
[End of figure]
While Social Security earnings data do not allow for a direct
comparison of average and minimum wage annual earnings or for tracking
the earnings of workers who lost their jobs or left the area, the
hourly wage of minimum wage workers increased by more than inflation.
The inflation-adjusted earnings of minimum wage cannery workers who
retained their jobs and work hours rose by about 8 percent from 2008
to 2009 and by about 23 percent for the entire period from 2006 to
2009.
American Samoa Tuna Canning Industry Has Continued to Lay off Workers
and Has Considered Alternate Locations:
Minimum Wage Increases through 2016 Would Affect Wages of Almost All
Workers in American Samoa's Tuna Canning Industry Employed in 2010:
Minimum Wage Increases in 2007-2010 Increased Median Wage for Tuna
Canning Industry Employees:
Without a minimum wage increase in American Samoa in 2010, there was
no increase in the median wage of workers in the tuna canning
industry--in both 2009 and 2010, the median tuna canning worker wage
was $4.76. Consistent with our last report, the median hourly wage
rose from $3.30 in June 2007 to $4.76 in June 2010, a 44 percent
increase, according to tuna canning questionnaire responses (see table
6). During this period, the minimum wage for canning workers increased
three times from $3.26 to $4.76, an overall increase of 46 percent.
Table 6: Median Wages for Hourly-wage Workers in the American Samoa
Tuna Canning Industry, June 2007 to June 2010:
Year: 2007 (after zero minimum wage increases);
Median wage: $3.30.
Year: 2008 (after two minimum wage increases);
Median wage: $4.26;
Percentage change year to year: 29%.
Year: 2009 (after three minimum wage increases);
Median wage: $4.76;
Percentage change year to year: 12%.
Year: 2010 (after three minimum wage increases);
Median wage: $4.76;
Percentage change year to year: 0%.
Source: GAO analysis of wage data provided in American Samoa tuna
canning industry questionnaire, as of June 12 each year.
Note: The minimum wage for workers in the tuna industry in American
Samoa was $3.26 in June 2007, $3.76 in July 2007 (first increase),
$4.26 in May 2008, and $4.76 in May 2009 and in 2010. It is scheduled
to remain at $4.76 until the next increase in September 2012; there
was no minimum wage increase in 2010 and none scheduled for 2011.
[End of table]
Minimum Wage Increases in 2007-2010 Slightly Narrowed the Wage Gap
between Lower-and Higher-Paid Workers Employed by Questionnaire
Respondents in Tuna Canning Industry:
Responses to our questionnaire indicate that the minimum wage
increases narrowed the gap between the wages of lower-and higher-paid
workers in American Samoa's tuna canning industry (see figure 12).
Specifically, the gap between the wages of the lowest-and highest-paid
tuna canning workers was $0.28 in June 2007 and $0.25 in June 2010, a
small decline of 11 percent.
Figure 12: Changes in Wages of Hourly-wage Workers Employed by
American Samoa Tuna Canning Questionnaire Respondents:
[Refer to PDF for image: multiple line graph]
Year: 2007 (after zero minimum wage increases);
25th percentile of hourly wage earners: $3.30;
75th percentile of hourly wage earners: $3.58.
Year: 2008 (after two minimum wage increases);
25th percentile of hourly wage earners: $4.26;
75th percentile of hourly wage earners: $4.36.
Year: 2009 (after three minimum wage increases);
25th percentile of hourly wage earners: $4.76;
75th percentile of hourly wage earners: $4.81.
Year: 2010 (after three minimum wage increases);
25th percentile of hourly wage earners: $4.76;
75th percentile of hourly wage earners: $5.01.
Source: GAO analysis of wage data provided in American Samoa tuna
canning industry questionnaire, as of June 12 each year.
Note: The minimum wage for workers in the tuna industry in American
Samoa was $3.76 in July 2007 (first increase), $4.26 in May 2008, and
$4.76 in May 2009 and in 2010. It is scheduled to remain at $4.76
until the next increase in September 2012; there was no minimum wage
increase in 2010 and none scheduled for 2011.
[End of figure]
Minimum Wage Increases in 2010-2018 Would Affect Wages of Almost All
Workers in Tuna Canning Industry:
As the minimum wage increases continue, they will affect a growing
percentage of workers in American Samoa's tuna canning industry. Based
on questionnaire responses about workers' wages as of June 2010, 69
percent of canning industry workers were at the minimum wage in 2009
and 2010. The future minimum wage increases would affect the wages of
99 percent of current canning industry workers by the time the minimum
wage reaches $7.25 in 2016. By 2016, the extra annual cost added by
minimum wage increases after June 2010 (reflecting the 2009 increase)
would be $4,660 per worker (see table 7). We identified the additional
cost by calculating the difference between the cost per worker in June
2010 and the cost per worker through 2016, based on the scheduled
minimum wage increases and averaged across all workers.
Table 7: Distribution and Increased Annual Cost Since June 2010 per
Hourly-wage Worker in American Samoa Tuna Canning Industry Due to
Minimum Wage Increases:
Year of minimum wage increase: 2010 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 69%;
Minimum wage of cannery workers: $4.76;
Increased average hourly cost since June 2010 per hourly-wage worker:
0;
Increased average annual cost since June 2010 per hourly-wage worker:
$0.
Year of minimum wage increase: 2011 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 69%;
Minimum wage of cannery workers: $4.76;
Increased average hourly cost since June 2010 per hourly-wage worker:
0;
Increased average annual cost since June 2010 per hourly-wage worker:
$0.
Year of minimum wage increase: 2016 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 99%;
Minimum wage of cannery workers: $7.25;
Increased average hourly cost since June 2010 per hourly-wage worker:
$2.24;
Increased average annual cost since June 2010 per hourly-wage worker:
$4,660[A].
Source: GAO analysis of June 12, 2010 wage data provided in American
Samoa tuna canning industry questionnaire.
Note: To estimate the annual cost of future minimum wage increases, we
first calculated the difference between the hourly wage for each
worker in June 2010 (reflecting the 2009 minimum wage of $4.76) and
all scheduled minimum wage increases through 2016 (scheduled to occur
in September 30 of each year except for 2010 and 2011). We multiplied
that value by 2,080 (annual hours worked per full-time worker) to
obtain an annual estimate for each worker. Finally, we reported the
average of that value. For workers in June 2010 paid above a scheduled
minimum wage, we assumed that the cost of that minimum wage for those
workers would be zero (that they would receive no increase in pay).
The average wage of canning industry workers in June 2010 was $5.02.
We calculated the average cost for all workers, not only workers
affected by the minimum wage. In contrast, by 2016 the cost for
workers affected by the minimum wage would be $4,736. There was no
minimum wage increase in 2010 and none scheduled for 2011.
[A] The cost of the 2016 minimum wage is not adjusted for inflation.
For illustration purposes, adjusting for projected U.S. inflation
using the Congressional Budget Office's projection of the GDP price
index shows that the real minimum wage cost in 2016 would be $4,275,
an 8.3 percent decrease. The analysis excluded nonwage labor costs due
to the minimum wage increases, such as increases in employer payroll
tax contributions under FICA. For 2011, employers must contribute the
equivalent of 6.2 percent of employee wages to Social Security and
1.45 percent to Medicare, up to $106,800 in employee wages.
[End of table]
American Samoa Tuna Canning Employers Reported Past and Planned
Actions to Reduce Costs and Lay Off Workers, with Most Actions
Attributed to Minimum Wage Increases:
Tuna Canning Employers Reported Cutting Costs and Laying Off Workers
from 2009 to 2010, with Most Actions Attributed to Minimum Wage
Increases:
The two employers in the tuna canning industry reported in our
questionnaire that they had taken cost-cutting actions from June 2009
to June 2010. For example, the two respondents reported having taken
cost-cutting actions affecting workers' income, including laying off
hourly and salaried workers, reducing overtime hours for hourly
workers, freezing hiring, and temporarily closing. The employer
representing the majority of workers employed by questionnaire
respondents also reported having decreased hourly workers' benefits
and reduced regular work hours for hourly workers. The two employers
reported additional cost-cutting actions, including reducing operating
capacity or services offered and implementing other cost-and labor-
saving strategies or technology. The employer representing the
majority of workers employed by questionnaire respondents also
reported having delayed expansions. Both employers reported that they
had raised prices of goods or services. For most of these actions,
employers attributed their actions largely to the minimum wage
increases.
Tuna Canning Employers Reported Plans to Take Additional Actions by
Early 2012, with Most Planned Actions Attributed to Minimum Wage
Increases:
The two questionnaire respondents in the tuna canning industry also
reported plans to take the same types of cost-cutting actions in the
next 18 months, by early 2012. They reported planning to take cost-
cutting actions affecting workers' income, including laying off
additional hourly and salaried workers and freezing hiring. The
employer representing the majority of workers employed by
questionnaire respondents reported planning to decrease benefits of
both hourly and salaried workers and reduce regular and overtime
hours. The two employers also reported plans to take additional cost-
cutting actions, including implementing other cost-and labor-saving
strategies or technology. The employer representing the majority of
workers employed by questionnaire respondents reported planning to
delay expansions and reduce operating capacity or services offered.
The employer representing fewer workers employed by questionnaire
respondents reported planning to raise prices. Employers attributed
most of these plans largely to the minimum wage increases. Employers
in American Samoa's tuna canning industry reported that any actions by
the larger employer will affect the smaller employer.
Tuna Canning Employers Attributed Their Actions to Minimum Wage
Increases More Often than to Other Factors:
Employers attributed their actions largely to the minimum wage
increases more often than they attributed their actions largely to
other factors, such as transportation and shipping costs and changes
in business taxes and fees. However, they said a decrease in the
number of customers, such as wholesale customers, was another
important factor affecting their past and planned actions. Employers
also attributed their past and planned actions to increased utility
costs to a moderate extent.
American Samoa Tuna Canning Industry Faces Challenges, and Relocating
to Alternate Locations Would Significantly Reduce Business Costs but
Eliminate American Samoa Jobs:
Cannery Officials Are Concerned about American Samoa's Dwindling
Competitive Advantage in Global Tuna Canning Industry:
Cannery company officials we interviewed indicated that labor costs,
including the minimum wage increases, continued to place American
Samoa at a significant cost disadvantage compared with other canned
tuna exporting countries. As we previously reported, by raising the
hourly minimum wage for cannery workers in American Samoa from $3.26
in 2006 to $4.76 in May 2009 (remaining at $4.76 in 2010 and 2011)--a
total increase of 46 percent--the three minimum wage increases to date
have further widened the gap between American Samoa and production
sites with lower labor costs, such as Thailand, which has a minimum
wage of less than $1 an hour. Cannery officials continued to state
that wage increases were one of many factors affecting the tuna
canning industry in American Samoa.[Footnote 104] Officials from the
remaining cannery said that in previous years uncertainty regarding
the minimum wage increases meant they could not plan American Samoa
operations further than months in advance, impacting their ability to
make a long-term commitment to maintaining operations in American
Samoa. They said that although they continue to consider relocation or
closure of the American Samoa facility as one of many possible
scenarios, knowing that wages would be stable through 2012 had allowed
them to better stabilize operations in American Samoa.
In addition to higher wages, company officials noted that the
continued increases in shipping and utility rates--partly owing to
increased fuel costs in recent years--add to increased operating
costs. Loss of eligibility for certain U.S. tax benefits also
contributed to rising costs. Furthermore, as a result of the September
2009 cannery closure, the remaining cannery has since been responsible
for all maintenance costs--such as waste disposal and water discharge--
that the two canneries previously shared, as well as increased power
and water costs. Opportunities for shared services between the
remaining cannery and the newly acquired facility will depend on the
scope of operation at the new facility, which remains unknown.
Officials at the remaining cannery noted that, while duty-free access
to the U.S. market for canned tuna exports from American Samoa once
made production in American Samoa advantageous, trade liberalization
has since significantly reduced tariff advantages.[Footnote 105]
Additionally, cheaper operating costs in alternative locations expand
the cost gap between canned tuna produced in American Samoa and canned
tuna produced elsewhere. As a result of the factors discussed,
representatives from the remaining cannery report that they have
shifted a portion of production to facilities outside of American
Samoa and continue to report that it is no longer cost-effective to
operate a canning facility in American Samoa.
As we previously reported, cannery officials stated that minimum wage
increases were a significant factor in the closure of one of the two
canneries in American Samoa but that other factors also contributed to
the cannery's closure. In addition to those mentioned above, cannery
officials said that factors that contributed to the cannery's closing
included an attractive environment for investment in alternative
locations and the high costs associated with environmental
regulations.[Footnote 106]
Although a new tuna facility operator acquired the facility that
closed, operations planned in the short-term are more limited than
those before the facility closed. Company officials indicated that
they are considering using the plant as a logistics and storage
facility for handling fresh, and potentially frozen, fish and for the
company's existing fleet in the Western and Central Pacific Ocean.
These operations would require between 50 to 100 employees. The
company will continue to evaluate and reconstruct the facility and has
hired a small number of workers who had remained employed at the
facility after its closure. As of March 2011, the company expected
plant renovations to last 12 to 18 months, though some limited
operations may begin before renovations are complete. However, company
officials stated that all future employment and investment plans will
depend on several factors, most important of which are the scheduled
minimum wage increases. Specifically, officials said the opportunity
to produce canned tuna could depend on American Samoa's labor cost
relative to alternate locations.
Industry Experts Said Prices and Other Factors Are a Constraint as
Tuna Canning Industry Becomes More Competitive:
In addition to factors affecting American Samoa operations in
particular, industry experts noted that the global tuna industry is
changing in many ways. For example, various fishery management
organizations and other parties have increased restrictions on fishing
some tuna target species, including tuna used for canning, in the
western and central Pacific Ocean. Additionally, experts and industry
officials said price dynamics are a major constraint to the industry;
as the industry becomes increasingly competitive, profit margins
decrease. The highly competitive global market for tuna products makes
it increasingly difficult to pass along higher labor and operating
costs to consumers by raising prices. For example, industry officials
note that it is difficult for companies to raise prices when
supermarket brands offer consumers very low prices. Growing
supermarket and consumer demand for assurances of social and
environmental responsibility also contributes to changing industry
dynamics.[Footnote 107]
Comparison of Four Tuna Canning Business Models:
Although American Samoa is located near rich fishing grounds, its
labor costs are significantly higher than those in competing
countries, both before and after the minimum wage increases. Cannery
officials said that current operations in American Samoa were not
competitive with other models. We compared the labor and tariff costs
associated with alternate business models for tuna canning in order to
illustrate how the costs differ under each estimated model. The
following analysis provides cost estimates under four possible
scenarios for cannery operations currently located in American Samoa,
assuming constant total production under each model, and including two
models presented in our previous report.[Footnote 108] It considers
only labor costs and tariffs, in order to show the effect of variation
in different countries. It excludes other associated costs, including
transportation, refrigeration, opening of a new plant (if needed), and
other costs associated with establishing multiple production
locations. It also excludes nonwage labor costs, such as the costs of
employer payroll tax contributions.[Footnote 109]
* Model A (loining and canning located in American Samoa): Tuna
processing currently done in American Samoa remains entirely in
American Samoa. Canneries located in American Samoa hire local and
foreign workers to loin (clean, cook, and cut) and can the fish. In
addition, the plant processes some frozen loins imported from
countries with lower wages. The canned tuna from American Samoa is
exported directly to the United States and benefits from tariff-free
access to the U.S. market. With an estimated workforce of 1,500
employees in American Samoa, the associated labor cost is $14.9
million in 2010 and $23.4 million in 2016, with zero tariff costs.
* Model B (relocating loining to Thailand or another country with
lower labor costs, and canning frozen loins in the U.S. 50 states):
The loining operation--the most labor-intensive part of the operation--
moves to low labor-cost countries, such as Thailand, Trinidad, Fiji,
Mauritius, or Papua New Guinea, where the fish loin is frozen. The
frozen fish is exported to the United States, where it is canned. The
frozen fish carries a tariff of $11 per metric ton, and workers are
employed in a low labor-cost country at $0.75 per hour. [Footnote 110]
The combined labor and tariff cost in 2010 and 2016 of this model is
$11.4 million.[Footnote 111] No workers remain in American Samoa
cleaning fish, and 300 workers are employed in the U.S. 50 states at
$14.00 per hour.[Footnote 112] Tuna facilities in American Samoa are
currently among few in the United States that can meet the
requirements of U.S. government contracts, many of which require U.S.-
sourced and -processed fish.[Footnote 113] While facilities outside
American Samoa may qualify for these contracts based on their
location, it is unclear whether their production models meet the
requirements, according to an industry expert. Facilities under this
model might not meet the requirements of U.S. government contracts and
could lose this business.
* Model C (relocating all loining and canning to a tariff-free
country): Loining is done in a country with zero tariffs on canned
tuna exported to the United States.[Footnote 114] Workers are employed
at $1 per hour. The basis for tariff-free access to the United States--
the Generalized System of Preferences--expired at the end of 2010;
however, the Office of the U.S. Trade Representative is supporting
reauthorization in 2011. Under this model, the American Samoa cannery
closes, and all 1,500 positions are relocated to a tariff-free
country. The cost is $3.1 million for 2010 and 2016, assuming no wage
increases in the tariff-free country. As with Model B, facilities
under this model might not meet the requirements of U.S. government
contracts and could lose this business.
* Model D (hybrid, with one half of production, including for U.S.
government contracts, located in American Samoa and the other half
relocated to a tariff-free country): The American Samoa cannery
continues to supply canned tuna for U.S. government contracts (20
percent of production from Model A), and another 30 percent of
production remains in American Samoa.[Footnote 115] The remaining 50
percent of production moves to a country that exports canned tuna
tariff-free to the United States. For this model, we assume that the
workforce remaining in American Samoa will be 50 percent of the
current total workforce, and the other 50 percent will be in a tariff-
free country. The associated cost is $8.6 million in 2010 and $12.9
million in 2016, with zero tariff costs.
Considering only labor and tariff costs, figure 13 shows that a
business model in which all loins are processed in American Samoa
(Model A) has higher costs than the alternatives. The model that
presents the highest combined labor and tariff cost savings involves
moving operations to a tariff-free country and closing operations in
American Samoa (Model C). This model would result in approximately
1,500 fewer jobs in American Samoa. The next cost-saving option is to
move 50 percent of production to a tariff-free country and keep 50
percent in American Samoa (Model D), while retaining eligibility for
U.S. government contracts. This model would result in about 750 fewer
jobs in American Samoa.[Footnote 116] Moving the loining operations to
a country with lower wages (Model B) presents significant cost
savings; however, under this scenario tariffs on imported frozen loins
are imposed, and the canning process is done in the U.S. 50 states at
higher wages than in competing tuna processing countries.
Additionally, lease obligations in American Samoa and the cost of
building new facilities may pose obstacles to near-term relocation.
[Footnote 117]
Figure 13: Comparison of Estimated Wage and Tariff Costs for Tuna
Canneries Using Alternate Business Models:
[Refer to PDF for image: model data with illustrations]
Model A: All loining and canning located in American Samoa.
Jobs in American Samoa:
remaining: 1,500;
lost: 0.
Year: 2010;
Labor cost: $14.9 million;
Total cost: $14.9 million;
Tariff cost: $0.
Year: 2016;
Labor cost: $23.4 million;
Total cost: $23.4 million;
Tariff cost: $0.
Illustration:
Boat for fishing:
To American Samoa for loining and canning;
Boat exporting tariff-free canned fish to the United States from
American Samoa.
Model B: Relocating loining to Thailand or another country with lower
labor costs, and canning frozen loins in the U.S. 50 states.
Jobs in American Samoa:
remaining: 0;
lost: 1,500.
Year: 2010;
Labor cost: $11.1 million;
Total cost: $11.4 million;
Tariff cost: $0.32 million;
Cost savings compared to Model A: $3.5 million.
Year: 2016;
Labor cost: $11.1 million;
Total cost: $11.4 million;
Tariff cost: $0.32 million;
Cost savings compared to Model A: $12.0 million.
Illustration:
Boat for fishing:
To Thailand for loining;
Boat transporting loined, frozen fish to the United States to be
canned.
Model C: Relocating all loining and canning to a tariff-free country.
Jobs in American Samoa:
remaining: 0;
lost: 1,500.
Year: 2010;
Labor cost: $3.1 million;
Total cost: $3.1 million;
Tariff cost: $0;
Cost savings compared to Model A: $11.7 million.
Year: 2016;
Labor cost: $3.1 million;
Total cost: $3.1 million;
Tariff cost: $0;
Cost savings compared to Model A: $20.3 million.
Illustration:
Boat for fishing:
To tariff-free country for loining and canning;
Boat exporting tariff-free canned fish to the United States from a
tariff-free country.
Model D: Hybrid, with loining and canning for U.S. government
contracts located in American Samoa and with other production
relocated to a tariff-free country.
Jobs in American Samoa:
remaining: 300;
lost: 1,200.
Year: 2010;
Labor cost: $4.8 million;
Total cost: $4.8 million;
Tariff cost: $0;
Cost savings compared to Model A: $10.0 million.
Year: 2016;
Labor cost: $6.6 million;
Total cost: $6.6 million;
Tariff cost: $0;
Cost savings compared to Model A: $16.8 million.
Illustration:
Boat for fishing:
To tariff-free country for loining and canning;
Boat exporting tariff-free canned fish to the United States from a
tariff-free country.
To American Samoa for loining and canning;
Boat exporting tariff-free canned fish to the United States from
American Samoa; Production for U.S. government contracts[A].
Sources: GAO analysis of information from tuna industry data and U.S.
tariff law; Art Explosion (clip art); Map Resources (map).
Notes: Calculations for 2016 assume constant level of production and
assume minimum wages in Thailand and the tariff-free country remain at
2010 levels. They assume an average hourly wage in Thailand of $.75,
in the U.S. state of Georgia of $14.00, and in the tariff-free country
of $1. American Samoa hourly wages are based on the minimum wage
increases as scheduled.
For Model D, we assume that 50 percent of production (20 percent for
U.S. government contracts and 30 percent for other production) remains
in American Samoa, and the remaining 50 percent of production moves to
a country that exports canned tuna tariff-free to the United States.
[End of figure]
While cannery company officials and industry experts continue to
report that American Samoa's competitive advantage in the global tuna
canning industry is decreasing, they have also stated that the ability
to qualify for U.S. government contracts is one of the few remaining
factors making American Samoa an attractive location for tuna canning.
Although the comparison of labor and tariff costs under different
business models shows the greatest savings by moving operations to a
tariff-free country and closing operations in American Samoa (Model
C), operations under this model would lose eligibility for U.S.
government contracts for canned tuna. In addition, savings from moving
the loining operations to a country with lower wages (Model B) also
would be partially offset by the loss of U.S. government contracts.
The model moving 50 percent of production to a tariff-free country and
keeping 50 percent in American Samoa (Model D) would retain
eligibility for these contracts.
American Samoa Tuna Canning Workers Generally Opposed the Minimum Wage
Increases, While Other Workers Shared Mixed Views:
In discussion groups, most participants working in the tuna canning
industry said they opposed further minimum wage increases. However,
some participants supported the increases, especially to help with
cost-of-living increases.
* Job insecurity. More tuna canning workers expressed concern over job
security than favored a minimum wage increase with the potential for
subsequent layoffs. Many workers said that their current wages are
enough and that they prefer to remain at the current wage and keep
their jobs. In addition, participants said that they fear the
remaining cannery will close with more minimum wage increases, causing
more job loss.
* Minimum wage increase delays. Many participants supported the delays
to the 2010 and 2011 minimum wage increases. However, some said they
had looked forward to the 2010 minimum wage increase and were
disappointed to not receive an increase after they had expected it. A
few said they were tired of the process of considering the minimum
wage increases. Some supported waiting until 2012 to make a decision
about future increases.
* Cost of living. Many participants said that the cost of living is
increasing substantially, including the prices of bus fare, food,
water, electricity, and health care. Some of these workers said that
the cost of living increases as the minimum wage increases.
* Cannery closure. Participants are concerned about the spillover
effects of cannery closures and layoffs on the rest of the American
Samoa economy. They said that the economy and other businesses rely on
the tuna canning industry and will suffer without canneries.
Participants noted that there is high unemployment in American Samoa
and that they fear additional unemployment.
* Reduced benefits and work hours. Participants reported that their
benefits had been reduced, including paid holidays and vacations. In
addition to reductions in benefits, participants are concerned that
future wage increases will mean a reduction in hours.
* Foreign workers. Discussion group participants noted that workers
from independent Samoa have fewer options for jobs and benefits. They
said that some who were laid off have stayed in American Samoa and
others have returned home.
Discussion group participants outside the tuna canning industry shared
mixed views on the minimum wage increases. Laid off workers said they
supported the minimum wage increases more than employed cannery
workers, though some were concerned about job loss and availability.
Like discussion group participants in the tuna canning industry,
participants outside the cannery fear that the remaining cannery will
close with more minimum wage increases and that other companies will
not invest in American Samoa. Participants said it is hard to find
jobs and that American Samoa needs new jobs. In addition to noting
that the cost of living is increasing, participants also said they
thought that enrollment in social services is increasing. Participants
said that people leave American Samoa in difficult times, but many
return.
The text box lists some of the comments by discussion group
participants.
[Text box:
American Samoa Workers' Views Based on Discussion Groups:
Job insecurity:
* "I'm scared of the wage increases because I might lose my job again."
* "It's better to have something than nothing, better to have a job
than none. What's the point of a minimum wage increase if you lose
your job?"
* "What we have now [wages] is enough. Add 50 cents and we lose our
jobs or the company closes. I don't want to lose my job."
Minimum wage increase delays:
* "It's a very good idea for this island and us people to stop minimum
wage for this year and next year."
* "It's disappointing to think you're going to get an increase and
then not get it."
* "As long as I have a job, I don't mind the delay. I'll wait until
2012."
Cost of living:
* "The cost of food is sky high, and water and electricity is high
also."
* "As increases in wages come, so do price increases in everything--
food, power."
Cannery closure:
* "Minimum wage is a problem--it is too high, and companies are moving
out."
* "I think minimum wage is the reason companies are failing."
* "The economy here depends on the cannery. Without it, the economy
falls apart."
Reduced benefits and work hours:
* "There has been cost-cutting. They got rid of benefits. There's no
annual leave or vacations."
* "If we have another 50 cent increase, hours are reduced--no more
eight hours a day, it'll be six hours a day. So if the [hourly] rate
goes up, it doesn't matter."
Foreign workers:
* "If there's no job for me, because I'm from Western Samoa, where can
I find work and money for my family?"
* "Those that lost their jobs after [the cannery] closed are staying
at home, doing nothing, went back home [to Western Samoa], or they're
on social services."
End of text box]
[End of section]
Appendix IV: CNMI:
CNMI employment fell by about 13 percent from 2008 to 2009 and by
about 35 percent from 2006 to 2009, largely reflecting the closure of
the CNMI's last remaining garment factories. In addition, we estimate
that less than 1,000 temporary federal jobs funded beginning in June
2009 will end when federal funding is no longer available. Inflation-
adjusted average earnings of CNMI workers who maintained employment
rose by 3 percent from 2008 to 2009 and remained largely unchanged,
with a slight drop of .5 percent, from 2006 to 2009, according to CNMI
government data. In addition, over both periods, the minimum wage
increased by significantly more than inflation. In discussion groups,
private sector employers said minimum wage increases imposed
additional costs during a time in which multiple factors made it
difficult to operate. According to CNMI government payroll data, about
17 percent of government workers are paid at or below $7.25 and would
be affected by the minimum wage increases by 2016. In the tourism
industry, close to three-quarters of hourly-wage workers in June 2010
were at the current minimum wage, and future scheduled increases
through 2016 would affect 95 percent of those workers. Tourism
questionnaire employers reported that they took cost-cutting actions
from June 2009 to June 2010, including reducing hours and freezing
hiring; employers also reported plans to take the same types of
actions by early 2012, as well as laying off workers. Few employers--
weighted by numbers of employees--attributed their past cost-cutting
actions largely to the minimum wage increases, and one-half or less
did so for each of the planned actions. Due to the decline in visitors
and to competition from other destinations, hotels have generally
absorbed minimum wage costs rather than raise room rates, and they
have postponed other investments and renovations. Both visitor
arrivals and flight seats available to the CNMI declined from 2005 to
2010. Industry data show that from 2006 to 2010 the CNMI hotel
occupancy rate remained between 58 and 65 percent, and inflation-
adjusted room rates declined. If observed trends continue, payroll
will represent an increasing share of total operating cost for hotels
in the CNMI, due to the minimum wage increases. In discussion groups,
some tourism employers and managers expressed concern about the
minimum wage increases, but others said the minimum wage increases
were needed and manageable and that the primary difficulty was the
CNMI tourism industry's general decline. Workers participating in our
CNMI discussion groups expressed mixed views regarding the minimum
wage increases and said they would like pay increases but were
concerned about losing jobs and work hours.
CNMI Employment Fell in 2008-2009 and Has Decreased Substantially
Since 2006, and Average Inflation-Adjusted Earnings Have Remained
Largely Unchanged:
CNMI Employment Decreased Substantially 2006-2009:
Overall CNMI employment fell substantially from 2006 to 2009, with
drops in the numbers employed in every year, based on CNMI tax data.
As shown in figure 14, based on CNMI tax data, from 2008 through 2009
the total number of people employed fell by about 13 percent. For the
entire period from 2006 through 2009, the number employed fell 35
percent. A large part of this decline, especially early in this
period, is likely attributable to the closure of the CNMI's last
remaining garment factories, which employed many foreign workers.
[Footnote 118]
Figure 14: CNMI Employment Based on CNMI Government Tax Data, 2006
through 2009:
[Refer to PDF for image: line graph]
Year: 2005;
Employment: 49,224.
Year: 2006;
Employment: 43,036.
Year: 2007;
Employment: 36,524.
Year: 2008;
Employment: 32,053.
Year: 2009;
Employment: 27,897.
Source: GAO analysis of CNMI annual tax data.
[End of figure]
Because CNMI tax data are not available for 2010, we are unable to
report on the overall level of employment for the year. Wage data from
the 12 respondents to our 2010 tourism questionnaire show that hourly-
wage employment in the tourism industry (including hotels and other
employers, such as tour operators) fell 8 percent from 2009 to 2010
(from 1,703 to 1,567) and fell by 14 percent over the period from 2007
to 2010 (from 1,827 to 1,567).
In addition, we estimated that less than 1,000 jobs funded by the U.S.
Census Bureau and Recovery Act funds were temporary and will end when
federal funding is no longer available. As a result, counts of the
total number employed during this period will be higher than the
number of long-term positions.[Footnote 119] The temporary jobs were
funded beginning in June 2009 and included Census enumerators and
managers to assist with collection of 2010 Decennial Census data, as
well as jobs in infrastructure and other areas supported by Recovery
Act funds.
In interviews and discussion groups, private sector employers reported
declines in employment due to layoffs and hiring freezes, as well as
cuts in hours and benefits. Many discussion group participants said
the minimum wage increases were one of multiple factors in a "perfect
storm" that made it difficult to operate businesses in the CNMI. They
expressed concern about increases in crime and in poverty, including
people without water and power. They said the departure of the garment
industry and the inability to replace the industry had initiated a
downward economic spiral that hurt businesses, including by
contributing to higher shipping costs and reduced flights. The tourism
industry has declined, and population loss from people leaving the
CNMI also has resulted in decreased sales. In addition, businesses
faced high and increasing costs of inputs, including power and other
utilities, gas, and food. They said the legitimate economy was
shrinking, while the underground economy--including some employers
that do not pay the minimum wage--was growing. Private sector
employers expressed particular concerns about changes to immigration
law and incomplete regulations, which created uncertainty regarding
access to needed foreign workers and to visitors. In general, they
said minimum wage increases imposed additional costs at a particularly
difficult time for CNMI businesses. They also expressed concerns about
instability and possible tax increases from the local government, and
some said that the federal government had made insufficient efforts to
improve living conditions and to collect and monitor data on the CNMI.
According to CNMI government payroll data, about 17 percent of
government workers are paid at or below $7.25 and would be affected by
the minimum wage increases by 2016. In addition, after a partial
government shutdown in October 2010, the CNMI government made
significant cuts to government employees' work hours.
CNMI Average Inflation-Adjusted Earnings of Those Employed Have
Remained Largely Unchanged Since 2006:
Average earnings for those who maintained employment rose from 2006 to
2009, but prices increased by about the same amount. As shown in
figure 15, based on CNMI tax and consumer price data, from 2008 to
2009 (the most recent year available) average inflation-adjusted
earnings rose by 3 percent. This increase resulted from an increase in
average earnings of 7 percent and an increase in prices of 3.5
percent. For the period from 2006 to 2009, average inflation-adjusted
earnings remained largely unchanged, with a slight drop of about 0.5
percent, due to a rise in average annual earnings of about 19 percent
and a 19.5 percent increase in prices.[Footnote 120]
Figure 15: CNMI Average Nominal and Inflation-Adjusted Earnings Based
on CNMI Government Tax Data, 2006 through 2009:
[Refer to PDF for image: multiple line graph]
Year: 2006;
Nominal earnings: $11,455;
Inflation adjusted earnings: $11,455.
Year: 2007;
Nominal earnings: $11,925;
Inflation adjusted earnings: $11,027.
Year: 2008;
Nominal earnings: $12,781;
Inflation adjusted earnings: $11,068.
Year: 2009;
Nominal earnings: $13,625;
Inflation adjusted earnings: $11,402.
Source: GAO analysis of CNMI annual tax data and CNMI Consumer Price
Index data.
[End of figure]
Although CNMI tax data do not allow for a direct comparison of average
and minimum-wage annual earnings or for tracking the earnings of
workers who lost their jobs, the hourly wage of minimum wage workers
increased by more than inflation. The inflation-adjusted earnings of
minimum wage workers who retained their jobs and work hours rose by
about 9 percent from 2008 to 2009 and by about 25 percent for the
entire period from 2006 to 2009.
CNMI Tourism Industry Experienced Declines in Visitor Arrivals, and
Hotels Have Absorbed Minimum Wage Increases Rather than Raising Room
Rates:
Minimum Wage Increases in 2007-2010 Increased Median Wage for Workers
in Tourism Industry, and 2010-2018 Increases Would Affect Wages of
Almost All Tourism Workers:
Minimum Wage Increases in 2007-2010 Increased Median Wage for Tourism
Industry Employees:
From June 2007 to June 2010, the median hourly wage in the CNMI
tourism industry rose from $3.65 to $4.60, a 26 percent increase,
according to our questionnaire responses (see table 8).[Footnote 121]
During this period, the minimum wage increased from $ 3.05 to $4.55,
an increase of 49 percent. Because our questionnaire collected wage
data as of June of each year, these data cover the first three minimum
wages (in 2007, 2008, and 2009) but do not reflect the September 2010
minimum wage increase.
Table 8: Median Wages for Hourly-wage Workers in the CNMI Tourism
Industry, June 2007 to June 2010:
Year: 2007 (after zero minimum wage increase);
Median wage: $3.65.
Year: 2008 (after two minimum wage increases);
Median wage: $4.05;
Percentage change: 11%.
Year: 2009 (after three minimum wage increases);
Median wage: $4.55;
Percentage change: 12%.
Year: 2010 (after three minimum wage increases);
Median wage: $4.60;
Percentage change: 1%.
Year: Percent change 2007-2010;
Percentage change: 16%.
Source: GAO analysis of wage data provided in CNMI tourism industry
questionnaire, as of June 12 each year.
Note: The minimum wage for the CNMI was $3.05 in June 2007, $3.55 in
July 2007 (first increase), $4.05 in May 2008, $4.55 in May 2009, and
$5.05 in October 2010 (not included in table). Because our
questionnaire collected wage data as of June 12 of each year, the data
do not reflect the CNMI's September 30, 2010, minimum wage increase.
[End of table]
Minimum Wage Increases in 2007-2010 Narrowed Wage Gap between Lower-
and Higher-Paid Workers Employed by Questionnaire Respondents in
Tourism Industry:
Responses to our questionnaire indicate that the timing of minimum
wage increases corresponded to narrowing of the gap between the wages
of lower-and higher-paid workers in the CNMI's tourism industry (see
figure 16). Specifically, the gap between the wages of the lowest-and
highest-paid hourly-wage workers of hotels and other tourism employers
dropped from $1.35 in June 2007 to $0.65 in June 2010, a decline of 52
percent.
Figure 16: Changes in Wages of Hourly-wage Workers Employed by CNMI
Hotel and Other Tourism Questionnaire Respondents:
[Refer to PDF for image: multiple line graph]
Year: 2007 (after zero minimum wage increases);
25th percentile of hourly wage earners: $3.25;
75th percentile of hourly wage earners: $4.60.
Year: 2008 (after two minimum wage increases);
25th percentile of hourly wage earners: $4.05;
75th percentile of hourly wage earners: $4.75.
Year: 2009 (after three minimum wage increases);
25th percentile of hourly wage earners: $4.55;
75th percentile of hourly wage earners: $5.10.
Year: 2010 (after three minimum wage increases);
25th percentile of hourly wage earners: $4.55;
75th percentile of hourly wage earners: $5.20.
Source: GAO analysis of wage data provided in CNMI tourism industry
questionnaire, as of June 12 each year.
Note: The minimum wage for the CNMI was $3.55 in July 2007 (first
increase), $4.05 in May 2008, $4.55 in May 2009, and $5.05 in October
2010. Because our questionnaire collected wage data as of June 12 of
each year, the data do not reflect the CNMI's September 30, 2010,
minimum wage increase.
[End of figure]
Some hotel and other tourism employers said in interviews that the
compression of wages had resulted in lower morale for more senior
employees who now earned little more than new employees. Other
employers told us that their voluntary efforts to provide pay
increases to workers above the minimum wage had increased the total
costs of the minimum wage increases.
Minimum Wage Increases in 2010-2018 Would Affect Wages of Almost All
Workers in Tourism Industry:
As the minimum wage increases continue, they will affect a growing
percentage of workers in the CNMI's tourism industry. Based on
questionnaire responses about hotel and other tourism workers' wages
as of June 2010, 73 percent of hourly-wage workers were at the current
minimum wage. The future minimum wage increases would affect the wages
of 95 percent of current workers by the time the minimum wage reaches
$7.25 in 2016. By 2016, the extra annual cost added by minimum wage
increases after June 2010 (reflecting the 2009 increase) would be
$4,707 per worker (see table 9). We identified the additional cost by
calculating the difference between the cost per worker in June 2010
and the cost per worker through 2016, based on the scheduled minimum
wage increases and averaged across all workers.
Table 9: Distribution and Increased Annual Cost Since June 2010 per
Hourly-wage CNMI Tourism Worker Due to Minimum Wage Increases:
Year of minimum wage increase: 2010 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 73%;
Minimum wage: $5.05;
Increased average hourly cost since June 2010 per hourly-wage worker:
$0.36;
Increased average annual cost since June 2010 per hourly-wage worker:
$757.
Year of minimum wage increase: 2011 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 73%;
Minimum wage: $5.05;
Increased average hourly cost since June 2010 per hourly-wage worker:
$0.36;
Increased average annual cost since June 2010 per hourly-wage worker:
$757.
Year of minimum wage increase: 2016 (September 30);
Percent of hourly-wage workers in June 2010 at or below the new
minimum wage: 95%;
Minimum wage: $7.25;
Increased average hourly cost since June 2010 per hourly-wage worker:
$2.26;
Increased average annual cost since June 2010 per hourly-wage worker:
$4,707[A].
Source: GAO analysis of June 12, 2010 wage data provided in CNMI
tourism industry questionnaire.
Note: To estimate the annual cost of future minimum wage increases, we
first calculated the difference between the hourly wage for each
worker in June 2010 (reflecting the 2009 minimum wage of $4.55) and
all scheduled minimum wage increases through 2016 (scheduled to occur
September 30 of each year except for 2011). We multiplied that value
by 2,080 (annual hours worked per full-time worker) to obtain an
annual estimate for each worker. Finally, we reported the average of
that value. For workers in June 2010 paid above a scheduled minimum
wage, we assumed that the cost of that minimum wage for those workers
would be zero (that they would receive no increase in pay). The
average wage of tourism workers in June 2010 was $5.10. We calculated
the average cost for all workers, not only workers affected by the
minimum wage. In contrast, by 2016 the cost for workers affected by
the minimum wage would be $4,971. No minimum wage increase is
scheduled for 2011.
[A] The cost of the 2016 minimum wage increases has not been adjusted
for inflation. For illustration purposes, adjusting for projected U.S.
inflation using the Congressional Budget Office's projection of the
GDP price index shows that the real minimum wage cost in 2016 would be
$4,318, a 8.3 percent decrease. The analysis excluded nonwage labor
costs due to the minimum wage increases, such as increases in employer
payroll tax contributions under the Federal Insurance Contributions
Act. For 2011, employers must contribute the equivalent of 6.2 percent
of employee wages to Social Security and 1.45 percent to Medicare, up
to $106,800 in employee wages.
[End of table]
CNMI Hotel and Other Tourism Employers Reported Past and Planned
Actions to Reduce Costs and Raise Prices, but Few Attributed Past and
One-Half or Less Attributed Each Planned Action Largely to Minimum
Wage Increases:
Tourism Employers Reported Cutting Costs and Raising Prices from 2009
to 2010, but Few Attributed Their Actions Largely to the Minimum Wage
Increases:
Hotel and other employers in the tourism industry reported in our
questionnaire that they had taken cost-cutting actions, including
those affecting workers' income or benefits, and had raised prices
from 2009 to 2010. While few--weighted by numbers of employees--
attributed their actions largely to the minimum wage increases, some
attributed hiring freezes to the minimum wage increases.
Cost-Cutting Actions Affecting Workers' Income or Benefits in 2009-
2010:
* Reduced overtime hours. Employers representing 96 percent of all
workers employed by tourism questionnaire respondents reported that
they had decreased overtime work hours for hourly-wage workers. Of
these, employers representing 1 percent of workers employed by these
respondents attributed the action largely to the minimum wage
increases.
* Reduced regular hours. Employers representing 91 percent of all
workers employed by tourism questionnaire respondents reported having
reduced regular work hours for hourly-wage workers. Of these,
employers representing 1 percent of workers employed by these
respondents attributed the action largely to the minimum wage
increases.
* Froze hiring. Employers representing 79 percent of all workers
employed by tourism questionnaire respondents reported that they had
implemented a hiring freeze. Of these, employers representing 40
percent of workers employed by these respondents attributed the action
largely to the minimum wage increases.[Footnote 122]
* Decreased benefits. Employers representing 50 percent of all workers
employed by tourism questionnaire respondents reported that they had
decreased the level of hourly-wage workers' benefits, while employers
representing 56 percent reported that they had decreased the level of
salaried workers' benefits. Of those that reported reducing benefits
of hourly-wage workers, employers representing 3 percent of workers
employed by these respondents attributed the action largely to the
minimum wage increases. Of those that reported reducing benefits of
salaried workers, employers representing 2 percent of workers employed
by these respondents attributed the action largely to the minimum wage
increases.
Additional Cost-Cutting Actions in 2009-2010:
* Implemented other labor-and cost-saving strategies or technology.
Employers representing 95 percent of all workers employed by
questionnaire respondents reported that they had implemented other
labor-and cost-saving strategies or technology. Of these, employers
representing 4 percent of workers employed by these respondents
attributed the action largely to the minimum wage increases.
* Reduced capacity or services. Employers representing 63 percent of
all workers employed by questionnaire respondents reported that they
had reduced their operating capacity or customer services. Of these,
employers representing 5 percent of workers employed by these
respondents attributed the action largely to the minimum wage
increases.
Price Increases in 2009-2010:
* Raised prices. Employers representing 76 percent of all workers
employed by tourism questionnaire respondents reported that they had
raised prices of goods or services.[Footnote 123] Of these employers,
none attributed the action largely to the minimum wage increases.
Tourism Employers Reported Plans to Take Cost-Cutting Actions by Early
2012, and One-Half or Less Attributed Each Action Largely to the
Minimum Wage Increases:
Hotel and other employers in the tourism industry reported in our
questionnaire plans to take additional cost-cutting actions in the
next 18 months, by early 2012. More employers--weighted by numbers of
employees--attributed their future actions than their past actions to
the minimum wage increases. Specifically, one-half or less attributed
each planned action largely to the minimum wage increases.
Planned Cost-Cutting Actions Affecting Workers' Income or Benefits:
* Reduce overtime hours. Employers representing 93 percent of all
workers employed by questionnaire respondents reported planning to
decrease overtime work hours for hourly workers. Of these, employers
representing 35 percent of workers employed by these respondents
attributed the planned action largely to the minimum wage increases.
* Reduce regular hours. Employers representing 87 percent of all
workers employed by tourism questionnaire respondents reported
planning to reduce regular work hours for hourly-wage workers. Of
these employers, none attributed the planned action largely to the
minimum wage increases.
* Freeze hiring. Employers representing 83 percent of all workers
employed by tourism questionnaire respondents reported planning to
freeze hiring. Of these employers, none attributed the planned action
largely to the minimum wage increases.
* Decrease benefits. Employers representing 63 percent of all workers
employed by questionnaire respondents reported planning to decrease
benefits of both hourly and salaried workers. Of those that reported
planning to reduce benefits of hourly-wage workers, employers
representing 1 percent of workers employed by these respondents
attributed the planned action largely to the minimum wage increases.
Of those that reported planning to reduce benefits of salaried
workers, none attributed the planned action largely to the minimum
wage increases.
* Lay off workers. Employers representing 62 percent of all workers
employed by tourism questionnaire respondents reported planning to lay
off hourly-wage workers, and employers representing 61 percent planned
to lay off salaried workers. Of these employers, none attributed the
planned action largely to the minimum wage increases.
Additional Planned Cost-Cutting Actions:
* Implement other cost-saving strategies. Employers representing 88
percent of all workers employed by questionnaire respondents reported
planning to implement other cost-saving strategies. Of these,
employers representing 44 percent of workers employed by these
respondents attributed the planned action largely to the minimum wage
increases.
* Implement labor-saving strategies or technology. Employers
representing 81 percent of all workers employed by questionnaire
respondents reported planning to implement labor-saving strategies or
technology. Of these, employers representing 40 percent of workers
employed by these respondents attributed the planned action largely to
the minimum wage increases.
* Reduce capacity or services. Employers representing 62 percent of
all workers employed by tourism questionnaire respondents reported
planning to reduce operating capacity or customer services. Of these,
employers representing 51 percent of workers employed by these
respondents attributed the planned action largely to the minimum wage
increases.
Planned Price Increases:
* Raise prices. Employers representing 80 percent of all workers
employed by tourism questionnaire respondents reported planning to
raise prices of goods or services. Of these employers, none attributed
the planned action largely to the minimum wage increases.
Tourism Industry Employers Attributed Past and Planned Actions Largely
to Factors Other than Minimum Wage Increases:
Hotel and other tourism industry questionnaire respondents reported
that factors other than the minimum wage increases largely contributed
to their past and planned actions. For example, employers representing
32 percent of workers employed by questionnaire respondents cited
changes to U.S. immigration laws, and employers representing 55
percent of workers cited the decrease in numbers of customers.
Employers noted that these factors contributed to their future plans
as well. Specifically, employers representing 57 percent of workers
employed by questionnaire respondents cited changes to U.S.
immigration laws, and employers representing 25 percent of workers
cited the decrease in numbers of customers.[Footnote 124]
CNMI Hotel Occupancy Has Stagnated, and Hotels Have Generally Absorbed
Costs of Minimum Wage Increases:
Due to the decline in visitors and to competition from other
destinations, hotels have generally absorbed minimum wage costs rather
than raising room rates, and they have postponed other investments and
renovations that could make their properties more attractive to
potential visitors. Both visitor arrivals and flight seats available
to the CNMI declined from 2005 to 2010, particularly those from Japan.
Industry data show that from 2006 to 2010 the CNMI hotel occupancy
rate remained between 58 and 65 percent, and inflation-adjusted room
rates declined. If observed trends in room and occupancy rates
continue, payroll will represent an increasing share of total
operating costs for hotels in the CNMI, due to the minimum wage
increases. Payroll costs as a percentage of total operating costs will
increase from approximately 29 percent in 2010 (with minimum wage
increases representing about 1 percent of total operating costs) to 34
percent in 2016 (with minimum wage increases representing 8 percent),
assuming other costs remain constant. In discussion groups, some
tourism employers and managers expressed concern about the minimum
wage increases, but others said the minimum wage increases were needed
and manageable and that the primary difficulty was the CNMI tourism
industry's general decline.
Both CNMI Visitor Arrivals and Flight Seat Availability Have Declined:
Visitor arrivals to the CNMI have decreased 31 percent--from 529,557
in 2005 to 368,186 in 2010. Seats available on flights to the CNMI
have decreased 27 percent--from 740,673 in 2005 to 541,399 in 2010, as
shown in figure 17. Arrivals account on average for 71 percent of
overall flight seat capacity during this period.[Footnote 125]
Airline service to the CNMI has fluctuated in recent years and remains
unpredictable. For example, in September 2005, Japan Airlines
discontinued service to the CNMI. Other flights have been added and
subsequently removed; for example, Northwest Airlines added routes
from Narita and Osaka, Japan, to the CNMI in 2005, but the Osaka
flight was suspended the next year. Flights from these cities are now
only available seasonally throughout the year, and the local
government passed a bill providing financial incentives to travel
agents in an effort to stabilize this service.[Footnote 126] A new
airline, Fly Guam, established flights between the CNMI and Hong Kong
in March 2011. Because of the lack of flights to and from China,
Chinese visitors arrive largely on charter flights instead of
regularly scheduled flights.
The CNMI's greatest declines in both visitors and flight seats by
country were from Japan, which represents the largest share of
visitors of any country. The Japanese market share dropped from 71
percent of the tourist arrivals in 2005 to 50 percent in 2010. In
particular, the Japanese arrivals decreased 51 percent from 2005 to
2010 (from 376,263 to 182,820).[Footnote 127] Korean arrivals
increased from 65,049 in 2005 to 108,079 in 2010, and the Korean
market share increased from 12 percent to 29 percent in the same
period. Some visitors may arrive on airlines to or from countries
other than their own. For example, Korean visitors may arrive on
flights from Japan. In addition, there are no flights from Russia to
the CNMI; Russian travelers arrive on flights through other countries.
China and Russia still have a combined share of less than 10 percent
of the total tourist arrivals, but they are emerging markets, and
Russia accounts for a disproportionate percentage of tourism
expenditures.
Figure 17: Total CNMI Visitor Arrivals and Flight Seats Available,
Fiscal Years 2005 to 2010:
[Refer to PDF for image: vertical bar graph]
Year: 2005;
Total visitor arrivals: 529,557;
Total flight seats: 740,673.
Year: 2006;
Total visitor arrivals: 443,812;
Total flight seats: 607,599.
Year: 2007;
Total visitor arrivals: 395,360;
Total flight seats: 523,556.
Year: 2008;
Total visitor arrivals: 396,497;
Total flight seats: 552,685.
Year: 2009;
Total visitor arrivals: 375,808;
Total flight seats: 547,710.
Year: 2010;
Total visitor arrivals: 368,186;
Total flight seats: 541,399.
Source: GAO analysis of Marianas Visitors Authority data.
Note: Visitor arrivals include those from China, Japan, Korea, Russia,
the United States, and other countries. Flight seats include the total
number available on flights from China (primarily charter flights),
Japan, and Korea. There are no flights from Russia to the CNMI.
[End of figure]
Due Partly to Stagnant Occupancy Rates and Declines in Inflation-
Adjusted Room Rates, CNMI Hotels Have Absorbed Costs of Minimum Wage
Increases:
Due to competition from other vacation destinations, such as Guam, and
to declining visitor arrivals and occupancy rates remaining between 58
and 65 percent, economic reasoning suggests that hotels in the CNMI
have limited ability to raise prices, as shown in recent stagnation in
nominal hotel room rates and decline in inflation-adjusted room rates.
If CNMI hotels had more flexibility in pricing, some of the costs of
minimum wage increases could be passed on to consumers. However, due
to the decline in visitors, hotels have generally absorbed these
costs, and hotel managers said they have postponed other investments
and renovations that could make their properties more attractive to
potential visitors.[Footnote 128]
Occupancy. Data from the Hotel Association of the Northern Mariana
Islands, which covers 12 CNMI hotels, show that from 2009 to 2010, the
overall occupancy rate increased by 7.5 percent, as shown in table 10.
For the overall period from 2006 through 2010, the occupancy rate has
no significant changes, with a slight decrease of 1.5 percent, and
remained between 58 and 65 percent.
Room rates. Room rates decreased by 8 percent from 2009 to 2010, as
shown in table 10. For the overall period from 2006 to 2010, room
rates decreased slightly, by 2 percent. When adjusted for inflation in
the CNMI, real room rates declined by almost 12 percent from 2006 to
2009.
Number of workers. Our questionnaire responses show that for the
period from 2007 to 2010, the number of hourly hotel workers declined
by 13 percent.[Footnote 129]
Table 10: CNMI Hotel Occupancy and Room Rates, 2006 through 2010:
Year: 2006;
Occupancy rate: 64%;
Nominal room rate ($): $91;
Inflation-adjusted room rates in 2006 dollars: $91.
Year: 2007;
Occupancy rate: 59%;
Percent change: -7.2%;
Nominal room rate: $92;
Percent change: 0.7%;
Inflation-adjusted room rates in 2006 dollars: $85;
Percent change: -6.9%.
Year: 2008;
Occupancy rate: 62%;
Percent change: 4.9%;
Nominal room rate: $98;
Percent change: 6.3%;
Inflation-adjusted room rates in 2006 dollars: $85;
Percent change: -0.4%.
Year: 2009;
Occupancy rate: 58%;
Percent change: -5.8%;
Nominal room rate: $97;
Percent change: -1.2%;
Inflation-adjusted room rates in 2006 dollars: $81;
Percent change: -4.5%.
Year: 2010;
Occupancy rate: 63%;
Percent change: 7.5%;
Nominal room rate: $89;
Percent change: -7.5%.
Year: Percent change 2006-2010;
Occupancy rate: -1.5%;
Nominal room rate: -2.2%;
Inflation-adjusted room rates in 2006 dollars: -11.5%;
Source: Hotel Association of the Northern Mariana Islands (HANMI) data
and CNMI CPI data.
Note: Data cover HANMI members only. We were unable to calculate 2010
inflation-adjusted room rates because 2010 CNMI CPI data are not
available. HANMI data on number of workers in 2010 are not available.
In addition, we used the CPI because a CNMI Producer Price Index was
not available. During this period, the number of available rooms has
remained essentially unchanged.
[End of table]
Scheduled Minimum Wage Increases and Payroll Will Represent an
Increasing Percentage of Total Operating Costs:
If observed trends in room rates and occupancy rates continue, payroll
will represent an increasing share of total operating costs for hotels
in the CNMI, due to the minimum wage increases. We estimate that for
the hotels that responded to our questionnaire, the minimum wage
increases from 2010 through 2016 will raise average annual payroll
costs by approximately $160,528 and $983,076, respectively, from their
average payroll costs in 2009. As a result, payroll costs as a
percentage of total operating costs will slightly increase from
approximately 28 percent in 2009, to 29 percent in 2010 (with minimum
wage increases representing about 1 percent of total operating costs),
to 34 percent in 2016 (with minimum wage increases representing almost
8 percent). Figure 18 shows the estimated average impact of the
minimum wage increases on these hotels' payroll costs in 2010 and 2016
(assuming that the number of employees and other operating costs
remain constant).
Figure 18: Estimated Average Impact of Minimum Wage Increases on CNMI
Hotels' Payroll Costs in 2010 and 2016, Relative to Average Payroll
and Other Costs in 2009:
[Refer to PDF for image: stacked vertical bar graph]
Year: 2009;
Operating cost excluding payroll costs in 2009: $8,016,170;
Payroll cost in 2009: $3,183,756;
Increases in payroll cost due to minimum wage increases since 2009: $0
Year: 2010;
Operating cost excluding payroll costs in 2009: $,8016,170;
Payroll cost in 2009: $3,183,756;
Increases in payroll cost due to minimum wage increases since 2009:
$160,528.
Year: 2016;
Operating cost excluding payroll costs in 2009: $8,016,170;
Payroll cost in 2009: $3,183,756;
Increases in payroll cost due to minimum wage increases since 2009:
$983,076.
Source: GAO analysis of wage and other data provided in responses to
GAO CNMI tourism industry questionnaire.
Notes: Our estimates of hotels' average costs in 2010 and 2016 are
based on hotels' responses to our 2010 industry questionnaire.
Estimates of hotels' average costs are for 2009 levels. Minimum wage
costs only include workers directly affected by the future minimum
wages. The impact of minimum wage increases on required employer
contributions to Social Security and Medicare under FICA are excluded
from this analysis. Including such elements as part of minimum wage
costs would increase the estimated impact of minimum wage increases.
However, if other operating costs excluding payroll were to increase,
the minimum wage increases would have a smaller effect on overall
operating costs.
"Operating costs excluding payroll costs" includes Social Security and
Medicare contributions under FICA, payments for employee benefits, and
other operating expenses. "Payroll costs" includes payroll before
deductions for taxes and benefits. "Increases in payroll costs due to
minimum wage" is the annual cost of payroll increases that would be
required to comply with the minimum wages since 2010, based on the
2010 distribution of wages.
Costs shown are unweighted average costs for CNMI hotels that
responded to our questionnaire. To determine the costs of the minimum
wage increases, we assumed that all workers employed by questionnaire
respondents were legally required to receive the minimum wage. If some
are not covered or are exempt, the minimum wage increases would affect
fewer workers, and cost increases would be lower.
[End of figure]
Hotel and Other Tourism Employers Said Multiple Factors Made It
Difficult to Attract Increased Numbers of Visitors:
In discussion groups, some hotel and other tourism employers and
managers expressed concern about the minimum wage increases, saying
that the CNMI competed with similar tourism destinations with lower
wages and was very different from the U.S. economy.[Footnote 130]
Others said the minimum wage increases were needed and manageable and
that the primary difficulty was the general decline in the CNMI
tourism industry. Some said they had taken steps to reduce regular and
overtime hours--including cutting operating hours--and to reduce the
cost of benefits. They also described other cost-saving measures,
including consolidating office space and cutting utility costs by
reducing phone lines. Employers said CNMI tourism business had
decreased, with fewer visitor arrivals and expenditures, including
substantial loss of the Japanese market. They said that too few
flights from key tourism countries and frequent changes in flight
availability deterred visitors and led travel agents to send clients
to other destinations. In addition, employers expressed concern about
whether the CNMI tourism industry would retain access to foreign
workers, including those with needed language and other skills, and
access to visitors from China and Russia under U.S. immigration law.
They expressed concern that the quality of the destination had
declined and that the CNMI needed investment in new or updated
attractions and hotel renovations. However, they said uncertainty
about immigration rules, flight availability, and visitor arrivals had
discouraged new investment. Employers said the CNMI needed more
tourism promotion, possibly including incentives for airlines and
assistance from the federal government.
Tourism and Other Workers Said They Would Like Pay Increases but Were
Concerned about Job Availability:
Workers participating in our CNMI discussion groups expressed mixed
views regarding the minimum wage increases and said they would like
pay increases but were concerned about losing jobs and work hours.
Workers in the tourism industry generally expressed greater concern
about the minimum wage increases than other workers and unemployed
workers.
* Price increases. Participants said they wanted to receive minimum
wage increases to help them meet rising prices, including for
utilities such as power and water and for food and other consumer
goods. However, they said the minimum wage increases had not kept pace
with changes in the price of goods, and some said the minimum wage
increases had not made a difference.
* Job insecurity. Workers were concerned about the impact of the wage
increases on their ability to find and retain jobs, which was already
difficult. They said they had observed that while some workers
received pay increases, others lost their jobs or work hours. Several
said they would rather keep their jobs and work hours and stay at the
current wage. They also said that many people were leaving the CNMI to
find work.
* Poverty and crime. Some said that with or without the minimum wage,
people in the CNMI were suffering from poverty. People who have lost
jobs or had their hours reduced rely on food stamps and other
benefits, though some said they would like to find jobs rather than
relying on benefits. One said he planned to find and sell cans from
the street to generate income. Participants also expressed concern
about rising crime rates resulting from decreased employment, and
several said they had been victims of theft.
* Immigration. Participants said that both workers and employers were
worried about the transition to U.S. immigration law, including
increased immigration fees and the status of foreign workers.
The text box lists some of the comments by discussion group
participants.
Text box:
CNMI Workers' Views Based on Discussion Groups:
Price increases:
* "Groceries here are pretty expensive. Prices keep going higher and
higher."
* "It's very hard to pay for everything just with our salary. Power is
expensive."
* "The minimum wage that was raised is good for people working. We
want to try that minimum wage ourselves."
* "Every time the minimum wage goes up, I notice stores raise the
price of commodities."
Job insecurity:
* "Minimum wage going up to $7.25 is great for workers, but at the
same time is a big burden to employers."
* "Minimum wage increases are useless. They cut hours so, in the end,
our paychecks are the same."
* "When minimum wage increased I was laid off and up to now have not
been able to find a job."
* "With minimum wage some are getting a benefit of higher wages, but
others are losing their jobs."
* "I'd rather wait for my increase than be laid off."
Poverty and crime:
* "Crime is skyrocketing--I'm not ok with that, but it's because of
the cost of living going up."
* "Nothing changes, even with the delay in the minimum wage.
* People are suffering."
Immigration:
* "Federal immigration is hurting foreign workers now that we have to
pay fees to go back."
* "Employers and employees are scared of the transition in the next
few years. They're all just waiting."
End of text box]
[End of section]
Appendix V: GAO Questionnaire Used in Report:
Note: The questionnaire reproduced below was provided to American
Samoa tuna canning employers who had responded to our 2009
questionnaire. CNMI tourism employers who had responded in 2009
received a questionnaire with nearly identical wording, except as
noted and except where "American Samoa" was replaced with "CNMI." In
addition, the CNMI questionnaire included the following:
24. Which one of the following best describes this establishment's
principal kind of business?
(Please check only ONE box):
Accommodations/hotels:
Other tourism-related: Please specify:
Other non-tourism-related: Please specify:
Instructions for Completing the Questionnaire Update Onscreen:
Please use your mouse to navigate, clicking on the field or check box
you wish to answer.
To select a check box or a button, click on the center of the box.
To change or deselect a check box response, click on the check box and
the 'X' will disappear.
To answer a question that requires that you write a comment, click on
the answer box and begin typing. The box will expand to accommodate
your answer.
Start Here:
Note: The reporting unit for this questionnaire is an establishment.
An establishment is generally (1) a single physical location where
business is conducted or where services or industrial operations are
performed or (2) a permanent office, payroll office, or other place
where business activities are conducted.
Part I. Establishment Information:
These questions cover basic information about this establishment.
1. What is the 9-digit Employer Identification Number (EIN) for this
establishment?
If you or your employer operates establishment in American Samoa with
more than one EIN, please fill out one questionnaire per EIN.
(Please enter numerals only)
2. What is this establishment's name?
Part II. Expenses And Income:
These questions ask about this establishment's labor and
establishment's cost structure and ability to absorb cost increases.
capital expenses in order to better understand this does incur”for a
for
3. The questions in Part II will refer to the 12-month period that
includes June 12th in a given year. How does your establishment prefer
to provide expense data--for a calendar year (January through
December) or for a fiscal year as defined by your establishment?
Calendar year: Skip to Question 4;
Fiscal year:
3a. What is the first and last month of your establishment's fiscal
year that includes June 12th?
First month of fiscal year:
Last month of fiscal year:
The data reported in questions 4 through 8 will be used its employees.
Each question asks you to report a different total payroll, FICA
contributions, and costs of employee categories are provided below.
4. What was the total U.S. dollar amount of this establishment's
payroll before employee deductions for taxes and for the 12-month
period for 2009 identified in question 3?
For each year only include the following as payroll expenses:
* Wages and salaries, including overtime pay, commissions, and
bonuses, paid only to employees of this establishment;
* Paid holidays, vacation, sick leave, and other paid leave for all
employees.
12-month period that includes June 12th:
If did not incur any expenses, please write in 0.
(Please round to the nearest whole dollar)
5. What was the total U.S. dollar amount of this establishment's FICA
contributions for the 12-month period for 2009 identified in question
3?.
FICA contributions are those made for:
* Social Security (OASDI) and,
* Medicare.
12-month period that includes June 12th:
If did not incur any expenses, please write in 0.
(Please round to the nearest whole dollar)
6. What was the total U.S. dollar amount of this establishment's
payments for employee benefits (other than FICA) for the 12-month
period for 2009 identified in question 3?
For each year only include the following as benefits if offered to any
employee who earned an annual salary or an hourly wage:
* Insurance contributions (e.g., health, life);
* Payments for health expenses;
* Pension or 401(k) contributions;
* Housing or food allowances;
* Transportation payments for local or international travel;
* Payments for education expenses;
* Workers' compensation;
* Other benefits not listed above.
12-month period that includes June 12th:
If did not incur any expenses, please write in 0.
(Please round to the nearest whole dollar)
7. Excluding payroll, FICA contributions, and employee of this
establishment's other operating expenses for the benefits, what was
the total U.S. dollar amount 12-month period for 2009 identified in
question 3?
For each year only include:
* Lease and rental payments;
* Costs of materials, such as raw materials, packaging, or food;
* Utilities and telecommunications costs;
* Advertising services, office supplies, and shipping costs;
* Services provided by contractors, such as legal, data processing,
janitorial, or other;
* Insurance, storage, repairs, theft, and damage losses;
* Merchandise purchased for resale;
* Equipment that was expensed (rather than capitalized);
* Depreciation and amortization charges;
* Business taxes and fees;
* Other expenses not listed above, except expenses reported in
questions 4 through 6.
12-month period that includes June 12th:
If did not incur any expenses, please write in 0.
(Please round to the nearest whole dollar)
8. What was the total U.S. dollar amount of this establishment's
capital expenditures for the 12-month period for 2009 identified in
question 3?
For each year only include the following as capital 12-month period
that includes expenditures:
* Value of new construction completed;
* Value of physical improvements made to establishment's facilities
that were completed;
* Equipment that was capitalized (rather than expensed) travel.
12-month period that includes June 12th:
If did not incur any expenses, please write in O.
(Please round to the nearest whole dollar)
Part III. Employment And Wages Data:
These questions ask for detailed data about employment and wages for
employees at this establishment for 2010. These data are necessary to
develop a historical time series of comparable employment and wage
data for large employers American Samoa.
Note: The questions in Part III ask about employees on this
establishment's payroll. When answering, please refer to the following
definition of employee:
Include the following in your count of employees:
* Full- and part-time employees, including executives, who earn an
hourly wage or annual salary;
* Employees on paid leave during any part of the stated pay period.
Exclude the following in your count of employees:
* Employees on the payroll of establishments with a different EIN from
this establishment;
* Proprietors, owners, or partners of unincorporated establishments;
* Employees on unpaid leave for the entire stated pay period;
* Unpaid family members;
* Pensioners.
Several questions in Part III also ask about employees covered by the
Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage,
overtime pay, recordkeeping, and youth employment standards affecting
employees in the private sector and in federal, state, and local
governments.
9. Are any of the employees on this establishment's payroll paid an
hourly wage instead of an annual salary?
(Please check only One box):
Yes: Continue with Question 10;
No: Skip to Question 14;
Don't know: Skip to Question 14.
10. The reporting period for questions in Part II was either a
calendar or fiscal year. The reporting period questions in Part HI
will now be a pay period. A pay period is a recurring length of time
over which employee for the wage at work time is recorded and paid.
What length of time defines a pay period for employees paid an hourly
this establishment?
(Please check only onE box):
1 week:
2 weeks:
1 month:
Other: Please specify:
11. For employees paid an hourly wage, what were the start and end
dates of the pay period including June 12th for 2010?
12. If this establishment was not in operation during the pay period
that included June 12th in any year, please check the appropriate box
in the last column of the table.
(Please enter two numerals per answer box)
Start date of pay period that includes June 12, 2010:
Month:
Day:
End date of pay period that includes June 12, 2010:
Month:
Day:
Establishment was not in operation on June 12 2010
12. What was the total number of employees paid an hourly wage on this
establishment's payroll period that included June 12th 2010?
If this establishment was not in operation during the pay period that
included June 12th, please enter "0" in the corresponding box.
(Please enter numerals in each box below)
Total number of employees paid an hourly wage:
Pay period that includes June 12 2010:
13. The next table asks for detailed information about employees who
were paid different base hourly wages (before deductions) during the
pay period that included June 12th 2010. Question text and
instructions are provided at the top of each column.
Please do not include employees paid an annual salary in these tables.
Data for employees paid an annual salary will be reported separately
in question 16.
You may also submit the requested data in an Excel spreadsheet or as a
computer printout instead of reentering the data into the tables below.
a. For each of the questions below, please answer for the pay period
that included June 12, 2010:
(A) Base hourly wage rate before deductions (in U.S. dollars):
(Please enter in $XX.XX format for each hourly wage earned by
employees at your establishment):
(B) How many employees earned the base hourly wage listed in (A)?
(Please enter only numerals)
(C) How many of the employees listed in (B) are covered by the FLSA?
(Please enter only numerals):
(D) How many of the employees listed in (B) are U.S. citizens or
nationals, U.S. or American Samoan permanent residents, or citizens of
the Freely Associated States?
(Please enter only numerals)
(E) How many total hours not including overtime hours) did employees
who earned this base hourly wage work during this pay period?
(Please report hours rounded to the quarter hour and to two decimal
places):
(F) How many total overtime hours did employees who earned this base
hourly wage work during this pay period?
(Please report hours rounded to the quarter hour and to two decimal
places):
14. Are any of the employees on this establishment's payroll paid an
annual salary instead of an hourly wage?
(Please check only one box)
Yes: Continue with question 15;
No: Skip to question 17;
Don't know: Skip to question 17.
15. What was the total number of employees paid an annual salary on
this establishment's payroll during the pay period that included June
12th 2010?
If this establishment was not in operation during the pay period that
included June 12th in any year, please enter a "0" in the
corresponding box.
(Please enter numerals in each box below)
Total number of employees paid an annual salary:
Pay period that includes June 12, 2010:
16. The next table asks for detailed information about full- and part-
time employees on this establishment's payroll who were paid different
annual salaries (before deductions) during the pay period that
included June 12th 2010. Question text and instructions are provided
at the top of each column.
Please do not include employees paid an hourly wage. Data for
employees paid an hourly wage were reported separately in question 13.
Full-time employees are those typically worked 35 or more hours per
week; part-time employees are those who typically worked less than 35
hours per week. If this establishment was not in operation during the
pay period, please enter a 0 for that year in each box.
(Please enter numerals only in each box below)
Pay period including June 12, 2010:
(A) Annual salary before deductions (in U.S. dollars):
(Please enter in $XX,XXX format each salary earned by employees at
your establishment)
(B) Number of full-time employees:
(Please enter only numerals):
(C) Number of part-time employees:
(Please enter only numerals):
(D) How many of the employees listed in (B) and (C) are covered by the
FLSA?
(Please enter only numerals):
(E) How many of the employees listed in (B) and (C) are U.S. citizens
or nationals, U.S. or American Samoan permanent residents, or citizens
of the Freely including Associated States?
(Please enter only numerals):
(F) How many total hours (not including overtime hours) did employees
who earned this salary work during this pay period?
(Please report hours rounded to the quarter hour and to two decimal
places):
Part IV. Questions About The Minimum Wage Increases:
The questions in this section ask about past and future actions this
establishment has taken and what factors contributed to the decisions
to implement each action.
17. Between June 2009 and June 2010, did this establishment implement
any of the following actions?
(Please check one box per action):
a. Introduced labor-saving strategies or technology:
Yes:
No:
Don't know:
Not applicable:
b. Introduced other cost-saving strategies (e.g., energy-saving
technologies):
Yes:
No:
Don't know:
Not applicable:
c. Reduced operating capacity or services offered:
Yes:
No:
Don't know:
Not applicable:
d. Delayed expansion of business:
Yes:
No:
Don't know:
Not applicable:
e. Relocated business outside of American Samoa:
Yes:
No:
Don't know:
Not applicable:
f. Closed establishment temporarily:
Yes:
No:
Don't know:
Not applicable:
g. Laid off salaried employees:
Yes:
No:
Don't know:
Not applicable:
h. Laid off employees who are paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
i. Reduced regular work hours for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
j. Reduced overtime work hours for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
k. Decreased level of benefits for salaried employees:
Yes:
No:
Don't know:
Not applicable:
l. Decreased level of benefits for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
m. Implemented a hiring freeze:
Yes:
No:
Don't know:
Not applicable:
n. Raised prices of goods or services:
Yes:
No:
Don't know:
Not applicable:
o. Others (Please specify):
If you checked yes for any of these actions, continue to question 18.
If you did not check YES for any of these actions, skip to question 20.
18. To what extent did the minimum wage increases (past or future)
contribute to this establishment's decision to implement each action
listed in question 17 for which you checked yes?
(Please check ONE box per action)
a. Introduced labor-saving strategies or technology:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
b. Introduced other cost-saving strategies (e.g., energy-saving
technologies):
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
c. Reduced operating capacity or services offered:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
d. Delayed expansion of business:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
e. Relocated business outside of American Samoa:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
f. Closed establishment temporarily:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
g. Laid off salaried employees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
h. Laid off employees who are paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
i. Reduced regular work hours for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
j. Reduced overtime work hours for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
k. Decreased level of benefits for salaried employees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
1. Decreased level of benefits for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
m. Implemented a hiring freeze:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
n. Raised prices of goods or services:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
o. Others (Please specify):
19. To what extent did each of the following factors contribute to
this establishment's decision to implement actions listed in question
17?
(Please check ONE box per cost)
a. Increased utility costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
b. Increased costs of materials:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
c. Increased transportation/shipping costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
d. Increased maintenance costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
e. Decreased number of customers:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
f. Changes to U.S. immigration laws:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
g. Changes in business taxes or fees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
h. Others (please specify):
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
20. Do you think this establishment will implement as of the following
actions in the next 18 months?
(Please check one box per action)
a. Introduce labor-saving strategies or technology:
Yes:
No:
Don't know:
Not applicable:
b. Introduce other cost-saving strategies (e.g., energy saving
technologies):
Yes:
No:
Don't know:
Not applicable:
c. Reduce operating capacity or services offered:
Yes:
No:
Don't know:
Not applicable:
d. Delay expansion of business:
Yes:
No:
Don't know:
Not applicable:
e. Relocate business outside of American Samoa:
Yes:
No:
Don't know:
Not applicable:
f. Close establishment temporarily:
Yes:
No:
Don't know:
Not applicable:
g. Lay off salaried employees:
Yes:
No:
Don't know:
Not applicable:
h. Lay off employees who are paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
i. Reduce regular work hours for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
j. Reduce overtime work hours for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
k. Decrease level of benefits for salaried employees:
Yes:
No:
Don't know:
Not applicable:
1. Decrease level of benefits for employees paid an hourly wage:
Yes:
No:
Don't know:
Not applicable:
m. Implement a hiring freeze:
Yes:
No:
Don't know:
Not applicable:
n. Raise prices of goods or services:
Yes:
No:
Don't know:
Not applicable:
o. Close establishment permanently:
Yes:
No:
Don't know:
Not applicable:
p. Others (Please specify):
If you checked yes for any of these actions, continue to question 21.
If you did not check yes for any of these actions, skip to question 23.
21. To what extent do you think the minimum wage increases (past or
future) will contribute to this establishment's decision to implement
each action listed in question 20 for which you checked Yes?
(Please check ONE box per action)
a. Introduce labor-saving strategies or technology:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
b. Introduce other cost-saving strategies (e.g., energy-saving
technologies):
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
c. Reduce operating capacity or services offered:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
d. Delay expansion of business:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
e. Relocate business outside of American Samoa:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
f. Close establishment temporarily:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
g. Lay off salaried employees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
h. Lay off employees who are paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
i. Reduce regular work hours for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
j. Reduce overtime work hours for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
k. Decrease level of benefits for salaried employees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
1. Decrease level of benefits for employees paid an hourly wage:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
m. Implement a hiring freeze:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
n. Raise prices of goods or services:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
o. Close establishment permanently:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
p. Others (Please specify):
22. To what extent do you think each of the following factors will
contribute to this establishment's decision to implement the actions
listed in question 20?
(Please check one box per cost)
a. Increased utility costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
b. Increased costs of materials:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
c. Increased transportation/shipping costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
d. Increased maintenance costs:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
e. Decreased number of customers:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
f. Changes to U.S. immigration laws:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
g. Changes in business taxes or fees:
Not at all:
To a small extent:
To a moderate extent:
To a large extent:
Don't know:
f. Others (please specify):
23. Do you have any other comments to add that you feel would help us
understand (or provide context for):
* your responses to any specific question(s) in this questionnaire or;
* the impact the increases in the minimum wage or other factors had or
will have on this establishment or its employees?
24. What is the name, title, and contact information of the primary
person who completed this questionnaire in case GAO needs to follow up
on information provided in this questionnaire?
a. Name of person completing the questionnaire:
b. Title of person completing the questionnaire:
c. E-mail address of person completing the questionnaire:
d. Phone number of person completing the questionnaire:
e. Fax number of person completing the questionnaire:
25. What is this establishment's mailing address?
This concludes the questionnaire. Thank you very much for your
assistance!
[End of section]
Appendix VI: Comments from the Department of Commerce:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
United States Department of Commerce:
The Secretary of Commerce:
Washington, D.C. 20230:
May 25, 2011:
Mr. David Gootnick:
Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Gootnick:
The U.S. Department of Commerce appreciates the opportunity to provide
comments on the U.S. Government Accountability Office's draft report
titled American Samoa and Commonwealth of the Northern Mariana
Islands: Employment, Earnings, and Status of Key Industries Since
Minimum Wage Increases Began (GA0-11-427). The Department of
Commerce's comments on this report are enclosed. [See comment 1]
Sincerely,
Signed by:
Gary Locke:
Enclosure:
The following is GAO's comment on the Department of Commerce's letter,
dated May 25, 2011.
GAO Comment:
1. The Department of Commerce provided technical comments in addition
to the signed letter. In discussions with the Department of Commerce,
we agreed to include only the signed letter and not the technical
comments.
[End of section]
Appendix VII: Comments from the American Samoa Government:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
Office of the Governor:
American Samoa:
Togiola T.A. Tulafono:
Governor:
Faoa A. Sunia:
Lieutenant Governor:
Telephone: (684)633-4116
Fax: (684) 633-2269
Serial: 410:
May 25, 2011:
Mr. David Gootnick:
Director, International Affairs and Trade:
United States Government Accountability Office:
411 G Street, N.W.
Washington, DC 20548:
Subject: GAO Draft Report (GAO-11-427) American Samoa and Commonwealth
of the Northern Mariana Islands: Employment, Earnings, and Status of
Key Industries Since Minimum Wage Increases Began:
Dear Mr. Gootnick:
Thank you for the opportunity to submit our response on GAO's Draft
Report on the effects of recent minimum wage increases in American
Samoa.
We are generally in agreement with the findings presented in the
report. However, we would like to bring attention to several
fundamental concerns we have regarding this GAO study.
1. The draft report itself does not capture or convey the magnitude of
the economic disaster that has befallen American Samoa. The economic
impact analysis is so fragmented as to suggest a form of recession
(page 56). On the contrary it is an economic depression. Rates of
unemployment may be or soon reach 20-25 percent (Answer to GAO
question, 3-25-11 email). This is a very important order of magnitude
estimate.
2. The report is replete with admonitions that the minimum wage was
only one of several factors influencing economic conditions in
American Samoa. Nevertheless, it is absolutely clear that American
Samoa's cannery employment losses, plant closures and other adverse
actions were attributed significantly and most often to the minimum
wage increases (pages 62-65).
3. The report finds that economic conditions are serious in American
Samoa and that employers expect things to get worse when this
temporary relief period ends. In other words, American
Samoa's economy is in dire straits, and the forces that caused the
decline remain intact to prevent an economic recovery (page 56).
There is more than sufficient evidence in the report to support our
recommendations.
1. Terminate increases in the minimum wage immediately in American
Samoa.
2. Conduct a thorough analysis of what caused the minimum wage
increases to lead to such adverse economic effects in American Samoa
and not in the U.S.
3. Determine procedures for dealing with the minimum wage in American
Samoa in such a manner as to avoid such economic disasters in the
future.
Our contention is that someone must address these issues for Congress
in order for them to formulate appropriate legislation. As it stands,
the magnitude of the impacts is unclear, and there is nothing in the
report to give Congress any guidance as to what could be done to
remedy the situation or prevent it from occurring again.
We understand the GAO has its particular charter, its legislative
mandates and research conventions that may limit the extent of
interpretation it has to work with. Nevertheless, Congress needs
answers to the following key questions:
1. Congress needs to know the general magnitude of the economic
impacts:
The GAO report seriously understates its own case. As with the
previous report, employment loss estimates are never combined in any
coherent manner to suggest the true magnitude of the economic impacts.
For example, consider the table below combining GAO numbers to provide
an order of magnitude impact estimate. These employment numbers are
found on pages 55 and 56. [See comment 1]
Estimated Employment Losses in American Samoa, 2009-2010:
SSA Estimates:
2009: 3,737;
2010-11: 3,737.
Cannery Questionnaire:
2010-11: 2,256.
Current Temp Workers:
2010-11: 2,000.
Total
2009: 3,737;
2010-11: 7,993.
This table is very conservative. It shows employment losses of almost
8000 by 2010-11, approximately a 40 percent decline from the 2008 peak
of 19,171. It is conservative because it assumes (a) no further non-
cannery employment losses in 2010, (b) no additional cannery losses
or closures in 2010, and (c) the low estimate of GAO temporary worker
job loss range.
It would not take much change in these conservative assumptions for
total employment losses in 2010-11 to reach 10-12,000, or roughly 50
to 60 percent declines in total employment in American Samoa from
2008.
This information is in the report, but it is spread throughout even in
footnotes. It does not appear in any integrated form that would
provide any clear statement of the magnitude or seriousness of the
impacts.
This economic impact is a great deal more serious than conveyed in the
GAO report. This is very important for Congress to know.
2. Congress needs to know why the US minimum wage has had such adverse
economic effects on the territories but not on the U.S.
We went to a great deal of effort to shed light on this issue for the
GAO in a letter to you of January 31, 2011. We saw brief reference to
the matter in the report but no serious consideration. [See comment 2]
Our view was that Congress itself recognized the danger in the
original minimum wage legislation in 1938 designed explicitly to help
maintain a "minimum standard of living....without substantially
curtailing employment or earning power".
When Congress applied the US minimum wage in American Samoa in 2007,
it did not consider that the US minimum wage would be applied to a
much larger proportion of American Samoa's economy than was the case
for the U.S.
The result was that American Samoa suffered a vastly more severe
relative employment decline than ever could have been anticipated in
the U.S. [See comment 3]
a. American Samoa's minimum wages and average wages were only a
fraction of the US averages.
b. About half of American Samoa's workers had wages below the US
minimum compared with about 2 percent for the U.S.
c. Scheduled minimum wage increases could result in a one-third
increase in total wage costs in American Samoa. Such increases could
not be absorbed through increased productivity, reduced profits, or
higher prices. Therefore, the rising wage costs would have to be
absorbed through major employment reductions.
d. The U.S. minimum wage would have to be raised to more than $16.50
per hour to expand minimum wage coverage in the US to the same
proportion that it applies in American Samoa.
e. American Samoa's production per person is less than one-fifth that
of the US as measured by per capita GDP.
Application of the US minimum wage to American Samoa, pursuant to the
scheduled increases mandated by Congress, continues to have
devastating effects on American Samoa's economy. It is causing severe
distortions in American Samoa's labor market. It has driven up labor
costs such that businesses are being forced to cut employment, close
or relocate.
Congress must now address how American Samoa's minimum wage should be
determined to remedy and avoid these catastrophic employment losses in
the future. We recommended that the GAO explore alternative methods
for setting minimum wage levels in American Samoa that will have less
damaging effects on its economy. Congress is obligated by its own
legislation to establish a minimum wage "without substantially
curtailing employment or earning power". [See comment 2]
The GAO has been instrumental in the preparation of this knowledge
base. The GAO should have some latitude to explore the extent to which
a new minimum wage should apply to American Samoa, especially in light
of the requirement of the original minimum wage legislation that
minimum wages be imposed without substantially curtailing employment
or earning power.
We recommended to GAO that in its September 1, 2011 report to Congress
it address how the minimum wage can be determined without
substantially curtailing employment or earning power in American
Samoa. [See comment 2]
Accordingly, it was recommended that GAO explore alternative
procedures for setting minimum wage levels in American Samoa.
Alternatives include but are not limited to the following:
a. Consider previous US DOL Special Industry Committee processes or
some modification thereof for determining minimum wages in American
Samoa.
b. Consider processes used to raise the minimum wage in Puerto Rico
and the Virgin Islands which permit some variation in minimum wage
rates by industry and gross receipts levels.
c. Consider some form of negotiated minimum wage involving the public
and private sectors.
d. Consider amending statutes to specify the conditions to be taken
into account in determining the minimum wage in American Samoa.
e. Consider other methods used in state minimum wage programs or those
of other countries.
3. We now recommend the following:
a. Increases in the minimum wage should be terminated immediately in
American Samoa. [See comment 2]
b. Conduct a thorough analysis of what caused the minimum wage
increases to lead to such adverse economic effects in American Samoa
and not in the U.S.
c. Determine procedures for dealing with the minimum wage in American
Samoa in such a manner as to avoid such economic disasters in the
future.
It may now be too late to include action on these recommendations in
the GAO final report (GAO-11-427). However, these recommendations
should be the subject of follow-up studies by the GAO, the U.S.
Department of Labor, or some other appropriate agency.
We thank the GAO for its work and offer our assistance and support for
any future efforts on minimum wage for American Samoa.
Sincerely,
Signed by:
Togiola T.A. Tulfono:
Governor of American Samoa:
The following are GAO's comments on the American Samoa government's
letter, dated May 25, 2011.
GAO Comments:
1. The American Samoa government developed its own estimates of
employment loss based on the information included in our report. It
concluded that American Samoa employment fell by 3,737 in 2009 and by
7,993 in 2010-2011. Our report does not include an estimate of total
employment losses in 2009 because the data come from multiple sources
that cannot be combined. Specifically, it is unclear the extent to
which the SSA data reflect some losses of cannery jobs in addition to
other job losses, so these cannot be added to cannery job losses from
our industry questionnaire. In addition, the SSA data count the number
of employed people, while the questionnaires count the number of jobs
held at each firm. It is possible that the same person could hold
positions at multiple firms. Moreover, the SSA data include workers
who had earnings in American Samoa at any point in the year, while the
questionnaire reflects the number of jobs in the tuna canning industry
as of June of each year. Furthermore, because many of the temporary
federal jobs began after our SSA counts of employment in American
Samoa, and because workers can hold multiple jobs, it is unclear how
the temporary federal jobs will affect employment counts based on SSA
data.
2. The American Samoa government recommended in its written comments
and in a January 2011 letter that GAO explore alternative methods for
setting minimum wage levels in American Samoa. The government provided
several alternative methods for consideration. While we considered
these suggestions and summarized them in the report, our research
objectives and methodology were developed in response to the
legislative mandate and in discussions with Congressional requesters.
These objectives and methodology were designed to provide sufficient
information and analysis to support congressional deliberation on
minimum wage in American Samoa and the CNMI.
3. The American Samoa government provided statements comparing the
economy and minimum wage increases in American Samoa to those in the
U.S. states. We agree that the minimum wage applies to a much larger
proportion of American Samoa (and CNMI) workers than of workers in the
U.S. states. Our report states, "In our April 2010 report,[Footnote
131] we found that before the first minimum wage increase in July
2007, 37 percent of all workers and about three-quarters of private
sector workers employed by American Samoa questionnaire respondents
earned wages close enough to the minimum wage to be directly affected
by the first increase.[Footnote 132] In the CNMI, 18 percent of all
workers and about a third of private sector workers were directly
affected by the first increase. For both areas, we found that most
private sector workers would be directly affected by the increases
once the minimum wage reached $7.25. In contrast, according to Bureau
of Labor Statistics estimates, in 2006 approximately 2.2 percent of
all hourly workers in the U.S. states earned the federal minimum wage
of $5.15 or less." The report also states, "Current federal data on
income and poverty levels in American Samoa do not exist; however, the
most recent available data show that American Samoa had lower income
and higher poverty rates than the mainland United States."
[End of section]
Appendix VIII: Comments from the Commonwealth of the Northern Mariana
Islands Government:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
Department of Commerce:
Commonwealth of the Northern Mariana Islands:
Caller Box 10007 CK, Saipan, MP 96950:
Tel. (670) 664-3000:
Fax: (670) 664-3067:
email: commercedept@pticom.com:
May 26, 2011:
David Gootnick:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Subject: Response to CNMI Employment, Earnings, and Status of Key
Industries Since Minimum Wage Increase Began:
Dear Mr. Gootnick:
The CNMI Department of Commerce is pleased .with the opportunity to
comment on the GAO report #11-427 on the minimum wage increases in the
CNMI. Please find our responses as attached.
If we can be of further assistance in the issuance of the final
report, please let us know.
Thank you,
Signed by:
Sixto K. Igisomar:
Deputy Secretary:
For the Department of Commerce:
cc: Governor, CNMI:
[End of letter]
The draft GAO report #11-427 on Employment, Earnings, and Status of
Key Industries since Minimum Wage Increases Began for the CNMI intends
to update the 2010 GAO #10-333.
Overall, we find the findings remained relatively unchanged since the
last GAO report #10-333, as illustrated below:
GAO-10-333 Released 2010; Findings:
1) Future increases will affect wages of more than 80 percent of those
employers' workers by 2015.
2) Employment continued on an existing downward trend by 22 percent in
2006 to 2007.
3) Inflation adjusted earnings declined by 6 percent from 2006 to 2008.
4) Increase in room rates may cause a 2.6 to 13.7 percent decline in
visits.
5) Small employers and other private sector officials expressed mixed
views about the future increases, and many expressed greater concern
about immigration changes.
6) In discussion groups, CNMI workers generally expressed support for
the minimum wage increases and cited other factors affecting living
standards.
7) Employers reported having taken cost-cutting actions, such as
freezing hiring, since the increases began and also reported planning
such actions by the end of 2010.
Draft GA0-11-427 to be released Spring 2011; Findings:
1) Future increases will affect 95 percent of workers in the tourism
industry by 2016.
2) Employment fell 13 percent from 2008 to 2009.
3) Inflation adjusted earnings rose by 3 percent from 2008 to 2009 and
remained largely unchanged from 2006 to 2009.
4) Hotels generally absorbed minimum wage costs rather than raise room
rates.
5) In discussion groups, private sector employers said minimum wage
increases imposed additional costs during a time in which multiple
factors made it difficult to operate.
6) Workers in discussion groups expressed mixed views regarding the
minimum wage increases and said they would like pay increases but were
concerned about losing jobs and work hours.
7) Tourism employers reported that they took cost-cutting actions from
June 2009 to June 2010 and planned to take additional actions,
including laying off workers.
Although the draft report fairly presents the current condition in the
CNMI, we feel that factors from the previous report remained
relatively the same with the exception of the ongoing uncertainties of
the U.S. Immigration Law application, the already anticipated delay in
minimum wage increase for year 2011, and the effect of the severe
austerity measures implemented by the government.
We wish to highlight the report's limitations, interview responses,
and the concluding observations and our input, below:
Methods, Scope, and Limitations:
We agree with the limitations and challenges posed by the report:
"...it is difficult to distinguish between the effects of minimum wage
increases and the effects of other factors, including the global
recession beginning in 2009, fluctuations in energy prices, global
trade liberalization, and the application of U.S: immigration law to
the CNMI." (pg. 6)
Planning for the minimum wage increase is not the only factor
affecting businesses on island. As an isolated island economy, global
events significantly affect the CNMI in comparison to other U.S.
States. Not only do CNMI businesses try to brace themselves with a
minimum wage increase, they are constantly in a survival mode as they
thread through the contracting economy, the uncertainties surrounding
the U.S. immigration application, rising energy cost, and global
recession.
We recommend addition of the recent statement release by Marianas
Visitors Authority, reporting a 26% drop of tourist arrival from
Japan, and an overall drop of 18% for all arrivals for the month of
April 2011. In addition, as we previously discussed in our
teleconference, the projected drop may have been attributed to the
Japan tsunami and radiation crisis. We feel this addition will add
value to the report. [See comment 1]
Employers Interview/Questionnaire (Pg. 81-81):
We do question the responses from employers. The draft report
mentioned responses did not attribute the below actions as effects of
the minimum wage increases. See below actions:
a) Cutting of regular hours (87% of respondents; none attributed to
minimum wage);
b) Freeze hiring (83% of respondents; none attributed to minimum wage);
c) Decrease benefit (63% of respondents; none attributed to minimum
wage);
d) Lay off workers (62% of respondents; none attributed to minimum
wage). [See comment 2]
We find these high responses interesting that they are not attributed
to the minimum wage. Although the reports mentions that the
information and data obtained are reasonable basis for the product
(pg. 6), we believe that disclaimers within the report as stated below
(pg. 26) counters the logic: [See comment 3]
* The questionnaire cannot be used to make inferences about all
employers and workers in each insular area.
* It is possible that some employers' views of the minimum wage
increases may have influenced their responses.
We recommend that the reporting method be improved to gather a much
clearer picture on the minimum wage issue and improve the data
integrity.
Draft report Concluding Observations (Pg. 17):
* The economic declines in American Samoa and the CNMI are
substantial, and both areas face budget shortfalls that may threaten
their ability to fund public services and make investments in support
of future economic development.
* Identifying new growth opportunities and maintaining needed
infrastructure and services in the meantime will require substantial
effort by the private sector and by both the local and federal
governments.
Inference from the report indicates that living standards, employment,
earnings and other industries will continue to decline substantially.
Except for CNMI residents' living standards, the other areas were
fairly quantified in the report.
We recommend all future studies to report on current living standards
of the residents of the CNMI, as required by congressional mandate,
since the implementation of the minimum wage, as well as report on the
outlook of such living standards in the future. Page 91 of the report
presents quotes observed from discussion groups on workers' opinions
on price increases, job security, poverty and crime, and immigration.
These are essential parts of this report and in order to satisfy or
comply with the congressional mandate, such must be quantified. For
instance, the report should include findings on whether minimum wage
increases have improved people's lives above the poverty line, made no
significant changes, or actually pushed living standards below the
poverty line. [See comment 4]
Conclusion:
In five years or by 2016, US Public Law No. 110-28, as amended by PL
No. 111-117, mandates that the CNMI must meet the US minimum wage of
$7.25. The delay by the amendment is a welcome reprieve but what
remains largely unchanged will worsen if the other factors outside of
the minimum wage remain as they are or continue to deteriorate.
Although we welcome and applaud the efforts of this GAO report #11-
427, we highly recommend that a more comprehensive survey and
discussion be added to future reports.
Finally, we agree that substantial effort is needed by both the local
and federal governments to identify new growth opportunities, and we
highly recommend that this and future reports provide further
recommendations to the US Congress, federal agencies, and the local
government on how to support efforts to manage these challenges.
The following are GAO's comments on the CNMI government's letter,
dated May 26, 2011.
GAO Comments:
1. The CNMI government provided information on decreases in CNMI
visitor arrivals from Japan following the earthquake and tsunami in
Japan. We have added this information to the existing statements on
this topic in our report.
2. The CNMI government questioned that for some key past and future
actions, such as reducing regular work hours and freezing hiring, no
CNMI employers attributed the actions to the minimum wage increases.
We note that, as stated in the report, we present the weighted
percentage of employers who attributed each action to the minimum wage
increases "to a large extent" (not those who attributed the action to
the minimum wage increases "to a small extent" or "to a moderate
extent").
3. The CNMI government cited several limitations of the tourism
industry questionnaire, as we described in this report, and
recommended that the reporting method be improved to gather a clearer
picture regarding minimum wage increases and to improve data
integrity. However, for any questionnaire based on self-reported data,
we cannot eliminate the possibility that some employers' views of the
minimum wage increases may have influenced their responses.
4. The CNMI government stated that the analyses of CNMI residents'
living standards should be strengthened, as required by congressional
mandate. Although the original mandate (Pub. L. No. 111-5, § 802, 123
Stat. 115, 186, Feb. 17, 2009) specifically required us to study
minimum wage effects on living standards, the current mandate (Pub. L.
No. 111-244, 124 Stat. 2618, Sep. 30, 2010) does not. However, the
report includes qualitative findings related to living standards based
on discussion groups with employers and with workers, as well as
quantitative findings on the inflation-adjusted earnings of average
and minimum wage workers.
[End of section]
Appendix IX: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
David Gootnick, (202) 512-3149 or gootnickd@gao.gov Tom McCool, (202)
512-2642 or mccoolt@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Emil Friberg, Assistant
Director; Mark Speight, Assistant General Counsel; Marissa Jones,
analyst-in-charge; Ashley Alley; Pedro Almoguera; Benjamin Bolitzer;
David Dayton; Etana Finkler; Jill Lacey; Luann Moy; Nalylee Padilla;
and Vanessa Taylor made key contributions to this report. Technical
assistance was provided by Holly Dye, Patrick Dudley, Kay Halpern,
Dave Hancock, Michael Hoffman, Rhonda Horried, Michael Kendix,
Courtney LaFountain, John Mingus, Jena Sinkfield, and Wayne Turowski.
[End of section]
Footnotes:
[1] U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007, Pub. L. No. 110-28, § 8103,
121 Stat. 188 (May 25, 2007), as amended by Pub. L. No. 111-244, 124
Stat. 2618 (Sep. 30, 2010), codified at 29 U.S.C. § 206 note. Under
the law, any future changes to the minimum wage enacted under U.S. law
for the 50 states, District of Columbia, U.S. Virgin Islands, Guam,
and Puerto Rico also will apply to American Samoa and the CNMI. For
changes enacted before American Samoa and the CNMI would have reached
the current U.S. minimum wage, the minimum wages in the two areas
would continue to increase in $.50 increments until they reach the
federal minimum wage, extending beyond the current time frames. After
each area reaches the U.S. minimum wage, any additional increase in
the U.S. minimum wage would apply to American Samoa and the CNMI on
the same schedule as for the 50 U.S. states.
[2] Pub. L. No. 110-28, § 8103, 121 Stat. 188 (May 25, 2007). The 2007
law required minimum wage increases in May of 2008 and in May each
year thereafter, until the American Samoa and CNMI minimum wages
converged with the U.S. minimum wage in 2016 and 2015, respectively.
However, the Consolidated Appropriations Act, 2010, included a
provision delaying the minimum wage increases until September 30th of
each year, beginning in 2010. Pub. L. No. 111-117, Div. D, Title V, §
520, 123 Stat. 3034, 3283 (Dec. 16. 2009).
[3] Pub. L. No. 111-244, 124 Stat. 2618 (September 30, 2010).
[4] The Fair Labor Standards Act of 1938, Pub. L. No. 75-718, ch. 676,
52 Stat. 1060 (June 25, 1938), codified at 29 U.S.C. § 202.
[5] GAO, American Samoa and Commonwealth of the Northern Mariana
Islands: Wages, Employment, Employer Actions, Earnings, and Worker
Views Since Minimum Wage Increases Began, [hyperlink,
http://www.gao.gov/products/GAO-10-333] (Washington, D.C.: April 8,
2010).
[6] Malcolm D. McPhee & Associates with Dick Conway and Lewis Wolman,
American Samoa's Economic Future and the Cannery Industry, prepared
for the American Samoa Department of Commerce under a grant award from
the U.S. Department of the Interior, Office of Insular Affairs
(February 2008); and Malcolm D. McPhee & Associates and Dick Conway,
Economic Impact of Federal Laws on the Commonwealth of the Northern
Mariana Islands, prepared for the CNMI Office of the Governor under a
grant from the U.S. Department of the Interior, Office of Insular
Affairs (October 2008).
[7] Consolidated Natural Resources Act of 2008, Pub. L. No. 110-229,
Title VII, 122 Stat. 754, 853 (May 8, 2008).
[8] The Secretary of Homeland Security elected to delay the transition
period start date from June 1, 2009, to November 28, 2009, as
permitted by the law. U.S. immigration law was applied to the CNMI
November 28, 2009, as scheduled; however, implementation of the CNMI
transitional worker program was delayed following a federal court
injunction just before the transition period start date that required
the Department of Homeland Security to allow more time for public
comment on the proposed program regulations. As of May 2011, the
department had not yet issued final regulations for the transitional
worker program.
[9] In 2008, we reported on the factors that would affect the impact
of the law's implementation on the CNMI economy, in particular the
CNMI's (1) labor market, including foreign workers; (2) tourism
sector; and (3) foreign investment. See GAO, Commonwealth of the
Northern Mariana Islands: Managing Potential Economic Impact of
Applying U.S. Immigration Law Requires Coordinated Federal Decisions
and Additional Data, [hyperlink,
http://www.gao.gov/products/GAO-08-791] (Washington, D.C.: Aug. 4,
2008). Also see GAO, Commonwealth of the Northern Mariana Islands:
Pending Legislation Would Apply U.S. Immigration Law to the CNMI with
a Transition Period, [hyperlink,
http://www.gao.gov/products/GAO-08-466] (Washington, D.C.: Mar. 28,
2008); Commonwealth of the Northern Mariana Islands: Coordinated
Federal Decisions and Additional Data Are Needed to Manage Potential
Economic Impact of Applying U.S. Immigration Law, [hyperlink,
http://www.gao.gov/products/GAO-09-426T] (Washington, D.C.: May 19,
2009); CNMI Immigration and Border Control Databases, GAO-10-345R
(Washington, D.C.: Feb. 16, 2010); and Commonwealth of the Northern
Mariana Islands: DHS Should Conclude Negotiations and Finalize
Regulations to Implement Federal Immigration Law, [hyperlink,
http://www.gao.gov/products/GAO-10-553] (Washington, D.C.: May 7,
2010).
[10] Under the Act, GAO was required to report on the minimum wage
increases between March 15 and April 15 of 2010 and each year
thereafter until the minimum wages reach the U.S. minimum wage. Pub.
L. No. 111-5, § 802, 123 Stat. 115, 186 (Feb. 17, 2009). A subsequent
law changed the GAO reporting requirement to not later than September
1, 2011; April 1, 2013; and every 2 years thereafter until the minimum
wage in the respective territory meets the federal minimum wage. Pub.
L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010).
[11] [hyperlink, http://www.gao.gov/products/GAO-10-333].
[12] In GAO-10-333 and in this report, we use the term "directly
affected by the minimum wage increase" to refer to workers who
received pay increases because they were paid at or below the new
minimum wage. The term does not include workers who may be indirectly
affected by the minimum wage increases, such as those who lost jobs or
work hours, or those who were above the minimum wage but received pay
increases in order to preserve parity in the pay scale.
[13] If many foreign workers left American Samoa, the impact on the
unemployment rate would be smaller than if those workers remained.
Although the U.S. Decennial Census collects data on employment status
in American Samoa and the CNMI, Decennial Census data from 2010 were
not available for our review.
[14] Temporary federal jobs included those funded by the Recovery Act,
by the U.S. Census Bureau for the Decennial Census, and by recovery
efforts after the 2009 tsunami.
[15] The Governor shared these views in a 2011 letter and in the
American Samoa government's comments on this report.
[16] The analysis excluded nonwage labor costs due to the minimum wage
increases, such as increases in employer payroll tax contributions
under the Federal Insurance Contributions Act. For 2011, employers
must contribute the equivalent of 6.2 percent of employee wages to
Social Security and 1.45 percent to Medicare, up to $106,800 in
employee wages.
[17] If many foreign workers left the CNMI, the impact on the
unemployment rate would be smaller than if those workers remained.
Although the U.S. Decennial Census collects data on employment status
in American Samoa and the CNMI, Decennial Census data from 2010 were
not available for our review.
[18] Temporary federal jobs included those funded by the Recovery Act
and by the U.S. Census Bureau for the Decennial Census.
[19] The analysis excluded nonwage labor costs due to the minimum wage
increases, such as increases in employer payroll tax contributions
under the Federal Insurance Contributions Act. For 2011, employers
must contribute the equivalent of 6.2 percent of employee wages to
Social Security and 1.45 percent to Medicare, up to $106,800 in
employee wages.
[20] GAO, American Samoa and Commonwealth of the Northern Mariana
Islands: Wages, Employment, Employer Actions, Earnings, and Worker
Views Since Minimum Wage Increases Began, [hyperlink,
http://www.gao.gov/products/GAO-10-333] (Washington, D.C.: Apr. 8,
2010).
[21] The underground economy would include any employers that may not
comply with laws, including tax, minimum wage, immigration, and other
laws. We did not review compliance with laws as part of this study.
[22] The Office of Insular Affairs of DOI has provided technical
assistance to American Samoa and the CNMI to help with data
collection, including funding for the 2005 Household, Income, and
Expenditures Survey (HIES) and past surveys. However, this assistance
has not generated the scope of data collected by federal sources for
the United States more generally. In addition, the 2005 HIES for
American Samoa was not completed and is available only in draft form.
Although the U.S. Decennial Census collects data on employment status
in American Samoa and the CNMI, Decennial Census data from 2010 were
not available for our review.
[23] For GAO-10-333, we visited the island of Tinian in September 2009
and the island of Rota in January 2010.
[24] In 2009, for American Samoa, we used local tax return data to
identify employers that filed 50 or more employee wage and tax
statements (i.e., Form W-2) in either 2007 or 2008, and we verified
this list with the American Samoa government and Chamber of Commerce.
We sent questionnaires to 40 employers in American Samoa, covering
approximately 84 percent of the American Samoa public and private
sector workforce. For the CNMI in 2009, we did not receive local tax
return data in time to develop our list. We generated our original
list from 2007 Labor and Immigration Identification and Documentation
System data from the CNMI government. Because the data include only
foreign workers, the CNMI government and Saipan Chamber of Commerce
identified additional employers that likely had more than 50
employees. We sent questionnaires to 63 employers in the CNMI,
covering approximately 37 percent of the CNMI public and private
sector workforce, with greater coverage among public sector workers.
The percentage of the workforce covered by our large-employer
questionnaire was later calculated by the CNMI government's Department
of Finance.
[25] Pretest participants included business owners or general managers
and, where applicable, financial personnel responsible for maintaining
the payroll system. The questionnaire was also reviewed by members of
the American Samoa, Saipan, and Tinian Chambers of Commerce, which
also provided their endorsements, and an independent GAO reviewer. We
made appropriate changes to the content and format of the
questionnaire after the pretests and independent reviews.
[26] At the time of our questionnaire, the new owners of the
previously closed tuna canning facility had not yet acquired the
facility and so were not included in the questionnaire.
[27] These included the American Samoa Chamber of Commerce and the
Saipan Chamber of Commerce.
[28] We received CPI data from the CNMI and American Samoa Departments
of Commerce. The series were updated by a subcontractor funded through
a grant from DOI's Office of Insular Affairs.
[29] American Samoa Government, Department of Commerce, Statistics
Division, Report on the 2005 American Samoa Household, Income, and
Expenditures Survey (HIES). Data is based on the 2005 HIES for
American Samoa, which was not completed and is available only in draft
form.
[30] Joseph Kennedy, The Tropical Frontier: America's South Sea Colony
(Mangilao, Guam: University of Guam Micronesian Area Research Center,
2009) and J. Robert Shaffer, American Samoa: 100 Years under the
United States Flag (Honolulu, Hawaii: Island Heritage Publishing,
2000).
[31] Two deeds of cession were initially completed between Samoan
chiefs, or matai, and the United States in 1900 and 1904 and ratified
by the federal government in 1929. In these deeds, the United States
pledged to promote peace and welfare, to establish a good and sound
government, and to preserve the rights and property of the people. See
45 Stat. 1253, c. 281 (Feb. 20, 1929), codified at 48 U.S.C. §1661.
[32] Transfer of Administration of American Samoa, Exec. Order No.
10,264, 16 Fed. Reg. 6419 (1951). The Secretary exercised broad powers
with regard to American Samoa, including "all civil, judicial, and
military powers" of government in American Samoa. 48 U.S.C. § 1661(c).
[33] 48 U.S.C. § 1662a.
[34] American Samoa residents have many of the rights of citizens of
the 50 states but cannot vote in U.S. national elections and do not
have voting representation in the final approval of legislation by the
full Congress. The Delegate from American Samoa has many of the same
congressional privileges as other representatives, including a vote in
committee, but cannot vote in the House of Representatives. Noncitizen
nationals do not have the same preferences as U.S. citizens for
sponsoring immediate family members for family-based immigration
visas. In order to qualify for the same preference categories as
citizens, noncitizen nationals must become naturalized citizens of the
United States, which includes a requirement to reside in the United
States for 3 months (8 C.F.R. §325.2). Additionally, individuals who
are residents of the U.S. insular areas pay no federal income tax on
income from sources within the insular areas; however, their wages are
subject to Social Security and Medicare taxes.
[35] American Samoa is the only insular area that operates both its
own customs and immigration programs. The U.S. government operates the
immigration functions in other insular areas, such as Guam, the
Commonwealth of the Northern Mariana Islands, and the U.S. Virgin
Islands; however, each of these insular areas operates under its own
customs laws.
[36] Under the Internal Revenue Code, qualifying American Samoa tuna
canneries have received a tax credit for U.S. corporate income taxes.
See 26 U.S.C. §936, 26 U.S.C. §30A note.
[37] From 1997 through 2007, U.S. trade laws and agreements helped
American Samoa's tuna canning industry remain viable in spite of
competition. As tuna exports from other countries into the U.S. market
increased, exports from American Samoa remained constant. In August
2002, tariffs decreased on pouched tuna exported from countries
covered by the Andean Trade Preference Act. The authority to extend
duty-free treatment to Andean Trade Preference Act beneficiary
countries expired on February 12, 2011, and has not been renewed. In
January 2008, provisions of the North American Free Trade Agreement
lifted tariffs imposed on canned tuna and other tuna products exported
from Canada and Mexico. Nevertheless, some of American Samoa's foreign
competitors still did not qualify for tariff-free access to the U.S.
market.
[38] The tax credits under section 936 of the Internal Revenue Code
expired for taxable years beginning after December 31, 2005. Section
30A of the Internal Revenue Code extends the Section 936 credits for
American Samoa until January 1, 2012, subject to certain limitations.
Corporations that were actively conducting business in American Samoa
by 1995 who elected Section 936 status in the last taxable year before
January 1, 2006, can claim a section 30A tax credit for taxable years
that begin before January 1, 2012. See 26 U.S.C. §30A note, as amended
by Pub. L. No. 111-312, §756, 124 Stat. 3296, 3322 (Dec. 17, 2010).
Canneries in American Samoa have also benefited from an exemption from
local taxes, renewable annually, for employers maintaining payrolls at
certain levels. On January 6, 2011, the American Samoa government
extended StarKist's local tax exemption until December 31, 2012. The
term of the certificate began on April 1, 2010.
[39] R.C. Holsinger and Associates, P.C., Territory of American Samoa
Single Audit Report, prepared at the request of the American Samoa
Government, Department of Treasury, September 30, 2009 (June 2010).
Additional federal funds go to component units of the American Samoa
government not fully covered by the Single Audit Report's Schedule of
Expenditures of Federal Awards, including the American Samoa
Government Employees Retirement Fund, the American Samoa Economic
Development Authority, the American Samoa Power Authority, the
American Samoa Community College, Lyndon B. Johnson Tropical Medical
Center, and the American Samoa Telecommunications Authority. In
addition, the Schedule of Expenditures of Federal Awards does not
include the fiduciary fund. In an effort to improve accountability for
federal funds, DOI's Office of Insular Affairs has designated American
Samoa as a "high-risk" grantee as provided in 43 C.F.R. §12.52, and as
recommended by the Department's Inspector General and GAO. This
designation allows the Office of Insular Affairs to require American
Samoa grantees to comply with special conditions for future or
existing grants. The office will remove this high-risk designation
once the American Samoa Government demonstrates its compliance with
certain fiscal and internal accounting requirements. See U.S.
Department of the Interior, Office of Insular Affairs, Budget
Justifications and Performance Information: Fiscal Year 2011.
[40] The American Recovery and Reinvestment Act (Recovery Act) was
enacted in February 2009. Among other provisions--including the
mandate for this and subsequent GAO reports--the act appropriates
roughly $787 billion in fiscal stimulus to the U.S. economy. By March
2011, federal agencies had reported the availability of Recovery Act
funds for American Samoa totaling $240.8 million and the disbursement
of $61.6 million.
[41] In early 2009, BEA began work on the Statistical Improvement
Program--funded by the Department of the Interior's Office of Insular
Affairs--to develop the first official GDP estimates for American
Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the
U.S. Virgin Islands. In 2010, BEA released its first set of GDP
estimates, for 2002 to 2007, and it plans to release 2008 and 2009 GDP
estimates in 2011. BEA's GDP estimates are based on limited source
data and are subject to revision.
[42] According to the U.S. Economic Census 2007, American Samoa's
private sector economy included 812 establishments; 11,247 workers;
total annual payroll of $132.25 million; and transactions (sales,
receipts, revenue, shipments) totaling $1.278 billion. In particular,
44 percent of employees worked in manufacturing, the largest share of
employment for any single industry. Establishments that are not
covered by the Economic Census include agricultural establishments,
some schools, and some government establishments, among others.
[43] U.S. Department of Labor, Employment Standards Administration,
Wage and Hour Division, Economic Report: The Minimum Wage in American
Samoa, 2007 (Washington, D.C., May 2007).
[44] Tri-Union Samoa Packing was the American Samoa facility of Tri-
Union Seafood LLC (doing business as Chicken of the Sea
International), which is a subsidiary of the Thailand-based Thai Union
Group.
[45] In November 2006, Chicken of the Sea's Samoa Packing operation
employed 40 percent (1,906 workers) of the island's fish canning and
processing workers.
[46] StarKist Co. is a subsidiary of the South Korean-based Dongwon
Group. Dongwon acquired StarKist in 2008 from Del Monte Foods, which
had acquired StarKist from the H.J. Heinz Company in 2002.
[47] Samoa Tuna Processors, Inc. is part of Tri Marine, a privately
owned group of companies primarily engaged in fishing, procurement,
processing, and trading of tuna and other seafood products, and in
supplying tuna and tuna products to various brands. Tri Marine does
not own or supply its own brand of canned tuna. Tri Marine is
headquartered in Bellevue, Washington, and was founded in Singapore.
[48] Tri Marine's local tax exemption certificate requires that the
company invest a minimum of $5 million and employ 600 people within 5
years in order to retain local tax benefits.
[49] To expand disaster assistance available to American Samoa, on
January 16, 2010, the President increased federal funding to American
Samoa to cover 90 percent of costs resulting from public assistance,
hazard mitigation, and other specified needs. The order also increased
the federal share for debris removal and emergency protective
measures, including increasing direct federal assistance under the
public assistance program to 100 percent of total eligible costs for
30 consecutive days. Under the President's major disaster declaration
of September 29, 2009, the federal government had assumed 75 percent
of these costs. To be eligible for Federal Emergency Management Agency
cash-assistance programs, an individual must be a U.S. citizen,
noncitizen national, or a qualified alien with legal permanent
residence. Other individuals may apply on behalf of their U.S. citizen
child, or another adult household member may qualify the household.
Individuals not meeting these requirements may qualify for short-term,
noncash, emergency aid.
[50] Resort Consulting Associates, LLC, Kiner Design Group, and Studio
81 International, American Samoa Tourism Master Plan, prepared for the
American Samoa Government, Department of Commerce (June 2010).
[51] American Samoa Government, Department of Commerce, Statistics
Division, Report on the 2005 American Samoa HIES (draft).
[52] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith,
U.S. Census Bureau, Current Population Reports, Income, Poverty, and
Health Insurance Coverage in the United States: 2009 (Washington,
D.C.: U.S. Government Printing Office, 2010).
[53] American Samoa Government, Department of Commerce, Statistics
Division, Report on the 2005 American Samoa HIES (draft).
[54] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith,
U.S. Census Bureau, Current Population Reports, Income, Poverty, and
Health Insurance Coverage in the United States: 2009 (Washington,
D.C.: U.S. Government Printing Office, 2010).
[55] This population estimate includes 60,608 residents of Saipan;
2,829 residents of Tinian; and 2,490 residents of Rota. See
Commonwealth of the Northern Mariana Islands, Department of Commerce,
Central Statistics Division, Report on the 2005 Household, Income, and
Expenditures Survey (HIES) (April 1, 2008). For recent estimates, see
figure 9.
[56] In 1947, the United Nations gave the United States authority to
administer the Trust Territory of the Pacific Islands, which included
the Northern Mariana Islands. The trusteeship over the Northern
Mariana Islands was formally dissolved in 1986.
[57] Covenant to Establish a Commonwealth of the Northern Mariana
Islands in Political Union with the United States of America, Pub. L.
No. 94-241, § 1, 90 Stat. 263 (Mar. 24, 1976), 48 U.S.C. § 1801 note.
See also Howard P. Willens and Deanne C. Siemer, An Honorable Accord:
The Covenant between the Northern Mariana Islands and the United
States (Honolulu, Hawaii: University of Hawaii Press, 2002).
[58] Under the covenant, the U.S. government may enact legislation in
accordance with its constitutional processes that will be applicable
to the CNMI. To respect the CNMI's right of self-government under the
covenant, certain provisions of the covenant may be modified only with
the consent of both the federal government and the CNMI government.
These provisions include those relating to the political relationship
between the United States and the CNMI; the CNMI constitution,
citizenship, and nationality; the application of the U.S. constitution
to the CNMI; and the land ownership rights of CNMI citizens. Most
other provisions of the CNMI covenant may be modified by the federal
government without the consent of the CNMI government, and local CNMI
laws that were not inconsistent with federal laws or treaties of the
United States when the covenant was enacted remained in effect. In
addition, international treaty obligations between the United States
and other countries apply to the CNMI through the covenant.
[59] The covenant also made certain provisions of the Social Security
Act, the Public Health Service Act, and the Micronesian Claims Act
applicable to the CNMI.
[60] Prior to November 2009, Section 506 of the covenant applied to
the CNMI certain provisions of the Immigration and Nationality Act of
1952 (INA) relating to citizenship and family-based permanent
immigration. Certain other nonimmigrant provisions of the act, related
to victims of human trafficking and other crimes, also applied to the
CNMI. See 8 U.S.C. § 1101(a)(15)(T)-(U). In addition, the covenant
provided U.S. citizenship to legally qualified CNMI residents.
[61] The Consolidated Natural Resources Act of 2008 created a
nonvoting delegate seat in the U.S. House of Representatives for the
CNMI (48 U.S.C. § 1751). In January 2009, the CNMI elected its first
representative to the United States Congress. The Delegate from the
CNMI has many of the same congressional privileges as other
representatives, including a vote in committee, but cannot vote in the
House of Representatives.
[62] Consolidated Natural Resources Act of 2008, Pub. L. No. 110-229,
Title VII, 122 Stat. 754, 853 (May 8, 2008). Certain provisions may be
extended past 2014. The legislation's stated intent is to ensure
effective border control procedures and to protect national and
homeland security, while minimizing the potential adverse economic and
fiscal effects of phasing out the CNMI's foreign worker permit program
and while maximizing the CNMI's potential for economic and business
growth. CNMI immigration law was in effect until the start of the
transition period under the federal legislation; however, federal
restrictions on the total number of foreign workers in the CNMI
applied immediately.
[63] [hyperlink, http://www.gao.gov/products/GAO-08-791].
[64] Under the regulations issued by DHS in December 2010, previous
long-term business investors with a minimum of $50,000 in investments
and foreign investors with a minimum of $100,000 in an aggregate
approved investment in excess of $2,000,000, or a minimum of $250,000
in a single approved investment can remain in the CNMI through the
transition period that is scheduled to end in 2014. See 8 C.F.R. §
214.2(e)(23)(iii)(A)(2).
[65] Deloitte and Touche LLC, Commonwealth of the Northern Mariana
Islands: Report on the Audit of Financial Statements in Accordance
with OMB Circular A-133, Year Ended September 30, 2009 (June 2010).
Additional federal funds go to component units of the CNMI government
not fully covered by the audit report's Schedule of Expenditures of
Federal Awards, including the Public School System, the Northern
Mariana Islands Retirement Fund, the Northern Mariana Islands
Government Health and Life Insurance Trust Fund, the CNMI Workers'
Compensation Commission, the Commonwealth Ports Authority, the
Commonwealth Development Authority, the Commonwealth Utilities
Corporation, the Marianas Public Land Trust, the Northern Marianas
College, and the Marianas Visitors Authority.
[66] On November 10, 2009, the CNMI Governor certified the
commonwealth's intent to request and use federal funds under the act.
By March 2011, federal agencies had reported the availability of
Recovery Act funds for the CNMI totaling $135.7 million, and the
disbursement of $61.9 million. Among other initiatives, these federal
funds supported infrastructure projects under the Commonwealth Ports
Authority and augmented resources for nutrition assistance in the
Department of Community and Cultural Affairs.
[67] In August 2006, the CNMI government also enacted biweekly
furloughs, along with other measures, during which government
employees were not paid--through fiscal year 2007.
[68] Government accounting standards define "unfunded liability" as
the excess, if any, of government liabilities over government assets.
Unfunded liabilities indicate formal commitments by a government to
expend funds for which the government has set aside no assets.
[69] As noted earlier, in 2010, BEA released its first set of GDP
estimates, for 2002 to 2007, and it plans to release 2008 and 2009 GDP
estimates in 2011. BEA's GDP estimates are based on limited source
data. In presenting the increase in per capita real GDP, BEA stated
that the population of the CNMI decreased rapidly as foreign workers
left the territory.
[70] According to the U.S. Economic Census 2007, the CNMI's private
sector economy included 1,191 establishments; 22,622 workers; total
annual payroll of $246.1 million; and transactions (sales, receipts,
revenue, shipments) totaling $1.284 billion. Manufacturing employed
the largest share of the total workforce, with 31 percent. Twenty-one
percent of employees worked in accommodation and food services, the
second-largest share of employment for any single industry.
Establishments that are not covered by the Economic Census include
agricultural establishments, some schools, and some government
establishments, among others.
[71] Northern Marianas College, Business Development Center, An
Economic Study for the Commonwealth of the Northern Mariana Islands,
with funding provided by the U.S. Department of the Interior, Office
of Insular Affairs (Saipan, Commonwealth of the Northern Mariana
Islands, October 1999). See also GAO-08-791.
[72] The apparel industry in the CNMI grew and expanded during a time
when international rules governing apparel and textile trade were
being renegotiated. Beginning in the 1960s, exporting and importing
nations established the Multifiber Arrangement as a multilateral trade
agreement to govern trade restrictions in textiles. Under the
Multifiber Arrangement, importing countries could negotiate and
implement quota restrictions. The Uruguay Round of Multinational Trade
Negotiations, initiated in September 1986, agreed to an objective of
integrating the textile sector into the General Agreement on Tariffs
and Trade, thereby contributing to further trade liberalization.
Negotiations on textiles began in 1987, and by December 1991 the
proposed final agreement brought the sector into conformity with the
General Agreement on Tariffs and Trade over a 10-year period; this
would be accomplished through several stages by which imports could
increase until all quota restrictions were ended after 10 years. In
1994, the United States agreed to the World Trade Organization
Agreement on Textiles and Clothing to remove quota restrictions in a
series of stages beginning on January 1, 1995, and ending with the
removal of all remaining quotas on January 1, 2005. See Agreement on
Textiles and Clothing, Apr. 15, 1994, Marrakesh Agreement Establishing
the World Trade Organization, Annex 1A, Multilateral Agreement on
Trade in Goods - Results of the Uruguay Round, 33 I.L.M. 28. The end
of U.S. quotas on apparel imports in 2005 negated the value of quota-
free status for Guam and the CNMI. CNMI textile exports to the United
States began to fall in advance of the final quota removal.
[73] U.S. Department of Commerce, Economic and Statistics
Administration, Foreign Trade Division, U.S. Trade with Puerto Rico
and U.S. Possessions.
[74] The Consolidated Natural Resources Act of 2008 required the
establishment of a joint visa waiver program for the CNMI and Guam by
amending the authority for an existing visa waiver program for Guam
visitors. The Guam-CNMI Visa Waiver Program exempts tourism and
business visitors from certain countries who are traveling to the CNMI
and Guam for up to 45 days from the standard U.S. visa documentation
requirements. 8 C.F.R. § 212.1(q).
[75] Northern Marianas College, Business Development Center, An
Economic Study for the Commonwealth of the Northern Mariana Islands,
with funding provided by the U.S. Department of the Interior, Office
of Insular Affairs (Saipan, Commonwealth of the Northern Mariana
Islands, October 1999). The study did not distinguish between U.S.
citizens and U.S. lawful permanent residents, referring to the
combined group as permanent residents.
[76] We reported in May 2008 that the Department of Defense was in the
process of conducting a training study covering both Guam and the CNMI
to identify options for training in the region. GAO, Defense
Infrastructure: Planning Efforts for the Proposed Military Buildup on
Guam Are in Their Initial Stages, with Many Challenges Yet to Be
Addressed, [hyperlink, http://www.gao.gov/products/GAO-08-722T]
(Washington, D.C.: May 1, 2008). Also see GAO, High-Level Leadership
Needed to Help Guam Address Challenges Caused by DOD-Related Growth,
[hyperlink, http://www.gao.gov/products/GAO-09-500R] (Washington,
D.C.: Apr.l 9, 2009) and Defense Infrastructure: The Navy Needs Better
Documentation to Support Its Proposed Military Treatment Facilities on
Guam, [hyperlink, http://www.gao.gov/products/GAO-11-206] (Washington,
DC: Apr. 5, 2011).
[77] CNMI Government, Department of Commerce, Commonwealth Economic
Development Strategic Planning Commission, Comprehensive Economic
Development Strategic Plan 2009-2014 for the U.S. Commonwealth of the
Northern Mariana Islands, prepared under an award from the U.S.
Department of Commerce Economic Development Administration (November
2009).
[78] Commonwealth of the Northern Mariana Islands, Department of
Commerce, Central Statistics Division, Report on the 2005 CNMI HIES
(April 1, 2008).
[79] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith,
U.S. Census Bureau, Current Population Reports, Income, Poverty, and
Health Insurance Coverage in the United States: 2009 (Washington,
D.C.: U.S. Government Printing Office, 2010).
[80] Commonwealth of the Northern Mariana Islands, Department of
Commerce, Central Statistics Division, Report on the 2005 CNMI HIES
(April 1, 2008).
[81] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith,
U.S. Census Bureau, Current Population Reports, Income, Poverty, and
Health Insurance Coverage in the United States: 2009 (Washington,
D.C.: U.S. Government Printing Office, 2010).
[82] 29 U.S.C. § 206(a)(1)(C).
[83] The federal minimum wage laws apply to employees engaged in
commerce or the production of goods for commerce and to employees who
work for enterprises engaged in commerce or the production of
commerce. 29 U.S.C. § 206(a). An enterprise is deemed to be engaged in
commerce or the production of goods for commerce only if it is an
activity of a public agency, if its annual gross volume of business is
at least $500,000, or if it is engaged in the operation of a hospital,
health facility, or school. 29 U.S.C. § 203(s). Businesses in which
the only regular employees are immediate family members of the owner
are not considered to be enterprises engaged in commerce.
[84] 29 U.S.C. § 213(a)(5). The exemption only applies to these
activities when performed at sea, so employees engaged in these
activities on shore would not qualify for the exemption. See 29 C.F.R.
§ 784.130.
[85] The original FLSA allowed special industry committees to
recommend wages for certain industries to DOL, within specified
minimum and maximum limits, to move lower-wage industries gradually
toward statutory minimums. In 1986, Special Industry Committee 17
mandated raising the minimum wage across several industries in
American Samoa to the nationwide rate of $3.35 per hour. This change
was nullified by Congress in a subsequent law (Pub. L. No. 99-396, §
11, 100 Stat. 837 (Aug. 27, 1986)), which required that the minimum
wage in American Samoa be reset to the rates that existed for each
industry prior to the Special Industry Committee 17 rates; this
returned the rate for cannery workers to $2.82 per hour, until it was
raised to $2.87 in March 1991.
[86] Pub. L. No. 110-28, § 8103(b)(2), 121 Stat. 112, 188 (May 25,
2007).
[87] Pub. L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010).
[88] Covenant to Establish a Commonwealth of the Northern Mariana
Islands in Political Union with the United States of America, §503(b).
See 48 U.S.C. §1801 note.
[89] Pub. L. No. 110-28, § 8103(b)(1), 121 Stat. 112, 188 (May 25,
2007). For delay in increases until September 2010, see H.R. Rep. No.
111-366 (Dec. 8, 2009) (Conf Rep.).
[90] Pub. L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010).
[91] U.S. Department of Labor, Employment Standards Administration,
Wage and Hour Division, Economic Report: The Minimum Wage in American
Samoa, 2007 (May 2007). DOL issued similar reports for previous
industry committees. DOL did not issue a similar report for the CNMI
because the CNMI set its own minimum wage until July 2007.
[92] U.S. Department of Labor, Office of the Assistant Secretary for
Policy, Impact of Increased Minimum Wages on the Economies of American
Samoa and the Commonwealth of the Northern Mariana Islands (January
2008). The report noted that data and time limitations constrained the
study.
[93] U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007, Pub. L. No. 110-28, § 8104,
121 Stat. 112, 189 (May 25, 2007).
[94] We did not assess the methodologies or assumptions used in these
studies.
[95] Malcolm D. McPhee & Associates with Dick Conway and Lewis Wolman,
American Samoa's Economic Future and the Cannery Industry, prepared
for the American Samoa Government Department of Commerce under a grant
award from the U.S. Department of the Interior, Office of Insular
Affairs (February 2008).
[96] Malcolm D. McPhee & Associates and Dick Conway, Economic Impact
of Federal Laws on the Commonwealth of the Northern Mariana Islands,
prepared for the CNMI Office of the Governor under a grant from the
U.S. Department of the Interior, Office of Insular Affairs (October
2008). For the previous report, see Northern Marianas College,
Business Development Center, An Economic Study for the Commonwealth of
the Northern Mariana Islands, with funding provided by the U.S.
Department of the Interior, Office of Insular Affairs (Saipan,
Commonwealth of the Northern Mariana Islands, October 1999).
[97] Because new people may enter the workforce, the decrease in
employment between 2008 and 2009 (3,727) is not necessarily the same
as the number of people who stopped working from one year to the next.
Based on SSA data on individual workers in American Samoa, we
estimated that 6,047 of those employed in 2008 were not employed in
2009, representing about one-third of the employed population. These
may include workers who lost their jobs, who voluntarily chose to
leave their jobs, or who stopped working for other reasons.
[98] Because SSA data reflect the number of people with any earnings
during the year, workers who lost their jobs when the cannery closed
or who were laid off from the remaining cannery in 2009 are included
in the number employed in 2009. The remaining cannery reduced its
staff by about 350 workers between calendar years 2009 and 2010, based
on the GAO questionnaire and additional information received from the
remaining cannery. According to the additional information received,
about 200 of the reductions resulted from layoffs. The remaining
cannery reported that it increased employment by 500 in 2011. The
company attributed the employment increase to a new contract it was
awarded, the delays in the minimum wage increases in 2010 and 2011,
the extension of federal tax credits, and local tax exemptions.
However, the company said that the additional positions are not
necessarily permanent or long-term, and it expects employment to
continue to fluctuate.
[99] If many foreign workers left American Samoa, the impact on the
unemployment rate would be smaller than if those workers remained.
Although the U.S. Decennial Census collects data on employment status
in American Samoa and the CNMI, Decennial Census data from 2010 were
not available for our review.
[100] GAO based this estimate on Recovery Act recipient reports and on
information received from the American Samoa government. Much of this
employment was not full-time and only covered part of the year.
[101] American Samoa government officials said that because
contributions to Social Security, Medicare, workers' compensation, and
retirement benefits are based on pay, the total costs of the minimum
wage increases would be about $10.5 million over the period. In GAO-10-
333, we found that, based on questionnaire responses, at most 30
percent of government workers earned wages no more than $1.50 over the
minimum in 2007 and therefore were directly affected by the first
three minimum wage increases. The median government salary might have
changed within the $10,000 to $20,000 range, but our data do not allow
us to measure such variation.
[102] In the January 2011 letter, the Governor also suggested
considering some form of negotiated minimum wage involving the public
and private sectors; a process permitting some variation in minimum
wage rates by industry and gross receipts levels; or other methods
used in state minimum wage programs or those of other countries. In
its written comments on this report, the American Samoa government
asked that GAO or other federal entities consider the following
recommendations: terminate increases in the minimum wage immediately
in American Samoa; conduct a thorough analysis of why adverse economic
effects of the minimum wage increases were greater in American Samoa
than in the United States; and determine procedures for addressing
minimum wage in American Samoa in a way that avoids future economic
disasters.
[103] The American Samoa Consumer Price Index increased 4 percent from
2006 to 2007, 11 percent from 2007 to 2008, and 3 percent from to 2008
to 2009. The U.S. Consumer Price Index increased 2.9 percent from 2006
to 2007 and 3.8 percent from 2007 to 2008, and it declined by .3
percent from 2008 to 2009.
[104] Our tuna industry questionnaire asked respondents about the
extent to which they attributed each action they took or planned to
take to the minimum wage increases, regardless of whether other
factors also contributed. We separately asked about other contributing
factors. In interviews, officials provided more information about
contributing factors.
[105] Global trade liberalization has reduced trade barriers on some
tuna products from certain countries, which leads to the erosion of
the tariff-free benefits for American Samoa exports. For example,
tariffs have declined on pouched tuna from beneficiary countries under
the Andean Trade Preference Act, the benefits of which expired in
February 2011. According to cannery officials, trade liberalization
also made it easier for domestic competitors to outsource labor-
intensive work away from American Samoa and into low-wage countries.
[106] Local governments have provided various forms of incentives to
attract manufacturing, such as tuna canning. American Samoa has
provided various tax exemptions and benefits to the tuna canning
industry, such as a graduated tax exemption on corporate income taxes,
employee tax benefits, and tax exemptions for owners and operators of
vessels that supply the canneries. The cannery that moved its canning
operations to the U.S. state of Georgia has received local and state
incentives, including county and city tax exemptions and contributions
from the state to cover part of the build-up cost. According to
cannery officials, the Thai government also provides incentives to
attract businesses, such as a tax rebate on investment in new
manufacturing facilities.
[107] For additional factors affecting the tuna processing industry,
see Hamilton A., Lewis A., McCoy M.A., Havice E., Campling L.,
forthcoming, Impact of Industry and Market Drivers on the Global Tuna
Supply Chain, Pacific Islands Forum Fisheries Agency, Honiara; and
Campling, L., E. Havice and V. Ram-Bidesi 2007, Pacific Island
Countries, the Global Tuna Industry and the International Trade Regime
- a Guidebook, Pacific Islands Forum Fisheries Agency, Honiara.
[108] In GAO-10-333, we found that a model relying on frozen fish
loins sourced from outside the United States and canned in the U.S. 50
states, as compared to a model of loining and canning in American
Samoa, would have annual labor savings of $12 million in 2009 that
would more than offset annual tariff costs of $320,000. In 2006,
before the minimum wage increases began, labor costs were estimated at
$13 million under the American Samoa model and $5.6 million under the
frozen loins model.
[109] For example, for 2011, employers in the U.S. must contribute the
equivalent of 6.2 percent of employee wages to Social Security and
1.45 percent to Medicare, up to $106,800 in employee wages.
[110] We chose Thailand because a significant portion of tuna
processing currently takes place in the country.
[111] Model B estimates differ somewhat from those in our last report
(GAO-10-333), because the current analysis is based on the decreased
number of workers employed in the American Samoa tuna canning facility.
[112] We assume U.S. workers are paid $14.00 per hour, based on
statements from industry officials.
[113] U.S. government contracts for meal programs under the U.S.
Department of Agriculture and for the U.S. military currently require
that the canned tuna be processed in the United States using fish
caught by U.S. flag vessels. For the purposes of these contracts,
"United States" refers to the U.S. 50 states, the U.S. territories--
including American Samoa--and the freely associated states of the
Federated States of Micronesia, Republic of the Marshall Islands, and
Republic of Palau. Some military purchases are exempt from the above
requirements, including ships that need certain items when they are
docked in foreign waters.
[114] For example, independent Samoa is near American Samoa and,
through December 31, 2010, was allowed to export tuna to the United
States tariff-free under trade agreements with the United States.
[115] Tuna industry officials stated that 20 percent of production is
not sufficient to cover overhead costs and operate a cannery in
American Samoa. We assume that another 30 percent of production
remains in American Samoa in order to illustrate a hybrid production
model. The actual minimum production threshold for canning in American
Samoa is not publicly available.
[116] Estimates of job loss include only workers directly employed in
tuna canning. If we included workers employed by the company
manufacturing cans, who would lose their jobs without the cannery, the
estimates of job loss would be higher. Additionally, actions taken by
American Samoa's tuna canning industry are likely to have ripple
effects on other businesses.
[117] The lease of the remaining cannery expires in February 2013. In
addition, the American Samoa Power Authority has regained land
formerly leased to the cannery.
[118] If many foreign workers left the CNMI, the impact on the
unemployment rate would be smaller than if those workers remained.
Although the U.S. Decennial Census collects data on employment status
in American Samoa and the CNMI, Decennial Census data from 2010 were
not available for our review.
[119] GAO based this estimate on Recovery Act recipient reports and
information received from the CNMI government. Much of this employment
was not full-time and only covered part of the year.
[120] The CNMI Consumer Price Index increased 8.1 percent from 2006 to
2007, 6.8 percent from 2007 to 2008, and 3.5 percent from 2008 to
2009. The U.S. CPI increased 2.9 percent from 2006 to 2007 and 3.8
percent from 2007 to 2008, and it declined by .3 percent from 2008 to
2009.
[121] Ninety-two percent of CNMI questionnaire recipients (12 of 13,
with one additional recipient having closed) responded, and
respondents included hotels and other employers in the tourism sector,
such as tour operators.
[122] Employers representing 3 percent of workers employed by
questionnaire respondents laid off hourly and salaried workers. Of
those, none attributed layoffs largely to the minimum wage increases.
[123] Our questionnaire did not distinguish between the price of hotel
rooms versus the price of other goods or services. For example, prices
may include those for hotel services such as restaurants and
concessions, in addition to hotel rooms.
[124] In addition, employers noted that other factors such as
increased costs of materials, maintenance costs, transportation and
shipping costs, and utility costs, as well as changes in business
taxes and fees, contributed to their past and planned actions to a
moderate extent.
[125] The data provided do not allow us to draw conclusions about the
causal relationship between visitor arrivals and flight seats.
[126] The financial incentives program has not yet been funded, and
the government is working to change the related regulations to extend
the incentives to countries other than Japan, after the March 2011
earthquake and tsunami.
[127] In addition, CNMI government officials said that many Japanese
visitors had canceled their hotel reservations and tour packages after
the earthquake and tsunami in Japan, and they expressed concern about
the impact on the CNMI's tourism industry. In May 2011, the Marianas
Visitors Authority reported that from April 2010 to April 2011,
Japanese visitor arrivals to the CNMI had dropped 26 percent and
overall visitor arrivals had dropped 18 percent, following the tsunami
crisis in Japan.
[128] In GAO-10-333, we found that raising room rates to cover higher
wage costs could cause a 2.6 to 13.7 percent decline in visits to the
CNMI.
[129] Our questionnaire covers the tourism industry and includes
hourly wage data on 8 CNMI hotels. CNMI hotel and other tourism
employers told us in the questionnaire and in discussion groups that
they had not laid off workers but had taken other steps to cut costs,
such as implementing hiring freezes. The decreases in hotel employment
may reflect these hiring freezes.
[130] They also said the CNMI competes with Guam, which they said has
lower prices for power, water, commodities, and other expenses. Given
high utility costs, most CNMI hotels generate their own power and
water.
[131] [hyperlink, http://www.gao.gov/products/GAO-10-333].
[132] In GAO-10-333 and in this report, we use the term "directly
affected by the minimum wage increase" to refer to workers who
received pay increases because they were paid at or below the new
minimum wage. The term does not include workers who may be indirectly
affected by the minimum wage increases, such as those who lost jobs or
work hours, or those who were above the minimum wage but received pay
increases in order to preserve parity in the pay scale.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
