[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE IMPACT OF MINIMUM WAGE
INCREASES IN AMERICAN SAMOA
AND THE COMMONWEALTH OF THE
NORTHERN MARIANA ISLANDS
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON FISHERIES, WILDLIFE,
OCEANS AND INSULAR AFFAIRS
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
Friday, September 23, 2011
__________
Serial No. 112-65
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.fdsys.gov
or
Committee address: http://naturalresources.house.gov
_____
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COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democrat Member
Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC John P. Sarbanes, MD
Scott R. Tipton, CO Betty Sutton, OH
Paul A. Gosar, AZ Niki Tsongas, MA
Raul R. Labrador, ID Pedro R. Pierluisi, PR
Kristi L. Noem, SD John Garamendi, CA
Steve Southerland II, FL Colleen W. Hanabusa, HI
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Jon Runyan, NJ
Bill Johnson, OH
Mark Amodei, NV
Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democrat Staff Director
David Watkins, Democrat Chief Counsel
------
SUBCOMMITTEE ON FISHERIES, WILDLIFE, OCEANS
AND INSULAR AFFAIRS
JOHN FLEMING, LA, Chairman
GREGORIO KILILI CAMACHO SABLAN, CNMI, Ranking Democrat Member
Don Young, AK Eni F.H. Faleomavaega, AS
Robert J. Wittman, VA Frank Pallone, Jr., NJ
Jeff Duncan, SC Madeleine Z. Bordallo, GU
Steve Southerland, II, FL Pedro R. Pierluisi, PR
Bill Flores, TX Colleen W. Hanabusa, HI
Andy Harris, MD Vacancy
Jeffrey M. Landry, LA Edward J. Markey, MA, ex officio
Jon Runyan, NJ
Doc Hastings, WA, ex officio
------
CONTENTS
----------
Page
Hearing held on Friday, September 23, 2011....................... 1
Statement of Members:
Faleomavaega, Hon. Eni F.H., a Delegate in Congress from
American Samoa, Prepared statement of...................... 33
Timeline submitted for the record........................ 37
Fleming, Hon. John, a Representative in Congress from the
State of Louisiana......................................... 1
Prepared statement of.................................... 2
Sablan, Hon. Gregorio, a Delegate in Congress from the
Commonwealth of the Northern Mariana Islands............... 3
Prepared statement of.................................... 4
Statement of Witnesses:
Arenovski, James T., President, Delta Management
Corporation--Saipan........................................ 24
Prepared statement of.................................... 26
Babauta, Hon. Anthony M., Assistant Secretary of the Interior
for Insular Areas, U.S. Department of the Interior......... 6
Prepared statement of.................................... 7
Gootnick, David, Director, International Affairs and Trade,
U.S. Government Accountability Office...................... 16
Prepared statement of.................................... 17
Tulafono, Hon. Togiola T.A., Governor of American Samoa...... 10
Prepared statement of.................................... 12
Additional materials supplied:
Cho, In-Soo, President and CEO, StarKist Co., Statement
submitted for the record by The Honorable Eni F.H.
Faleomavaega............................................... 43
OVERSIGHT HEARING ON ``THE IMPACT OF MINIMUM WAGE INCREASES IN AMERICAN
SAMOA AND THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS.''
----------
Friday, September 23, 2011
U.S. House of Representatives
Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 9:00 a.m., in
Room 1334, Longworth House Office Building, Hon. John Fleming
[Chairman of the Subcommittee] presiding.
Present: Representatives Fleming, Sablan, Faleomavaega,
Duncan, Bordallo, and Harris.
STATEMENT OF THE HON. JOHN FLEMING, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Dr. Fleming. The Subcommittee will come to order. The
Chairman notes the presence of a quorum.
Good morning. The Subcommittee on Fisheries, Wildlife,
Oceans and Insular Affairs will conduct an oversight hearing on
``The Impact of Minimum Wage Increases in the Territories of
American Samoa and the Northern Mariana Islands.''
Under Committee Rule 4(f), opening statements are limited
to the Chairman and Ranking Member of the Subcommittee so that
we can hear from our witnesses more quickly. However, I ask
unanimous consent to include any other Members' opening
statements in the hearing record if submitted to the Clerk by
close of business today.
Hearing no objection, so ordered.
The Fair Labor Standards Act was enacted in 1938. The law
applied to all States and U.S. Territories. However, during the
history of the law, Congress amended it to allow certain
Territories to use special industry committees to determine
local wage rates or pass separate legislation to allow a
territory to retain authority over setting wages for local
industries.
The practice of allowing wage rate flexibility in American
Samoa and the Northern Mariana Islands ended in 2007. The 110th
Democrat-led Congress required the application of the Federal
minimum wage in American Samoa and the Northern Mariana Islands
through annual 50-cent-per-hour increases until the Federal
wage was met of $7.25. To date, three minimum wage increases
have occurred in American Samoa and four minimum wage increases
have occurred in the Northern Marianas.
Congress required the Department of Labor and the
Government Accountability Office to report on how minimum wage
increases were affecting living standards and employment in the
Territories. The reports detailed the vulnerability of the two
Territories to outside factors influencing their economies,
including the global recession, foreign competition and Federal
actions which have led to declines in their economies over the
last decade. The requirement to increase local minimum wages to
Federal levels further exacerbated economic conditions in the
Territories, leading to the loss of a cannery in American Samoa
and the loss of the garment industry in the Northern Mariana
Islands.
In 2009, to alleviate the effects of the minimum wage
increases in the two Territories, Congress passed legislation
to delay the annual 50-cent-per-hour increase in American Samoa
for 2 years and allowed an increase in 2010, but no increase in
2011 for the Northern Mariana Islands. We will hear testimony
today regarding the on-the-ground effects of minimum wage
increases in the two Territories. I am interested to hear from
today's witnesses on how mandatory minimum wage increases
affected the economies in the Territories and hurt revenue
sources on the islands.
I now recognize our Ranking Member, Mr. Sablan, for any
statement he would like to make.
[The prepared statement of Dr. Fleming follows:]
Statement of The Honorable John Fleming, Chairman,
Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs
Good morning, the Subcommittee on Fisheries, Wildlife, Oceans and
Insular Affairs will conduct on oversight hearing on the impact of
minimum wage increases in the territories of American Samoa and the
Commonwealth of the Northern Mariana Islands.
Under Committee Rule 4(f), opening statements are limited to the
Chairman and Ranking Member of the Subcommittee so that we can hear
from our witnesses more quickly. However, I ask unanimous consent to
include any other Members' opening statements in the hearing record if
submitted to the Clerk by close of business today. Hearing no
objection, so ordered.
The Fair Labor Standards Act was enacted in 1938. The law applied
to all states and U.S. territories. However during the history of the
law, Congress amended it to allow certain territories to use special
industry committees to determine local wage rates or passed separate
legislation to allow a territory to retain authority over setting wages
for local industries.
The decades-long practice of allowing wage rate flexibility in
American Samoa and the Northern Mariana Islands ended in 2007. The
110th Democratic-led Congress required the application of the federal
minimum wage in American Samoa and the Northern Mariana Islands,
through annual 50-cent-per-hour increases until the federal wage of
$7.25 is met. To date, three minimum wage increases have occurred in
American Samoa, and four minimum wage increases have occurred in the
Northern Mariana Islands.
Congress required the Department of Labor and the Government
Accountability Office to report on how minimum wage increases were
affecting living standards and employment in the territories. The
reports detailed the vulnerability of the two territories to outside
factors influencing their economies including the global recession,
foreign competition and federal actions which have led to declines in
their economies over the last decade. The requirement to increase local
minimum wages to federal levels further exacerbated economic conditions
in the territories leading to the loss of a cannery in American Samoa
and the loss of the garment industry in the Northern Mariana Islands.
In 2009, to alleviate the effects of the minimum wage increases in
the two territories, Congress passed legislation to delay the annual
50-cent-per-hour increase in American Samoa for two years and allowed
an increase in 2010, but no increase in 2011 for the Northern Mariana
Islands.
We will hear testimony today regarding the on-the-ground effects of
minimum wage increases in the two territories. I am interested to hear
from today's witnesses on how mandatory minimum wage increases affected
the economies in the territories and hurt revenue sources on the
islands.
______
STATEMENT OF THE HON. GREGORIO KILILI CAMACHO SABLAN, A
DELEGATE IN CONGRESS FROM THE COMMONWEALTH OF THE NORTHERN
MARIANA ISLANDS
Mr. Sablan. Well, thank you very much, Mr. Chairman, and
thank you for agreeing to this morning's hearing on the impact
of raising the minimum wage in American Samoa and the Northern
Mariana Islands, and thank you once again for permitting
testimony from the Northern Mariana Islands by video
conference. This is a smart use of technology to lower the cost
of government and let Congress hear directly from our
constituents.
One of the most quoted passages in the covenant between the
United States and the Northern Mariana Islands is the promise
to help the people of the Northern Mariana Islands achieve a
progressively higher standard of living as part of the American
economic community. Raising the minimum wage is one way to
accomplish that goal. Working men and women in the Marianas pay
more for gas, more for utilities, more for food than their
brothers and sisters almost anywhere else in the United States.
It only makes sense that they get a minimum wage at least as
high as the rest of our country.
In 2006, family breadwinners were working for $3.05 in the
Northern Mariana Islands. Can you just imagine that? $6,344 in
a year before taxes. Today, because of the minimum wage law
that Congress passed, some of those same people earn at least
$5.05. It is still not enough, it is not what I call a
dignified wage, but it has already made a difference, bringing
people into the workforce, people who had not bothered to work
for $3.05.
We are struggling in this country with the problem of
unemployment. Let me tell you, one way to solve unemployment is
to pay people a decent wage. I have seen this in my community.
The more the wage goes up, the more people will go to work.
I want the minimum wage in the Marianas to rise to the U.S.
level. I will say that again. I want the minimum wage in the
Marianas to rise to the U.S. level. But I am also not blind to
the economic reality. The Bureau of Economic Analysis reported
in July that GDP in the Marianas advanced almost 20 percent in
2009. The Recovery Act has provided jobs and kept some people
working temporarily, and Recovery Act funds improve fuel
efficiency in the local utilities and paid for new appliances
in people's homes, which helped with power bills.
But the fact is that the economy is spiraling downward.
Business is holding on by its teeth, and when businesses close,
workers earn nothing. GAO says we are looking at a perfect
storm of negative factors in the Marianas right now--
uncertainty over labor supply because of immigration, increases
in crime and poverty, lack of air service, very high shipping
costs and utilities that are through the roof. But the
businesses GAO interviewed said this, that minimum wage is not
their biggest concern. It is the shrinking economy that is the
real problem.
Minimum wage policies need to be addressed here in
Congress, however. We need to be sure that in our effort to
give workers a better wage, we do no harm. And, Dr. Fleming, I
understand that principle, do no harm.
So it is extremely important that we keep our finger on the
pules of the economy. We have to keep monitoring the situation,
adjust if necessary, as we did this year, by skipping the wage
increase. That is why we are requiring GAO to report to us
every 2 years on the impact of the minimum wage increases. That
is why we are holding this oversight hearing today.
We are going to hear from Governor Tulafono, we are going
to hear from Assistant Secretary Babauta, who is responsible
for Federal policies in the islands, and from Mr. David
Gootnick from GAO. We are going to hear from Mr. Arenovski, who
is a small business owner and past President of the Saipan
Chamber of Commerce.
Welcome, gentlemen.
We are going to keep listening and watching as time goes by
so we achieve the goal of keeping people working while making
sure they earn a decent, fair and dignified wage to support
themselves and their families.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Sablan follows:]
Statement of The Honorable Gregorio Kilili Camacho Sablan, Ranking
Member, Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs
Thank you, Mr. Chairman:
Thank you for agreeing to this morning's hearing on the impact of
raising the minimum wage in American Samoa and the Northern Mariana
Islands.
And thank you for once again permitting testimony from the Northern
Mariana Islands by video conference. This is a smart use of technology
to lower the cost of government and let Congress hear directly from our
constituents.
One of the most quoted passages in the Covenant between the United
States and the Northern Mariana Islands is the promise to help the
people of the Marianas ``achieve a progressively higher standard of
living. . .as part of the American economic community.''
Raising the minimum wage is one way to accomplish that goal.
Working men and women in the Marianas pay more for gas, more for
utilities, more for food than their brothers and sisters almost
anywhere else in the U.S.
It only makes sense that they get a minimum wage at least as high
as the rest of our country.
In 2006 family breadwinners were working for three dollars and five
cents an hour in the Marianas. Can you imagine? $6,344 in a year--
before taxes!
Today, because of the minimum wage law Congress passed, those same
people earn at least five dollars and five cents.
It is still not enough. It is not what I call a dignified wage.
But it has already made a difference bringing people into the
workforce, people who would not bother to work for three-o-five.
We are struggling in this country with the problem of unemployment.
Let me tell you: one way to solve unemployment is to pay people a
decent wage.
I've seen this in my community. The more the wage goes up, the more
people will go to work.
I want the minimum wage in the Marianas to rise to the U.S. level.
But I am not blind to economic reality.
The Bureau of Economic Analysis reported in July that GDP in the
Marianas plunged 20% in 2009.
The Recovery Act has provided jobs and kept some people working--
temporarily. And Recovery Act funds improved fuel efficiency at the
local utility and paid for new appliances in people's home, which
helped with power bills.
But the fact is the economy is spirally downward. Business is
holding on by its teeth. And when businesses close, workers earn
nothing.
GAO says we're looking at a ``perfect storm'' of negative factors
in the Marianas right now:
uncertainty over labor supply because of immigration,
increases in crime and poverty,
lack of air service,
high shipping costs, and
utilities that are through the roof.
But the businesses GAO interviewed said that minimum wage is not
their biggest concern. It's the shrinking economy that is the real
problem.
Minimum wage policy needs to be our concern here in Congress,
however. We need to be sure that in our zeal to give workers a better
wage we ``do no harm.''
I know Dr. Fleming understands that principle. ``Do no harm.''
So, it is extremely important that we keep our finger on the pulse
of the economy. We have to keep monitoring the situation. Adjust if
necessary, as we did this year, by skipping the wage increase.
That's why we are requiring GAO to report to us every two years on
the impact of the minimum wage increases.
That's why we are holding this oversight hearing today.
We are going to hear from Governor Tulafono. We are going to hear
from Assistant Secretary Babauta, who is responsible for federal policy
in the islands, and from Mr. Gootnick from GAO. We are going to hear
from Mr. Arenovski, who is a small business owner and past president of
the Saipan Chamber of Commerce. Welcome, gentlemen.
And we are going to keep listening and watching, as time goes by,
so we achieve our goal of keeping people working--while making sure
they earn a decent, fair, and dignified wage to support themselves and
their families.
Thank you, Mr. Chairman.
______
Dr. Fleming. I thank the gentleman, the Ranking Member, for
his statement.
Now we will hear from our witnesses. Like all witnesses,
your written testimony will appear in full in the hearing
record, so I ask that you keep your oral statements to five
minutes, as outlined in our invitation letter to you and under
Committee Rule 4(a).
Our microphones are not automatic, so please press the
button when you are ready to begin.
Mr. Faleomavaega. Mr. Chairman, might I make a statement?
Dr. Fleming. Yes, sir. I will recognize you in just a
moment. A word about the microphones. You kind of have to lean
into them or bring them closer. So just a word of caution on
that. Oftentimes we don't key into the sensitivity or lack of
on these microphones.
Also I will explain the timing lights. You have five
minutes. As I said, you will be under green light for 4
minutes. Then it will turn yellow for a minute. Then when it
turns red, we ask that you go ahead and wrap up your testimony
as soon as possible.
With that, I would like to recognize the gentleman from
American Samoa, Mr. Faleomavaega, with an introduction.
Mr. Faleomavaega. Mr. Chairman, thank you very much.
Certainly it is always a welcome sight to see Secretary Babauta
and also Dr. Gootnick here from GAO. But more especially, Mr.
Chairman, I am very honored to introduce also the presence of
our Governor of American Samoa, Governor Tulafono, and his dear
wife, Mary, who is with us this morning.
I might also note that the gentleman accompanying our
Governor is a retired Command Sergeant Major in the Marine
Corps. We are very, very proud of our men and women who serve
honorably in the military services of our country, Mr. Filipo
Ilaoa, who is here with us.
Again, traveling such a long distance, I really, really
appreciate the Governor accepting your invitation to come and
testify before this Committee and offer us some insights of
what we need to do to resolve this very important issue now
confronted by the Northern Mariana Islands as well as American
Samoa.
Again, Mr. Chairman, thank you.
Dr. Fleming. I thank the gentleman.
I would like to welcome today's guests. I will go through
the panel here. First let me say that it is a joy to be
Chairman of this Committee. I love everything about it except
for one thing, and that is pronouncing names. So I will
struggle through that as best I can. So bear with me.
First, we have The Honorable Anthony Babauta, Assistant
Secretary of the Interior for Insular Affairs; The Honorable
Togiola Tulafono, Governor of American Samoa; Mr. David
Gootnick, Director, International Affairs and Trade, U.S.
Government Accountability Office; and Mr. James Arenovski,
President, Delta Management Corporation, Saipan.
So, Assistant Secretary Babauta, you are recognized for
your five-minute testimony, sir.
STATEMENT OF THE HON. ANTHONY BABAUTA, ASSISTANT SECRETARY OF
THE INTERIOR FOR INSULAR AREAS, U.S. DEPARTMENT OF THE INTERIOR
Mr. Babauta. Thank you very much, and good morning, Mr.
Chairman and members of the Subcommittee. Thank you for the
opportunity to discuss the minimum wage issues relating to
American Samoa and the Commonwealth of the Northern Mariana
Islands.
In 2007, Public Law 110-28 raised the Federal minimum wage
to $7.25. It also included a provision raising minimum wage
rates in American Samoa and the CNMI in 50-cent annual
increments until the minimum wage rates in the two Territories
equaled that of the Federal minimum wage rate. Later, the
Congress postponed the 50-cent increases for American Samoa in
2010 and 2011 and for the CNMI in 2011.
Additionally, the GAO's latest report on the effect of the
minimum wage in American Samoa and the CNMI was released this
past June. Salient points from that report regarding American
Samoa include that employment fell 19 percent from 2008 to
2009, due largely to the closure of the Chicken of the Sea tuna
cannery, which caused a 55 percent decrease in tuna canning
employment. Private sector employers reported cost cuttings or
layoffs and hiring freezes, and private sector employers were
also concerned that American Samoa was becoming less
competitive in the increasingly competitive world tuna market.
Regarding the CNMI, the report noted that employment fell
13 percent from 2008 to 2009 and 35 percent from 2006 through
2009, and that tourism employers reported that future planned
actions included laying off workers.
The GAO noted declines in both economies and confirmed in
GDP statistics developed by the Bureau of Economic Analysis in
the Department of Commerce.
To summarize, economic prospects for American Samoa and the
CNMI have fallen precipitously over recent years and remain
bleak for the foreseeable future. The postponement of the 50-
cent minimum wage increases enacted by Congress last year will
certainly help on the minimum wage front. Congress may find it
desirable to take additional action to postpone increases or
reestablish the industry committee process.
Postponements over a long period of time may not be
sufficiently nuanced to meet current national minimum wage
goals, which envision moving toward the Federal minimum wage
without substantially curtailing employment. Employees would
receive no increase, even though economic conditions may have
improved.
On the other hand, if the scheduled 50-cent increases
continue and these territorial economies do not improve, the
50-cent increases may translate into new company closures and
employee layoffs.
In addition, we will be hearing from the Governor of
American Samoa, who recommends that Congress reinstitute the
industry committee process. Reinstituting the industry
committee process would free the Congress from having to hold
hearings and take action every time a postponement appears
desirable.
In addition, the industry committee process was designed to
move a Territory's minimum wage rate to the Federal minimum
wage rate as quickly as possible without substantially
curtailing employment. Each Committee member is provided
background research on economic conditions in the Territory,
and this, along with testimony from labor, business, government
and the public in a local setting, allows for subtle and
nuanced minimum wage decisions.
At such time as the economies of American Samoa and the
CNMI recover their footings, the Congress can return to the
issue and reestablish the periodic increases until the Federal
minimum wage is achieved in the respective Territory. The
Administration would not be opposed to reinstituting the
industry committee process in American Samoa and also extending
it to the CNMI.
Mr. Chairman, we appreciate the interest of the
Subcommittee in an issue affecting the quality of so many lives
in American Samoa and the Northern Mariana Islands.
Thank you very much.
[The prepared statement of Mr. Babauta follows:]
Statement of Anthony M. Babauta, Assistant Secretary of the Interior
for Insular Areas, U.S. Department of the Interior
Mr. Chairman and members of the Subcommittee on Fisheries,
Wildlife, Oceans and Insular Affairs, thank you for the opportunity to
discuss minimum wage issues relating to American Samoa and the
Commonwealth of the Northern Mariana Islands (CNMI).
In 2007, legislation that ultimately was enacted as Public Law 110-
28 raised the Federal minimum wage to $7.25 per hour also included a
provision raising minimum wage rates in American Samoa and the CNMI in
50-cent annual increments until the minimum wage rates in the two
territories equal that of the Federal minimum wage rate. Since
enactment of that law, Congress has postponed the 50-cent increases for
American Samoa in 2010 and 2011 and for the CNMI in 2011.
THE GAO REPORT
Subsequent law requires that the United States Government
Accountability Office (GAO) produce a report on the affect of the
minimum wage in American Samoa and the CNMI. The GAO's latest report,
GAO-11-427, was released in June 2011. Salient points from that report
regarding American Samoa include--
employment fell 19 percent from 2008 to 2009, due
largely to the closure of one tuna cannery, which caused a 55
percent decrease in tuna canning employment, and a 14 percent
employment decline from 2006 to 2009;
average inflation-adjusted earnings fell by 5 percent
from 2008 to 2009, but for those minimum wage cannery workers
who remained employed their wages increased more than
inflation;
current law will increase future minimum wages for 99
percent of the employees in the tuna canning industry;
some workers were disappointed in the 2010 minimum
wage increase delay while more workers expressed concern over
job security;
private sector employers reported cost-cutting
through lay-offs and hiring freezes; and
private sector employers were also concerned that
American Samoa was becoming less competitive in the
increasingly competitive world tuna market.
Regarding the CNMI, the report noted that--
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;
current law will increase future minimum wages for 95
percent of the employees in the tourism industry;
tourism workers expressed mixed views: they would
like minimum wage pay increases but were concerned about losing
jobs and work hours;
tourism employers reported that future planned
actions included laying off workers; and
some tourism employers expressed concern about
minimum wage increases, but others said the primary difficulty
was the decline of the CNMI's tourism industry.
THE ECONOMIES
It is instructive to further examine the economies of American
Samoa and the CNMI. Beginning in fiscal year 2009, the Office of
Insular Affairs has provided funding for the Bureau of Economic
Analysis (BEA) in the Department of Commerce to develop the gross
domestic product (GDP) statistics for the United States territories.
The territories now receive these annual GDP statistics, which are of a
quality comparable to those developed for the 50 states and the
District of Columbia. The first set of these statistics became
available in May 2010 and covered the period of 2002 to 2007; estimates
for 2008 and 2009 were released this past summer.
American Samoa
The current set of GDP statistics on American Samoa by BEA are for
2002 through 2009, and are as follows:
Adjusted for inflation, American Samoa's GDP declined in both
2009 and 2008 from 2007 levels and remained below the average for the
2002-2009 period. Stagnant and declining real GDP is caused by stagnant
commodity prices for processed fish and stagnant public sector receipts
in the form of Federal grants and other revenue flowing to the American
Samoa Government.
One of the two canneries that had operated in American Samoa since
the 1950s, Chicken of the Sea, closed in September 2009. The economic
and financial impact of the closure is evident in the 2009 GDP data and
will also add to GDP losses for 2010.
Long a part of the American Samoa landscape, the cannery closure
has caused both economic and financial dislocation. In October 2010 the
global fish processing and marketing firm, Tri Marine, indicated that
it would purchase and rebuild the physical assets of the closed cannery
and reopen as a new enterprise focused on high quality fish products
for which it claims it is known. According to local media reports,
however, Tri Marine's plans have been delayed, with no tangible
progress evident at this time.
CNMI
As with American Samoa, the CNMI's most recent GDP data cover the
years 2002 through 2009, and include:
The dramatic decline in the economy of the CNMI is due to
extraordinary circumstances. New global trade rules embraced by the
United States took effect in 2005 and set in motion forces that would
wipe out the CNMI's biggest industry, making brand name garments for
American retailers. For reasons unrelated to global trade, CNMI tourism
began its decline in 2006 when Japan Air Lines withdrew from the market
altogether for financial reasons. With significant losses in both of
the CNMI's major industries, a devastating economic contraction was set
in motion. The CNMI's real GDP dropped 39.1 percent from 2005 to 2009,
when the last three garment factories closed. Just as with American
Samoa, the impact of these events--in this case the garment shutdown--
may show up in the 2010 GDP data, which will likely reflect the trend
of the last several years.
The CNMI's tourism showed slight improvement in 2010 as arrivals in
each of the first three quarters of the year exceeded levels from the
same period in 2009. There were similar improvements in business
receipts in the first half of 2010 as compared to 2009. However,
following the earthquake and tsunami in Japan earlier this year, a new
slowdown has occurred.
To summarize, economic prospects for American Samoa and the CNMI
have fallen precipitously over recent years and remain bleak.
WHAT TO DO
The postponement of the 50-cent minimum wage increases enacted by
Congress last year will certainly help on the minimum wage front. Once
the postponements lapse, three policy positions are available: (1) do
nothing and the 50-cent increases will continue, beginning in 2012, (2)
continue the postponements of the 50-cent increases, or (3) reinstitute
the industry committee process for American Samoa and extend it to the
CNMI.
With the economic prospects for American Samoa and the CNMI bleak
for the foreseeable future, Congress may find it desirable to take
additional action to postpone increases or re-establish the industry
committee process. Postponements over a long period of time may not be
sufficiently nuanced to meet current goals, which envision moving
toward the Federal minimum wage without substantially curtailing
employment. Employees would receive no increase, even though economic
conditions may have improved. If, on the other hand, these territorial
economies do not improve in the near future, the scheduled 50-cent
increases may translate into new company closures and employee lay-
offs.
In addition, we have heard from the Governor of American Samoa, who
recommends that the Congress re-institute the industry committee
process. Re-instituting the industry committee process would free the
Congress from having to hold hearings and take action every time a
postponement appears desirable. In addition, the industry committee
process was designed to move a territory's minimum wage rate to the
Federal minimum wage rate as quickly as possible without substantially
curtailing employment. Each committee member is provided background
research on economic conditions in the territory, and this, with
testimony from labor, business, government and the public in a local
setting allow for subtle and nuanced minimum wage decisions. At such
time as the economies of American Samoa and the CNMI recover their
footings, the Congress can return to the issue and re-establish the
periodic increases until the Federal minimum wage is achieved in the
respective territory. The Administration would not be opposed to re-
instituting the industry committee process in American Samoa and
extending it to the CNMI.
Mr. Chairman, we appreciate the interest of the subcommittee in an
issue affecting the quality of so many lives in American Samoa and the
Commonwealth of the Northern Mariana Islands.
______
Dr. Fleming. OK, thank you, Mr. Secretary.
Next we have Governor Tulafono. You are recognized, sir,
for five minutes.
STATEMENT OF THE HON. TOGIOLA T.A. TULAFONO,
GOVERNOR OF AMERICAN SAMOA
Governor Tulafono. Mr. Chairman and honorable members of
your Subcommittee, thank you for your invitation to testify in
this hearing today. I am honored to be here and pleased to
testify on a matter of grave importance to American Samoa.
As you might all appreciate, it is very difficult for us in
American Samoa to pick up and come all the way to Washington,
D.C. to present a five-minute testimony, but the opportunity to
demonstrate to the U.S. Congress how serious this issue is for
us cannot be dismissed because of the cost and distance. It is
an opportunity that we cannot afford to ignore. I have
submitted detailed written testimony in support of my five-
minute presentation here with the understanding and expectation
that this opportunity to address this very important issue
before this Subcommittee cannot end with just this detailed
report.
This Territory of the United States, American Samoa, needs
some advice from this Subcommittee and from this Congress. We
are watching our economy burn down. We know what to do to stop
it. We need to bring the aggressive wage costs decreed by the
Federal Government under control, but we are ordered not to
interfere. Our job market is being torched. Our businesses are
being depressed. Our hope for growth has been driven away. We
are still ordered not to interfere. Our people live in the
middle of the South Pacific Ocean with no place to seek refuge
in any economy other than our own.
Our question is this: How much does our government expect
us to suffer until we have to stand up for our survival? At
what point does it expect us to strike out to preserve our
well-being, because we need to live. We are in a far off place.
We need to know. And if silence follows now, we have our
answer.
Having said that, let me quickly summarize where we are
today. After three increments of 50-cent increases to minimum
wages in American Samoa, a cannery that once employed over
2,000 people closed, thousands of jobs have been lost at all
levels of employment in American Samoa, and the economic
conditions in the Territory continue to decline. That is
basically why to me a five-minute opportunity is priceless to
demonstrate to you how critical this situation is and how
important it is for American Samoa to have permanent and
enduring solutions to these issues.
So while I respect very much the professional work of GAO
and the limitations upon their authority to investigate these
matters, I would be remiss if I did not continue to emphasize
the concerns I have had conveyed to them regarding what I felt
should have been addressed in the report before you, and as
long as they have not been addressed, I feel the report is
incomplete and requires more work.
In my communication of May 25, 2011, to GAO with respect to
the draft report 11-427 on the effects of the first three of 10
minimum wage increases in American Samoa, I expressed general
agreement with the GAO's findings. However, I also cited some
fundamental concerns where I felt the report fell short. GAO
did note these concerns in its final report, but for the most
part they were not addressed in the final GAO report for
reasons having mainly to do with limitations of its
congressional mandate in requesting the report. I would say the
mandate should have been expanded and have a fuller report and
more complete presentation.
I remain concerned, however, that this GAO report does not
adequately, succinctly or clearly convey the magnitude of the
worst economic disaster in American Samoa that has resulted
primarily from the imposition of the 2007 United States minimum
wage mandate. Please allow me to restate briefly some of those
things.
One, it continues to understate American Samoa's employment
losses due substantially to the initial increases in the
minimum wage. The omission of the loss of 2,000 jobs from the
cannery after the closure makes that report incomplete. It
needs to be taken into consideration in this analysis.
Two, it continues to downplay the minimum wage as only one
of the several factors influencing the growing economic
depression in American Samoa. This is despite the fact that its
own data demonstrates that workers and major employers fault
the minimum wage for adverse economic effects to date and
expect economic conditions to worsen primarily as a result of
continuing increases in the minimum wage.
I have listed the rest of those seven reasons, Mr. Chairman
and the honorable members of your Committee.
We have been put into this situation where it may end up
with American Samoa being totally reliant only on Federal
grants if we lose all our industry. This is clearly not the
economic future American Samoa wants or seeks. We want to have
a strong economic base supported by industry and manufacturing
jobs. We want wages in American Samoa to grow with sustainable
economic growth that continues to support existing as well as
new jobs created by such economic growth. We need to design a
system that will permit us to do that, and that is why we
recommend the reinstitution of the special Committee, and we
need your wise advice to do it.
Even with this temporary suspension of the increases, the
uncertainty of what will happen and the likelihood of further
increases under the present law is damaging enough because we
are losing opportunities that could have been cultivated or
harnessed if we were certain that there is an appropriate
solution in the making.
No one is willing to invest in this kind of business
climate. That is why I am asking for immediate positive action
to stop any further escalation of the minimum wage in American
Samoa, with proposed provisions for a proper study of how to
accomplish our desired goals toward rebuilding a sustainable
economy for American Samoa that will make it less dependent
only on Federal grants.
I truly hope that my next appearance before this honorable
Committee or another congressional Committee will be to testify
in support of such legislation that will install for us a
system for determining appropriate minimum wages that will
support our economy and create jobs for our people.
Thank you again for my priceless five minutes.
[The prepared statement of Governor Tulafono follows:]
Statement of The Honorable Togiola T.A. Tulafono,
Governor of American Samoa, American Samoa Government
Continued Minimum Wage Increases Would Destroy American Samoa's Economy
Summary--In 2007, the United States enacted legislation that
mandated annual $.50 per hour increases to the minimum wages in
American Samoa beginning in July 2007 until it reached parity with the
federal minimum wage. To date since 2007, the minimum wages in American
Samoa have increased by $.50 three times. 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 2010, the United States
enacted a law delaying the scheduled minimum wage increases providing
for no increase in 2010 or 2011.
On May 25, 2011, I responded to GAO's draft report (GAO-11-427) on
the effects of recent minimum wage increases in American Samoa. I
expressed general agreement with the GAO's findings; however, I also
expressed fundamental concerns about the draft. These concerns were
noted but not seriously addressed in the final GAO report for reasons
provided in that report having mainly to do with the limitations of its
Congressional mandate.
I remain concerned that this GAO report does not adequately,
succinctly or clearly convey the magnitude of the worsening economic
disaster in American Samoa. My specific concerns about the GAO report
are as follows:
1. It continues to understate American Samoa's employment
losses due substantially to the initial increases in the
minimum wage.
2. It continues to downplay the minimum wage as only one of
several factors influencing the growing economic depression in
American Samoa despite the fact that its own data demonstrates
that workers and major employers expect economic conditions to
worsen primarily as a result of continuing increases in the
minimum wage.
3. It ignores the fact that the minimum wage increases have
adversely affected the entire economy and not just the
canneries.
4. It ignores the fact that the indirect effects of the
cannery employment losses have not yet run their course as they
often require several years to fully materialize.
5. It downplays the fact that the damage to date is from only
three of ten scheduled minimum wage increases.
6. It ignores the evidence that continued increases in the
minimum wage make any meaningful economic recovery increasingly
unlikely.
7. It is silent on the real possibility that American Samoa
could be left substantially without a private sector economic
base except for some limited visitor industry and fisheries
activities. American Samoa's economic base would then
essentially be based solely on federal government expenditures
in the territory.
American Samoa is in dire need of relief from the U.S. Congress. At
a minimum, the present suspension of the minimum wage increases should
be continued indefinitely or until some more satisfactory minimum wage
procedures are designed and implemented.
Recent Employment Losses--The employment analysis by GAO in Table 1
underestimates the economic impact of the rising minimum wage in
American Samoa. There was no reason to exclude cannery closure
employment losses total employment in 2009. The September 30, 2009
cannery closure reduced employment in American Samoa by another 2000 in
addition to the decline of 3737. That would bring the percent
employment decline to 30 percent rather than 19 percent between 2008
and 2009 as described in Table 1.
The importance of combining these numbers for some sense of
magnitude outweighs any possible definitional discrepancies. Those 2000
cannery jobs existed before September 30 2009. After that date they no
longer existed. They should have been included in some manner in the
job loss calculation for 2009. GAO did not compute this total
themselves because it thought the data could not be combined since it
came from multiple sources (GAO-11-427, Page 129). Our combining the
2009 SSA 3737 employment loss estimate with the 2000 employees who lost
their jobs at the canneries in 2009 did not come from multiple sources;
they came only from SSA and the closed cannery and did not likely
involve any serious distortion in the combination. However, it must be
acknowledged that we, out of necessity, often treat employment and jobs
as synonymous when they are not. The number of jobs exceeds the number
of persons employed because of multiple job holders and the fact that
employment is measured differently by different agencies.
This higher level of employment loss represented 30 percent of
American Samoa's total employment in 2008. Economies do not recover
from losses of that magnitude in the short term. The people who lost
those jobs and their families were and are in serious trouble. They
have to begin weighing their options for making a living. Obviously,
seeking employment outside American Samoa must be considered a real
option.
Later in Table 4 it will be observed that the gravity of the
employment decline between 2008 and 2009 wiped out the entire
employment gain from years 2000-2008. Table 4 will show that employment
in 2009 was lower than it was in 2000! If we deduct the cannery
employment loss from the 15,434, the 2009 employment estimate falls
below even our 1990 employment level.
Future Employment Losses---The worst is yet to come. The above
serious employment losses were the result of just the first three of
ten $.50 annual increases in the minimum wage in American Samoa. Unless
the minimum wage law for American Samoa is changed, these $.50 annual
increases in American Samoa's minimum wage will resume in 2012 and
continue for the following seven years. Based upon the minimum wage
experience of the first three years, another seven years of similar
increases will be devastating.
It is difficult to contemplate a scenario for 2018 when American
Samoa's minimum wage reaches the U.S. level of $7.25 per hour or even
higher if the U.S. minimum wage is increased over that period. That
scenario would likely describe a U.S. territorial economy substantially
without a private sector economic base except for some limited visitor
industry and fisheries activities. American Samoa's economic base would
then essentially be the U.S. federal government expenditures in the
territory.
In Table 2, further employment losses are estimated for 2012-13.
These are conservative estimates. By then total job losses are
anticipated to reach 7993. This estimate assumes no further cannery
employment losses from the 2010 estimate of 2256 in the GAO report. It
assumes only a further loss of 1000 in non-cannery jobs. It assumes a
1000 job loss due to the 1.5 employment multiplier effects of the
cannery closure. Employment losses could be ameliorated slightly with
temporary jobs funded by the U.S. Census Bureau, the Recovery Act, and
recovery efforts after the 2009 Tsunami. However, these are temporary
jobs and will likely end when federal funding ends prior to 2013. Given
the magnitude of the 5737 employment losses between 2008 and 2009, it
is easy to imagine total job losses of 7993 by 2013. This is especially
the case if annual minimum wage increases are resumed in 2012.
Unemployment--In Table 3, the above employment loss estimates
are considered in a labor force and employment context in order to
estimate unemployment trends. The numbers in Table 3 are primarily
illustrative because our most recent labor force data is from the 2000
U.S. Census. In reality, the labor force in 2013 will almost certainly
have declined substantially from what is shown in Table 3 due to people
no longer seeking work or people leaving American Samoa in pursuit of
employment.
aFor example, if 4,000 of the unemployed workers left the
territory by 2013, the rate of unemployment would fall from 39.5
percent to 24.6 percent. However, we are still talking about very high
rates of unemployment at 25 percent.
Outmigration may not be a convenient option in American Samoa under
the best of circumstances because of distance and cost of relocation
and, in the case of the US, considerable cultural adjustment. In
addition, independent Samoa offers limited employment opportunities. In
that regard, the GAO frequently notes in its report that a large
percentage of cannery workers are citizens of Samoa. What it fails to
point out is that many of these Samoa citizens have resided in American
Samoa for decades and have grown children who are U.S. nationals and
citizens. Hence, it is not as though these are short term temporary
workers who can pick up and return to Samoa on short notice.
We are currently reviewing our 2010 U.S. Census population
count. There are some indications of a possible undercount. At the same
time there is some evidence of possible heavy outmigration. Table 4
demonstrates that the relationship between population and employment is
reasonably stable and has remained so for 30 years. The 2010 GAO
employment number fits closely with the long term population/employment
relationship with employment at about 28 percent of population in 2010.
We are still looking at this. However, the important point is that our
population was estimated at over 65,500 in 2005. It is apparent that
American Samoa, in the latter part of the decade, suffered serious
employment and population declines attributable primarily, although not
exclusively, to increases in the minimum wage. The U.S. Census of
population count for 2010, 3 percent below the 2000 level, suggests
very heavy outmigration late in the decade especially in light of the
large natural population increase during the period.
In conclusion, the use of the best available data with reasonable
assumptions about 2010 employment suggests that the 2010 U.S. Census
population count for American Samoa may not be seriously out of line.
Even if there was some undercount, the data for 2010 in Table 4
strongly suggest that employment trends will eventually force net
outmigration levels until the relationship between employment and
population is eventually reestablished at a lower population level.
Unfortunately, it gets worse. Not only did GAO's treatment of the
data result in a serious underestimation of the economic decline, it
ignored an even more serious implication of the SSA employment data.
Since the SSA 2009 data did not reflect the cannery closure in 2009,
the SSA's 3737 employment decline in 2009 was substantially in
industries other than fish canning. This means that the minimum wage
increases had serious adverse effects on industries other than the
canneries.
In addition, the SSA total of 3737 could not have included much of
the cannery closure employment multiplier effect since they require
several years to materialize fully. This indicates that the non-cannery
sectors of the economy were being seriously affected by the minimum
wage increases as well.
Finally, the GAO business and worker survey results suggested
clearly the overwhelming cause of American Samoa's declining economy
was the rapidly rising minimum wage. It only served to discount the
impact of the minimum wage on American Samoa's economy by repeated
admonitions that there were other influences at work. Certainly there
were, but employer surveys in the draft report (excluded from the final
report) showed large employers attributed past employment reductions to
the minimum wage increases, and they viewed future impacts of minimum
wage increases even more pessimistically.
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. Indeed they remain intact to drive American Samoa deeper into
economic depression over the next seven years.
The McPhee Study--The Government of American Samoa had separately
commissioned a study on the economic impact if fish canning operations
in the territory were to close--the McPhee Study. This study was shared
with the U.S. Bureau of Labor Statistics. Although the study was
limited to the canning industry, it noted that the serious economic
problems in the territory would be worsened by mandated future
increases in the minimum wage. The study also stated that for the
canners these increases will compound the problems of declining
consumer demand and of cheaper foreign imports which benefit from
recent trade negotiations. The mandated minimum wage increases will
also hamper the territory in dealing with the loss of the canneries.
The study found that the dramatic increase in the minimum wage is a
serious threat to the Samoan economy. This underscores the need for a
congressional policy, the study says, for economic development in
American Samoa. American Samoa has the lowest per capita income
compared to all U.S. states and to the other territories. Its per
capita income is one-fifth that of the United States. This study also
stated that American Samoa has a poor, undeveloped economy with the
added drawbacks of a small size, physical isolation, high
transportation costs, and lack of resources. Recognizing the
territory's undeveloped economy, prior law had directed that the
minimum wage in American Samoa should reach parity with the states ``as
rapidly as is economically feasible without curtailing employment.''
Emphasis added. Congress had applied to American Samoa the same
statutory procedure that had gradually raised the minimum wage in the
Virgin Islands and Puerto Rico to match the regular Federal rate.
Pursuant to that prior law, the Secretary of Labor every two years had
adjusted the minimum wage rate in American Samoa based on industrial
sectors.
The McPhee study remains a story foretold regarding the minimum
wage increases. Unfortunately, these warnings went unheeded as the
territory's decline continues.
Conclusion and Recommendations--American Samoa is in dire need of
relief from the U.S. Congress. At a minimum, the present suspension of
the minimum wage increases should be continued indefinitely or until
some more satisfactory minimum wage procedures are designed and
implemented. Increases in the minimum wage should be terminated
immediately in American Samoa.
We recommended to GAO that in its September 2011 report to Congress
it address how the minimum wage can be determined without substantially
curtailing employment or earning power in American Samoa. This requires
a thorough analysis of what caused the minimum wage increases to lead
to such adverse economic effects in American Samoa and not in the US.
Accordingly, we recommended that the Federal government explore
alternative procedures for setting minimum wage levels in American
Samoa. Alternatives include but are not limited to:
1. Considering previous U.S. DOL Special Industry Committee
processes or some modification thereof for determining minimum
wages in American Samoa.
2. Considering 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.
3. Considering some form of negotiated minimum wage involving
the public and private sectors.
4. Considering amending statutes to specify the conditions to
be taken into account in determining the minimum wage in
American Samoa.
5. Considering other methods used in state minimum wage
programs or those of other countries.
These recommendations should be the subject of follow on studies by
the GAO, the U.S. Department of Labor or some other appropriate Federal
agency.
______
Dr. Fleming. Thank you. I thank you, Governor.
Next, Mr. Gootnick. You have five minutes, sir.
STATEMENT OF DAVID GOOTNICK, DIRECTOR, INTERNATIONAL AFFAIRS
AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Gootnick. Thank you, Mr. Chairman.
Mr. Chairman and members of the Subcommittee, thank you for
asking GAO to participate in this hearing. GAO has reported
twice on the impact of the rising minimum wage in American
Samoa and the CNMI. A key reason that we were directed to do
this work is that unemployment and other important monthly data
collected by Labor and Census do not exist for these two
locations. Lacking this data, we did four key things.
First, we ran a detailed survey which covered more than 50
employers.
Second, we analyzed Social Security and local tax data to
report trends in employment and earnings.
Third, we conducted structured discussion groups with
employers and workers in both locations.
Fourth, we modeled the impact of minimum wage increases on
the tuna and tourism industries.
In brief, five key findings. First, between 2006 and 2009,
unemployment dropped in both locations--down 14 percent in
American Samoa and 35 percent in the CNMI. In 2009 alone,
employment in American Samoa dropped by 19 percent; and we
acknowledge that these numbers do not fully capture job loss
from the cannery closure in September of that year, as 2010
Social Security data were not available for our report. We did
make an effort, however, to portray the narrative of job losses
in the cannery industry.
In the CNMI, the numbers reflect the end of the garment
factories and stagnation in the tourism industry. Many foreign
workers in the CNMI have simply left and both the population
and the economy have shrunk significantly as the BEA GDP data
shows.
Second, from 2006 to 2009, average inflation adjusted
earnings dropped by 11 percent in American Samoa and remained
unchanged in the CNMI, reflecting rising food, fuel and other
costs.
Third, in addition to laying off workers, employers in both
locations cut costs through measures such as reduced worker
hours, decreased benefits and rising prices. In American Samoa,
employers attributed most of these actions directly to the
minimum wage hikes. In the CNMI, employers generally cited
other factors, including immigration reform and a shrinking
customer base as the cause of their actions.
Fourth, on key industries. As wages rise in American Samoa,
the tuna industry loses its ability to compete with lower wage
locations in Asia and elsewhere. Its only remaining advantage
may be in U.S. Government contracts for tuna, many of which
have buy-America provisions. In the CNMI, hotels thus far
appear to have absorbed the minimum wage hikes without raising
room rates, and many hotels have postponed capital investments
needed to attract tourists.
Finally, worker views. In American Samoa, workers were most
concerned about losing jobs. They were acutely aware of the
connection between a rising minimum wage and the closure of the
first cannery. In the CNMI, workers were most concerned about
uncertainty over immigration and rising prices for basic goods.
They believe that the rising minimum wage was simply offset by
their cost of living increases.
In closing, a year ago Congress used the GAO report in part
to support its decision to suspend minimum wage increases.
Looking ahead, future minimum wage hikes are scheduled to occur
under very difficult economic circumstances. Quite aside from
global economic uncertainty, both areas face the inherent
challenges associated with small island economies.
In American Samoa, wage hikes are directly tied to the
closure of the first cannery, and the second cannery reports
that its current operations there are not competitive with
business models in other locations. In the CNMI, wage hikes are
just one factor in an economy where the workforce is in flux,
its immigration reform moves forward, and tourism struggles to
turn around after a number of very lean years.
Mr. Chairman, this completes my prepared remarks. I look
forward to your questions.
[The prepared statement of Mr. Gootnick follows:]
Statement of David Gootnick, Director, International Affairs and Trade,
United States Government Accountability Office (GAO)
Chairman Fleming, Ranking Member Sablan, and Members of the
Subcommittee:
Thank you for the opportunity to discuss our recent report \1\ on
the impact of minimum wage increases in American Samoa and the
Commonwealth of the Northern Mariana Islands (CNMI).
---------------------------------------------------------------------------
\1\ GAO, American Samoa and the Commonwealth of the Northern
Mariana Islands: Employment, Earnings, and Status of Key Industries
Since Minimum Wage Increases Began, GAO-11-427 (Washington, D.C.: June
23, 2011).
---------------------------------------------------------------------------
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).\2\
This legislation raised the minimum wage in both territories in a
series of $.50 per hour annual increases, which were to continue until
these wages equal the federal minimum wage.\3\ Enactment of subsequent
legislation delayed 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.\4\ Currently, the minimum wage of the
lowest paid workers in American Samoa is $4.18,\5\ and in the CNMI the
minimum wage is $5.05.\6\
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\2\ U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act, 2007, Pub. L. No. 110-28,
Sec. 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. Sec. 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.
\3\ Pub. L. No. 110-28, Sec. 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,
Sec. 520, 123 Stat. 3034, 3283 (Dec. 16. 2009).
\4\ Pub. L. No. 111-244, 124 Stat. 2618 (September 30, 2010).
American Samoa's minimum wage increased by $.50 three times and the
CNMI's four times before this legislation delayed the increases.
\5\ Previously, American Samoa's minimum wage was set for each of
18 industries by the U.S. Department of Labor under biennial reviews,
and its minimum wages in 2006 ranged from $2.68 to $4.09.
\6\ 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. Economic indicators in both areas
show decline. Both governments have faced budget gaps in most recent
years, and they have reduced the work hours of government employees and
taken other steps to reduce the shortfalls. In January 2008, the U.S.
Department of Labor issued a report on the economic impact of minimum
wage increases in both American Samoa and the CNMI; the report noted
concern that the scheduled minimum wage increases would lead to the
closing of tuna canneries in American Samoa and concluded that it
seemed likely the increases would worsen CNMI's existing economic
decline.\7\ Also in 2008, studies funded by the U.S. Department of the
Interior projected major additional contraction of the two
economies.\8\
---------------------------------------------------------------------------
\7\ 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.
\8\ 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).
---------------------------------------------------------------------------
American Samoa's private sector 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.\9\
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.
---------------------------------------------------------------------------
\9\ 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. 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.
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Until recently the CNMI private sector relied on the garment
industry which had employed close to a third of all workers; however,
by early 2009, the last garment factory had closed. Tourism, the major
remaining private sector industry, has seen visitor arrivals drop from
nearly 727,000 in 1997 to roughly 368,000 in 2010, a decline of almost
50 percent. 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.\10\ In 2005, foreign workers
represented a majority of the CNMI labor force and outnumbered U.S.
citizens in most industries.
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\10\ Consolidated Natural Resources Act of 2008, Pub. L. No. 110-
229, Title VII, 122 Stat. 754, 853 (May 8, 2008). U.S. law established
federal control of CNMI immigration on November 28, 2009, with
provisions affecting employers' access to foreign workers.
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GAO is required to report every two years on the impact of minimum
wage increases in American Samoa and the CNMI.\11\ My statement today
describes, since the minimum wage increases began, (1) employment and
earnings, and (2) the status of key industries.
---------------------------------------------------------------------------
\11\ 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. 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, Sec. 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).
---------------------------------------------------------------------------
In preparing our June 2011 report, we reviewed and analyzed
existing information from federal sources and from the American Samoa
and CNMI governments. To describe employment and earnings, we analyzed
earnings data from the Social Security Administration (SSA) for
American Samoa and tax data from the CNMI government, and we adjusted
the earnings data using Consumer Price Index (CPI) data for each area.
For both objectives, we analyzed responses from GAO's questionnaire of
large employers in the American Samoa tuna canning and CNMI tourism
industries, and we conducted discussion groups with employers and
workers and interviews with public officials during site visits to
American Samoa and the CNMI.\12\ A limitation of our study is that
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.
---------------------------------------------------------------------------
\12\ The scope of our study did not include workers in the
underground economy in each area, and we did not focus on the extent to
which relevant laws were properly enforced or implemented. See appendix
I of our report for a detailed explanation of the methods we used and
the scope and limitations of our work. See appendix V of the report for
the industry questionnaire.
---------------------------------------------------------------------------
We conducted work on our June 2011 report 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.
Summary
In American Samoa, employment declined 14 percent--from 17,852 to
15,434--between 2006 and 2009, and average inflation-adjusted earnings
of those employed fell by 11 percent over the same period. In addition,
roughly 2,000 to 3,000 temporary federal jobs will end when funding is
no longer available. Employers in the tuna canning industry attributed
most of their past and planned actions, including worker layoffs and
hiring freezes, to the minimum wage. Cannery officials also expressed
concern about American Samoa's loss of competitive advantage in the
global tuna canning industry. Workers principally expressed concern
over job security. Analysis of alternate models suggests that moving
tuna cannery operations from American Samoa to another tariff-free
country with lower labor costs would significantly reduce cannery
operating costs.
In the CNMI, employment fell 35 percent--from 43,036 to 27,897--
between 2006 and 2009, and average inflation-adjusted earnings of those
employed remained largely unchanged. Also, fewer than 1,000 temporary
federal jobs will end when funding is no longer available. Employers in
the tourism industry generally attributed their employment actions to
multiple factors, such as immigration law and a decrease in the number
of customers, more than to the rising minimum wage. Workers said they
would like pay increases to help meet rising prices, but they were
concerned about losing jobs and work hours. CNMI hotels have generally
absorbed minimum wage costs rather than raise room rates. If this trend
continues, scheduled minimum wage increases would increase hotels'
operating costs due to payroll from approximately 29 to roughly 34
percent of total operating costs between 2010 and 2016.
American Samoa
Employment and Average Inflation-Adjusted Earnings Declined Between
2006 and 2009
Employment. Social Security Administration (SSA) data show that
from 2006 to 2009, employment declined 14 percent from 17,852 to 15,434
with employment having peaked in 2008 at 19,171. From 2008 to 2009, the
total number of people employed in American Samoa declined 19 percent.
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.\13\ Data on total employment from the 2010 Decennial
Census 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.\14\
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\13\ 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.
\14\ If many foreign workers left American Samoa, the impact on the
unemployment rate would be smaller than if those workers remained.
---------------------------------------------------------------------------
Inflation-adjusted earnings of those employed. Earnings data from
SSA and consumer price data show that from 2006 to 2009, average
inflation-adjusted earnings of those employed 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. From 2008 to 2009, average
inflation-adjusted earnings fell by 5 percent, resulting from a
decrease in average earnings of 2 percent and an increase in prices of
3 percent. The inflation-adjusted earnings of minimum wage cannery
workers who retained their jobs and work hours rose by about 23 percent
for the entire period from 2006 to 2009 and about 8 percent from 2008
to 2009.
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 tuna canning workers expressed concern over job
security than favored a minimum wage increase with the potential for
subsequent layoffs.
The American Samoa Tuna Canning Industry Has Continued to Lay Off
Workers and Has Considered Alternate Locations
Employers in the tuna canning industry reported that they had taken
cost-cutting actions, 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.
Employers attributed most of their past and planned actions largely
to the minimum wage increases and did so more often than attributing
their actions to other factors, which included the high cost of goods
and utilities, transportation and shipping costs, and changes in
business taxes and fees.
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.\15\ 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 the 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. Figure 1 compares estimated wage and
tariff costs for tuna canneries using four alternative business models:
---------------------------------------------------------------------------
\15\ 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.
---------------------------------------------------------------------------
Model A: All loining and canning located in 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 \16\
---------------------------------------------------------------------------
\16\ The frozen fish carries a tariff of $11 per metric ton.
---------------------------------------------------------------------------
Model C: Relocating all loining and canning to 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
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, since October 2010 a new tuna
facility operator \17\ 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.
---------------------------------------------------------------------------
\17\ The new operator is Samoa Tuna Processors, Inc., part of Tri
Marine International, which acquired the former Chicken of the Sea tuna
cannery in American Samoa. The firm'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.
---------------------------------------------------------------------------
See appendix III of our June 2011 report for detailed findings and
tables on American Samoa.
Commonwealth of the Northern Mariana Islands
CNMI Employment Fell Substantially from 2006-2009, and Average
Inflation-Adjusted Earnings Have Remained Largely Unchanged
Employment. For the period from 2006 to 2009, the number employed
fell 35 percent from 43,036 to 27,897 according to CNMI government tax
data. The decrease largely reflected the closure of the CNMI's last
remaining garment factories, ending in 2009, which employed many
foreign workers.\18\ From 2008 to 2009, the total number of people
employed fell by about 13 percent. In addition, we estimated that fewer
than 1,000 temporary federal jobs funded beginning in June 2009 will
end when federal funding is no longer available.\19\ Because CNMI tax
data are not available for 2010, we are unable to report on the overall
level of employment for the year. In the tourism industry, employment
among GAO questionnaire respondents fell by 14 percent from 2007 to
2010 and fell 8 percent from 2009 to 2010.
---------------------------------------------------------------------------
\18\ If many foreign workers left the CNMI, the impact on the
unemployment rate would be smaller than if those workers remained.
\19\ Temporary federal jobs included those funded by the Recovery
Act and by the U.S. Census Bureau for the Decennial Census.
---------------------------------------------------------------------------
Inflation-adjusted earnings of those employed. Over the entire
period from 2006 to 2009, based on CNMI government tax data and
consumer price data, average inflation-adjusted earnings of those
employed remained largely unchanged. This resulted from a 19 percent
increase in average earnings and a 19.5 percent increase in prices.
From 2008 to 2009, average inflation-adjusted earnings rose by 3
percent. This resulted from a 7 percent increase in average earnings,
with a 3.5 percent increase in prices. The inflation-adjusted earnings
of minimum wage workers who retained their jobs and work hours rose by
about 25 percent for the entire period from 2006 to 2009, and by about
9 percent from 2008 to 2009.
Worker views. Workers in our 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.
As Visitor Arrivals Decline, Hotels Have Taken Cost-Cutting Actions and
Have Absorbed Minimum Wage Increases Rather than Raising Room
Rates
In response to the decline in visitor arrivals, hotel and other
employers in the CNMI tourism industry reported having taken cost-
cutting actions including reducing hours, freezing hiring, decreasing
benefits, and raising prices of goods or services, and these employers
reported plans to lay off workers. Employers generally stated that
other factors, including changes in immigration law and a decrease in
the number of customers, contributed to their actions more than the
rising minimum wage. 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.
CNMI hotels have generally absorbed minimum wage costs rather than
raise room rates. Industry data show that since 2006 the hotel
occupancy rate had not changed significantly, remaining 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). See
figure 2.
See appendix IV of our June 2011 report for detailed findings and
tables on the CNMI.
Agency Comments and Our Evaluation
We shared our June 2011 report with relevant federal agencies and
the governments of American Samoa and the CNMI. Agencies agreed with
our report or chose not to provide comments. In its written comments,
the American Samoa government generally agreed with our findings but
stated that employment losses and other aspects of economic decline in
American Samoa are greater than the report suggests. In its written
comments, the CNMI government said the draft report fairly
characterized current conditions in the CNMI. Appendix VII of our
report provides our detailed evaluation of the American Samoa
government's letter and our response, and appendix VIII of the report
provides our detailed evaluation of the CNMI government's letter and
our response.
Chairman Fleming, Ranking Member Sablan, and Members of the
Subcommittee, this completes my prepared statement. I would be happy to
respond to any questions you may have at this time.
GAO Contacts and Staff Acknowledgments
GAO Contacts
David Gootnick, (202) 512-3149 or [email protected] Tom McCool,
(202) 512-2642 or [email protected]
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;
Suneeti Shah Vakharia; and Vanessa Taylor made key contributions to
this report. Technical assistance was provided by Holly Dye.
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Washington, DC 20548
______
Dr. Fleming. Thank you, Mr. Gootnick.
Mr. Arenovski, I will now recognize you, sir, for five
minutes.
STATEMENT OF JAMES T. ARENOVSKI, PRESIDENT,
DELTA MANAGEMENT CORPORATION--SAIPAN
Mr. Arenovski. Thank you, Mr. Chairman, for inviting me to
testify today.
In 2007, the United States enacted Public Law 110-28, which
included a provision to incrementally bring the minimum wage in
the Northern Mariana Islands into line with Federal minimum
wage over the course of a 9-year period, with 50-cent-per-hour
increases each year until it matches the Federal minimum wage.
It is important to note this yearly increase is not rooted in
any methodology nor did it take into account any of what the
increases would do to the cost of doing business or cost of
goods in the NMI.
I believe that Congress had the best interests of the
people of the NMI when it required us to conform to the U.S.
Federal minimum wage, but Congress also failed to appreciate
some of the harm that this would cause businesses, economic
growth and ultimately employment, with no empirical data to
support the annual 50-cent increases. It is appropriate for
Congress to now revisit the issue and help workers and
businesses in the NMI so they can remain viable and have
sustainable employment for the foreseeable future.
Public Law 111-244, which delayed by 1 year the annual
increase scheduled for 2011, saved businesses and jobs. In
light of the current economic conditions in the Commonwealth,
which is likely to continue for the foreseeable future, I urge
Congress to adopt a similar delay for the increase scheduled in
2012, and, if not possible, then for 2013.
Even with its economic expansion in the late eighties and
1990s, increasing the minimum wage in the United States from
$3.10 to $7.25 took a full 29 years. But Congress charted a
path in the NMI with its well-documented challenges to complete
the same task in only 9 years.
Even if our local economy was booming this schedule would
be a hard one to keep without adverse economic effects.
In 2010 and 2011, GAO reports on employment and earnings in
the Northern Marianas and Samoa accurately point out that the
increased minimum wage is just one of many financial pressures
being brought to bear upon our businesses, but it represents a
financial pressure that Congress has the means to control.
With the shrinking economy in the NMI, we are at a time
where businesses simply do not have enough revenue to increase
salaries and maintain our current operations. In simple terms,
the intent of increased wages for employees is laudable, but if
these yearly increases as they stand now mean the loss of
overall employment, we have to find middle ground.
It is difficult for me to tell my 45 employees that I am
not supportive of these annual increases according to the
current schedule, but I know that more increases will leave
these dedicated employees with fewer hours and others out of
work.
Prices and goods that come in by ship and by air are high
to begin with, but beyond shipping, the cost of running a
business in the NMI is uniquely high. Our utility rates are the
highest in the Nation. Many businesses in our community do not
turn on their lights or air conditioning during operations.
These are actions that in the mainland would run you out of
business, but in our island such actions are becoming more of a
necessity to remain in business.
If you consider that many companies cannot afford to
adequately air condition or light their business, it is not a
stretch to imagine that further wage increases are going to be
the end for some and reduced operations for the others.
Our economy is also severely strained due to global
economic crises, the earthquake in Japan, as well as local
government issues. Tourism, our main economic driver, is in a
downward spiral. Fewer visitors mean less revenues for hotels
and for those businesses who supply and support the hotels.
These effects ripple through our business community and
ultimately affect the workforce needs of our private sector.
Often when a business struggles or fails, it is due to bad
decisions, poor management or the inability to adapt to markets
or competition. But in the case of the Northern Mariana
Islands, almost all businesses are affected significantly and
negatively by somewhat unique forces beyond our control.
Similarly, these minimum wage increases are out of our control,
but they are not out of Congress' control.
Helping the Northern Mariana Islands to survive its current
economic depression and bring us into line with the Federal
minimum wage in a rational manner is in the hands of Congress.
The goal of increasing worker pay is commendable, but please do
not allow this to come about at the ultimate expense of
workers, businesses and our economy.
I respectfully request that this Subcommittee advocate
delay and you continue to monitor the situation in the Northern
Mariana Islands. This is an issue of critical importance to the
employees and employers alike. What is of utmost importance is
not simply that the minimum wage is implemented, but rather
that it is implemented in the right way, with long-term
sustainable economic growth in mind.
Thank you for your consideration.
[The prepared statement of Mr. Arenovski follows:]
Statement of James T. Arenovski, President,
Delta Management Corporation--Saipan
My name is James T. Arenovski and I am a businessman who has been
running a number of businesses in the Northern Mariana Islands since
1999. I have lived in Micronesia since 1987. My companies in the
Northern Marianas employ approximately 45 individuals ranging in age
from high school students to those nearing retirement age. I have a
company that operates gasoline service stations, a company that
provides workplace training to employers and employees, and a company
that operates a small restaurant. I have been an active member of the
Saipan Chamber of Commerce since 2000, and have served in a variety of
capacities at the Chamber including as president in 2008 and 2009.
Thank you for inviting me to testify today via teleconference on the
status of minimum wage increases in the NMI.
In 2007 the United States enacted Public Law 110-28, which included
a provision to incrementally bring the minimum wage in the Northern
Marianas into line with the federal minimum wage over the course of a
nine-year period. The plan was to increase the minimum wage by fifty
cents per hour each year until it matches the federal minimum wage.
This yearly increase was not rooted in any methodology nor did it take
into account what the increases would do to the costs of doing business
and the costs of goods in the NMI. No study was undertaken prior to the
implementation of this law, something that I warned about in my
previous written testimony as President of the Saipan Chamber of
Commerce. And now the concerns we had about this annual minimum wage
increase have become reality.
I believe that Congress had the best interests of the people of the
NMI in mind when it required us to conform to the U.S. federal minimum
wage, but Congress also failed to appreciate some of the harm that this
would cause to businesses, economic growth, and ultimately, employment.
With no empirical data to support the annual fifty-cent increases, it
is appropriate for Congress to now revisit the issue and help the
workers and businesses of the NMI so they can remain viable and have
sustained employment for the foreseeable future. Public Law 111-244,
which delayed by one year the annual increase scheduled for 2011 saved
businesses and saved jobs. In light of the current economic condition
of the Commonwealth, which is likely to continue for the foreseeable
future, I urge Congress to adopt a similar delay for the increase
scheduled for 2012, or if that is not possible, then for 2013.
Even with the U.S. economic expansion of the late 1980's and
1990's, increasing the minimum wage in the United States from $3.10 to
$7.25 took a full 29 years. But Congress charted a path for the NMI,
with its well documented challenges, including the loss of the apparel
industry, the desertion of Japan Airlines and Continental Airlines, and
the federal takeover of immigration, to complete the same task in only
nine years. Even if our local economy was booming, this schedule would
be a hard one to keep without adverse economic effects. If there was an
action that Congress could take that would cost no money to implement
and would do much good for the NMI economy, it would be to implement
another delay as soon as possible.
The 2010 and 2011 GAO reports on employment and earnings in the
Northern Mariana Islands and Samoa highlighted the financial challenges
that these increases represent for employers during troubled economic
times. In fact, the 2011 report reflected a growing concern among
workers that increased wages not come at the expense of jobs or work
hours. And as bleak a picture as those reports painted, the underlying
studies focused mostly on larger businesses in the NMI. I feel if more
time was spent on examining the effects on small businesses, the GAO
would have found the impact was much greater. The reports accurately
point out that the increasing minimum wage is just one of many
financial pressures being brought to bear on businesses. But it
represents a financial pressure that Congress has the means to control,
unlike, for example, rising fuel prices, or rising shipping costs.
This testimony will not be popular with most employees in the NMI
and I, as well as most of my colleagues, want the very best for our
staff, to ensure they are motivated and dedicated to our companies'
missions. However, with a shrinking economy and shrinking population
base in the NMI, we are at a time where businesses simply do not have
enough revenue to increase salaries and maintain our operations, let
alone consider any sort of expansions or upgrades. We are at a point
where hard decisions have to be made and most of the options include
the loss of jobs. Whether through business closure or reduction of
services, it means less available employment. In simple terms, the
intent of increased wages for employees is laudable, but if lockstep
increases mean the loss of overall employment and eventual loss of tax
base for our already struggling government, we have to find middle
ground.
It is difficult for me to tell my 45 employees on Saipan that I am
not supportive of these annual increases according to the current
schedule. But I know that more increases will force me to reduce hours
and staffing, leaving some employees out of work, or with fewer hours.
It simply makes no sense to have an increase in minimum wage that
contributes to such a negative effect on overall employment. There is a
saying that 50 percent of something is better than 100 percent of
nothing. My staff understand that some wage is better than no wage.
They also know that I have been in business on Saipan for 13 years and
that I want to be in business on Saipan for least another 13 years.
Many businesses are reluctantly preparing for the wage increase in
2012. But the fact remains that population, sales, revenues, and
profits have all decreased and continue to fall. Business have battled
the local government to not raise costs such as license fees and taxes,
but those costs pale in comparison to the cost of doing business that
another wage increase will bring. For example, a small restaurant
business with four kitchen staff and four waitresses would see an
immediate cost increase to the company of $700 per month or $8,300 per
year. For a small restaurant to earn an additional $700 each month to
pay for the wage increases, it would need to increase monthly sales by
approximately $3000. Consider a hotel with 100 employees and the
numbers become staggering.
Extrinsic economic forces weigh greatly on our small island
community. With thousands of miles of ocean in all directions, the
prices of goods that come in by ship or air are high to begin with, but
beyond shipping, the costs of running a business in the NMI are
uniquely high. Our utility rates are the highest in the nation. Many
businesses in our community do not turn on their lights or air
conditioning. Some even unplug their chillers at night. These are
actions that in the mainland would run you out of business, but in our
islands such actions are becoming more of a necessity to remain in
business. If you consider that many companies cannot afford to
adequately air condition or light their business, it is not a stretch
to imagine that further wage increases are going to be the death knell
for some and result in reduced operations for others. Some of you may
think it is time for businesses in the NMI to cut expenses and hunker
down. Businesses in the NMI have made those cuts over the last five
years and there is frankly no further cutting that can be done to
eliminate the downward economic effects of another wage increase.
Our economy is also severely strained due the global economic
crisis, the earthquake and tsunami in Japan, as well as local
governmental issues. Tourism, our main economic driver, is in a
downward spiral. Fewer visitors means less revenues for the hotels, and
all those businesses that supply or support the hotels. These effects
ripple throughout the business community and ultimately affect the
workforce needs of the private sector. In fiscal year 2010, visitor
arrivals to the NMI totaled only 386,186, just a little more than half
of total visitor arrivals during the industry's peak in 1996. From FY
2006 to 2010, hotel revenues each year dropped at an average of $2.9
million and the NMI lost approximately $10.5 million annually in direct
on-island expenditures. With a multiplier of 1.5, our business
community lost $33.4 million in economic activity and $2-million in
taxes annually. Additionally, it is estimated that 171 public and 191
private sector jobs were displaced annually.
Often, when a business struggles or fails, it is due to bad
decisions or poor management or an inability to adapt to markets and
competition, but in the case of the Northern Marianas, most all
businesses are affected significantly and negatively by somewhat unique
forces beyond our control: our geographical isolation, our declining
population, our unique immigration history, and the like. These minimum
wage increases are also out of our control, but they are not out of
Congress's control.
I recently saw a MSNBC interview with Chairman Fleming recently
regarding the taxes and the costs of doing business and the need to
have money left at the end of the day to reinvest in your business in
order to continue to continue to provide, and to create, jobs. So I
know this subcommittee is led by someone who fully appreciates the
real-world impact that increased costs have on businesses. And I am
sure the Chairman is not the only one on this committee who understands
the financial challenges of running a business facing an increase in
costs when revenues are flat. When the NMI was granted a one year delay
of the fifty cent increase in 2011, it was desperately needed by
businesses and I believe it worked to the benefit of retail consumers.
And perhaps most importantly for your consideration, it benefitted the
overall workforce in the Northern Marianas--the employees who otherwise
would have faced reduced work hours or job loss.
Conditions reflected in the 2010 and 2011 GAO reports amply
justified the delay in the 2011 wage increase. Current conditions are
at least as poor, and probably worse, than when GAO undertook the
previous two studies. When the 2012 minimum wage increase is
implemented, some people will see their wages go up. Likely, however,
even more people will see their work hours decline or they will lose
their jobs. There is plenty of justification and time, however, to
implement another one-year delay as soon as possible. Of course, if
there was a sudden and dramatic economic upturn in the next year, I
would happily revisit my analysis. I want to be able to pay my
employees more--but I cannot afford to do so when it means that I would
jeopardize the overall financial health of the company. I assure you,
however, that there is no best-case scenario that would be substantial
enough for companies to recover in any meaningful way before the next
scheduled increase. A delay of the upcoming increase would mitigate the
negative effects of wage increases originally scheduled to be
implemented at a historic pace, without consideration of our failing
economy, and without consideration of the negative collateral impact on
many workers.
More jobs should be the immediate goal in the Northern Marianas.
Not only is the NMI wrestling with impact of minimum wage legislation,
but also immigration reform which is directly related to labor and
costs. The Consolidated Natural Resources Act of 2008 mandates a
decreasing dependence of foreign labor. A delay in the ongoing
increases would allow businesses to invest money in the hiring and
training of United States workers in order to comply with that law.
Helping the Northern Mariana Islands to survive its current
economic depression, replace our foreign workforce with United States
workers, and to bring our minimum wage into line with the federal
minimum wage in a rational manner is the hands of Congress. The goal of
increasing worker pay is laudable, but please do not allow it to come
about at the ultimate expense of workers, businesses and our economy. I
respectfully request that this subcommittee advocate a delay as I have
outlined above and that you continue to monitor the situation in the
Northern Marianas. This is an issue of critical importance to employees
and employers alike. What is of utmost importance is not simply that
minimum wage are implemented but rather that they are implemented in
the right way.
Thank you for your consideration.
______
Dr. Fleming. Thank you, Mr. Arenovski. That completes the
testimony of our witnesses.
At this point we will begin Member questions of the
witnesses. To allow all Members to participate and to ensure we
can hear from all our witnesses today, Members are limited to
five minutes for their questions. However, if Members have
additional questions, we can have more than one round of
questioning. I now recognize myself for five minutes.
Specifically Governor Tulafono and Mr. Arenovski,
statistical data is fairly clear with respect to minimum wage
increases also effectively raising unemployment rates. We have
seen this every time we study this. It seems when we get a bump
in the minimum wage, we get also a bump in unemployment among
young people, which then comes down over time as the economy
expands, inflation and so forth. So there seems to be a very
direct correlation in general when we look at statistics
between raising the minimum wage and employment levels.
These two Territories are showing the accuracy of the
statistical data. Many rural areas of the country, including
areas in Louisiana, are also feeling the effects of minimum
wage laws. As the Department of Labor noted in its report, the
general experience in the U.S. has shown that potential adverse
employment effects due to minimum wage increases can be masked
or offset to some degree by an expanding economy that is
generating net employment growth. For areas that are in
economic decline, no such offsets can be expected.
Now, it is interesting. Particularly American Samoa appears
to me to be a microcosm of this debate about minimum wage which
has gone on in Congress for many years. In a complex economy, a
large economy like the United States, so many factors play into
the consideration of employment that it sometimes becomes very
difficult to tease that out. In American Samoa, it is a much
more straightforward situation. It is obvious that raising the
minimum wage rates has a direct impact on employment there and
on commerce in general.
Here is the point I would make: It is true that there are
those who would say, well, you can't raise a family on minimum
wage, and that is probably true in most cases. However, we know
that minimum wage is an entry level for employees and that over
time, as people who are in management positions move on, as
other opportunities come along, they get promotions, they
become a supervisor, they move up to management or whatever. So
it certainly is the beginning of moving up that commercial
ladder toward higher and higher wages which one can then feed a
family. And in most cases people who get a minimum wage job,
often it is their first job and they are young people, probably
still living at home.
Now, on the other hand, if minimum wage is raised so high
as to close down a business or an entire industry, as we are
seeing possibly here, those growth opportunities go away. You
might say, well, we should force that anyway. Well, we need to
recognize that today we have a worldwide economy. It is steady
state. Whatever happens in one country affects the other in
terms of competition and commerce. So it seems to me that we
can't just artificially force in a specific economy a certain
pay rate without it really having in many cases devastating
effects, as what we are seeing here.
We will always begin to see types of industries, companies,
moving to areas in the world where they can keep their labor
costs low, where they have a strong workforce, where they can
use mechanization, transport, distribution, and all those other
things. So these are things to consider going forward.
I may be able to squeeze in one question here in my time
allotted. Does the panel agree that minimum wage increases do
not work in declining economies and that it doesn't just apply
to the Territories?
I will open that question up to everyone on the panel.
Governor Tulafono. Mr. Chairman, I believe you have
described exactly what has happened in American Samoa. It is
ironic that even if you look at our Nation, most of the
companies that moved to other countries do not move there
because of the high cost of doing business. It is basically
because they can capitalize on lower wage rates. The United
States is among those of the lowest cost of doing business,
except for wages, and I believe we are seeing that in our
country. If you look at our recent census and the out-migration
we have detected because of the losses of jobs, it is very
substantial and it is very concerning to us, and most of those
are young people.
I have just returned from New Caledonia, where the minimum
wage there is the equivalent of about $11 United States. I can
tell you that within 500 yards of each other, you see $1
million mansions and then you see shacks right next door to
them, because that part of the population just could not get
jobs because there are no jobs. This is why we are so very
concerned with this issue.
Dr. Fleming. Yes. Thank you. Anyone else that would like to
comment on this issue?
Mr. Babauta. I think I just would like to say that I agree
with the Governor that you aptly and correctly described the
situation in both American Samoa and the CNMI with respect to
their economies. I don't know that they are the only factor,
the minimum wage increase is the only factor in the troubled
economy. There are other factors that affect these areas where
policy needs to change, transportation, cost of fuel, the
resulting cost of goods. All of these are higher in all the
Territories, which have a very constraining effect on your
purchasing power as a consumer or on families and also just the
development of the economy itself. Their location as well is a
factor, where it is difficult to bring in new capital.
As you pointed out, Mr. Chairman, this is an issue between
a rising minimum wage and increasing high employment or
decreasing unemployment, and it is something that has been
debated by Congress for years. But there are other factors to
be considered within the scope of this issue.
Dr. Fleming. Mr. Gootnick?
Mr. Gootnick. Well, I think the 2008 Department of Labor
report on this subject made your very point as well, agreeing
with you that in a shrinking economy, a rising minimum wage
will tend to result in job loss; that in a growing economy
there may be other options, including reducing profits, passing
on costs, increasing productivity and the like.
It may be germane in this discussion that in American Samoa
there is a considerable wage compression, in both jurisdictions
there is a wage compression, more pronounced in American Samoa,
such that the next minimum wage increase will affect
approximately 70 percent of the cannery workers, and by the
time the minimum wage hike merges with the Federal minimum
wage, 99 percent of the cannery workers will receive a minimum
wage increase. So considerable wage compression. Similarly, in
the CNMI 95 percent will be affected by the minimum wage by the
time it reaches $7.25.
Dr. Fleming. Well, I am over my time. Again, I think that
this is instructive to what our situation is here. You are
quite right, there are many other factors. But as we isolate
and understand factors, I think we can, going forward, make
better decisions about an economy which as you know today we
are in a worldwide recession, and I think these are important
lessons for us in policy that comes out of Washington.
I now recognize the Ranking Member for questions. You have
five minutes, sir.
Mr. Sablan. Thank you very much, Mr. Chairman, and good
morning everyone. Actually, good evening, Jim.
Let me start with Mr. Arenovski. I thank you again for
agreeing to serve as a witness, especially since you have to
stay up so late. But you described in your statement,
accurately I might say, our conditions facing our economy and
businesses in the CNMI. And I appreciate your continued support
for your employees. I am also very pleased with the service
they provide to me when I stop by in one of your places, as
well as your willingness to continue to do what you can to
remain and conduct business in the Commonwealth. We would like
for you to stay for another 13 years, like you said.
But that being said, what is your opinion of GAO's
conclusion that it is difficult to distinguish between the
effects of the Federal minimum wage increases in the Northern
Marianas and the effects of other factors, including the global
recession that began in 2009, the high energy prices,
globalization, and obviously the one that is hitting us today,
the Federalization of immigration?
Mr. Arenovski. Thank you, Congressman. I think the simple
answer is what can we control. We cannot control many of the
factors that you mentioned, but we can control the minimum
wage. We can study more, we can delay, we can adjust. There is
no methodology that says that in 9 years that 50 cents a year
is the answer.
Mr. Sablan. I don't disagree with you, Jim, which is why we
have the adjustment that we are doing in 2010 and 2011.
Congress is cognizant of the situation in the Marianas. But let
me get one thing very clear here. What we are saying here then
is that because we can't control the shipping costs, we can't
control utilities, we can't control global recession, we can't
control that our government in the Northern Mariana Islands
refuses to deal with the tourism slump so the only thing we can
control is wages for our employees.
Again, I am very happy with the services you have. You have
excellent employees, Jim. So we will tag them with the problem,
because it is the only thing we have to control. That is not
what you are saying, are you?
Mr. Arenovski. Certainly not. Would you like me to
elaborate?
Mr. Sablan. Yes, sir, please.
Mr. Arenovski. I think it is important to understand that
right now if we had employees, say household employees that had
four wage earners in the house, and we continue on at this pace
of increase, what happens is that over time, maybe those four
people make the first cut of 50 cents. But the next time they
have a 50-cent increase, what happens is one of those household
earners loses their job completely. Let's say it is $5.05 an
hour. Four people at $5.05 an hour is going to be roughly
$40,000. When we lose that one job, that household maybe by
increasing the minimum wage will get up to $43,000, $45,000.
But when that person loses their job, they lose $7,000 worth of
income to that family. Even though we have a minimum wage
increase, what happens, the net effect to that family is a loss
of $7,000.
So the fact we are talking about increasing the minimum
wage may in turn hurt the actual family unit here in the
Northern Mariana Islands. And I guess we should say we do have
multi-generational families living in one household.
Mr. Sablan. Jim, because I am limited in my time, but I
will talk to you about this some more.
Mr. Secretary, thank you for taking the time, sir, also. We
know that the full Federal minimum wage applies in Guam and the
U.S. Virgin Islands and has for many years, whereas it did not
apply in the Northern Mariana Islands and American Samoa before
2007. But what is it about the economies of Guam as compared to
the economy of the Northern Mariana Islands that in your
opinion permitted the full application of the U.S. minimum
wage?
Mr. Babauta. Well, the application of the minimum wage for
Guam was always there when the first minimum wage was applied
in the United States. Guam has never had an exemption. It is a
different scenario for the U.S. Virgin Islands and Puerto Rico,
which the full minimum wage was extended in the 1990s.
For Guam's economy, as you know, it is more complex, I
guess, than the CNMI. They have more legs to stand on; two very
strong legs as a matter of fact, tourism and probably a multi-
billion dollar defense infrastructure that brings jobs and
other Federal funding to the Territory.
For the Virgin Islands, we know from statistics that have
been collected from the past years from BEA, they have a very
strong export industry with rum, which helps to support jobs
and keeps wages high. And it could have been for some of those
reasons that the Congress in the 1990s decided to just fully
extend the minimum wage at that time to the Virgin Islands and
to Puerto Rico.
Mr. Sablan. Thank you.
Mr. Chairman, I agree with the Governor. Five minutes is
very precious. So I yield my time and hope for a second round.
Dr. Fleming. Thank you, Mr. Sablan.
I now recognize Dr. Harris, the gentleman from Maryland,
for five minutes.
Dr. Harris. Thank you very much, Mr. Chairman, and thank
you for holding the hearing, because it is troubling that in an
attempt to fix things, once again the American government kind
of got it wrong, and in an attempt to do well what we ended up
doing is it seems to be destroying jobs.
Mr. Assistant Secretary, let me ask you a question, and I
am sorry I did not hear your verbal testimony. But your written
testimony says that ``The Administration would not be opposed
to reinstituting the industry committee process in American
Samoa and extending it to the CNMI.''
Is that the same thing as saying it supports it? It is an
important question, because if we choose it go that route, it
would be nice to know that the Administration was a partner in
going back to a formula that seemed to work and abandoning the
formula that seemed to be destroying jobs. It just seems
carefully worded. It says the Administration would not oppose.
Is that the same as support, or is there a subtle difference
there?
Mr. Babauta. There was no intended subtle difference.
Dr. Harris. So you believe the Administration would, in
fact, support if we decided to go back to the industry
committee process?
Mr. Babauta. Correct.
Dr. Harris. Do you know if the Chairman of the Council of
Economic Advisers agrees? Because he was written works that
insists that the minimum wage does not destroy jobs. Now I come
from the State of Maryland. We have inner cities where I am
convinced that minimum wage does destroy jobs in fragile
economic situations. But the new Chairman of the Council of
Economic Advisers apparently disagrees with that.
So are you certain that given the feelings of the new
Chairman of the Council of Economic Advisers the President
appointed that you would support abandoning the minimum wage?
Mr. Babauta. I think when we are speaking about the
economies of American Samoa and the CNMI and trying to be
mindful and prudent of where they are in their development and
the wages that they currently have and their prospects for
future expanding their economy, I think that we would agree
that it is a prudent thing to institute a special industry
committee.
Dr. Harris. Great, thank you. I am glad to hear that.
Governor, thank you for being here today. In your written
testimony it does state as part of the response to the increase
in unemployment, you actually had to increase the payroll tax,
is that right, on the workers who still had jobs? Is that one
of the means you had for funding the shortfall?
Governor Tulafono. Yes. It is a short-term increase to make
up some of the deficiency that was lost because of the loss of
wage taxes from the closure of the cannery and the loss of the
other sectors.
Dr. Harris. One of the results was that in fact the people
that got those minimum wage increases actually had to turn
around and pay some of it back in increased taxes because they
were fortunate to still have a job.
Governor Tulafono. True.
Dr. Harris. So in essence what you end up with, your belief
I guess is that what we did was we put some people out of work
and really didn't have the intended effect on the people who
remained in work because we ended up having to tax them more to
pay for the needs of the citizens who now don't have jobs.
Governor Tulafono. Essentially that is what it was.
Dr. Harris. That is what I thought.
Thank you again very much for everyone here. I apologize I
have to leave, because I am going to chair a Committee meeting
in about 6 minutes. But I thank you very much for bringing this
to our attention and coming to testify.
Thank you, Mr. Chairman. I yield back the balance of my
time.
Dr. Fleming. I thank the gentleman for his questions.
I now recognize Mr. Faleomavaega.
Mr. Faleomavaega. Thank you, Mr. Chairman. For the sake of
time, I would like to ask unanimous consent that the full text
of my statement be made part of the record.
Dr. Fleming. Without objection, so ordered.
[The prepared statement of Mr. Faleomavaega follows:]
Statement of The Honorable Eni F.H. Faleomavaega,
a Delegate in Congress from American Samoa
Mr. Chairman, Ranking Member:
The history of minimum wage in American Samoa is not pretty. It is
a complex matter that is deserving of this hearing, and I thank you for
honoring my request to hold a hearing on the GAO's 2011 report entitled
`Employment, Earnings, and Status of Key Industries Since Minimum Wage
Increases Began in American Samoa and the Commonwealth of the Northern
Mariana Islands'' and for inviting the Governors of both territories to
testify.
For more than 50-years, American Samoa's private sector economy had
been nearly 80% dependent, either directly or indirectly, on two of the
three major brands--StarKist and Chicken of the Sea--which until
recently employed more than 74 percent of our private sector workforce.
On September 30, 2009, one day after American Samoa was struck by a
powerful earthquake which set off a tsunami that left untold damage and
loss from which the Territory has not recovered, Chicken of the Sea
closed down its operations in American Samoa, leaving more than 2,000
workers without jobs.
Chicken of the Sea left without the courtesy of discussing its
departure either with myself or the Governor of American Samoa,
although Samoan workers made Chicken of the Sea one of the most
profitable brands of canned tuna in the U.S. Chicken of the Sea left
for Lyons, Georgia where it now employs a skeletal crew of about 200
workers. Chicken of the Sea pays its workers in Lyons, Georgia some
$7.25 per hour, almost twice as much per hour as it ever paid Samoan
workers.
Why does this matter? It matters because from 1954 forward, when
Chicken of the Sea's then parent company, Van Camp, first arrived on
American Samoa's shores, the company set about to suppress the wages of
Samoan workers by demeaning their worth and work. In 1956, the company
testified before the U.S. Senate Committee on Labor and Public Welfare,
urging consideration of legislation for the exemption of American Samoa
from the wage and hour provisions of the Fair Labor Standards Act of
1938.
Commenting on his company's desire to pay Samoan workers 27 cents
per hour as opposed to the prevailing minimum wage rate of the time at
$1 per hour, Chicken of the Sea's then parent company said:
``The Samoans are Polynesians. They are not American
citizens.''
About the women of American Samoa, the company said:
``[We] now employ 300 Samoans, mostly women. . .. [W]ages range
from 27 cents per hour for the women who clean the fish to $1
per hour for 1 employee, who is a technician. . .. The
difference in labor costs is attributed to the lower production
output in Pago Pago, where we have found that it takes from 3
to 5 Samoans to produce what 1 stateside employee can
produce.''
Mr. Collins, legal counsel for Van Camp, put it this way:
``The company has found that it takes from 3 to 5 Samoan
workers to perform what 1 continental worker in the United
States will do. It is therefore felt that this justifies a
lower rate for Samoans.''
Forgive me for pausing here but what company, in good conscience,
would suppress wages in a U.S. Territory on the claim that the more
than 300 Samoan women cleaning fish in American Samoa for 27 cents an
hour were somehow inferior to the stateside employees being paid $1 per
hour?
While some in American Samoa may not think this history matters, it
does, especially when 55 years later, Chicken of the Sea shut its doors
in American Samoa and immediately paid stateside workers in Lyons,
Georgia twice as much as they were currently paying our women and men
in American Samoa. Different year, same Chicken of the Sea.
This is the kind of prejudice and racism and gender inequality that
workers in American Samoa have been dealing with for 55 years. And over
the years, local government leaders were always being pressured not to
increase the wages of cannery workers, or else the companies would
leave the territory. This is why when there were occasional wage
increases they were as small as 2 cents or 3 cents per hour, even
though since 1938 the Fair Labor Standards Act (FLSA) has applied to
American Samoa.
After enactment of the FSLA, Industry Committees were established
for American Samoa and other U.S. Territories for purposes of phasing
low-wage industries in to the minimum statutory wage because the U.S.
Congress believed that application of mainland minimum wage rates to
territorial island industries would ``cause serious dislocation in some
insular industries and curtail employment opportunities.''
While Industry Committees were phased out in other U.S. Territories
which eventually paid their workers in accordance with mainland wages,
from 1956-2006 minimum wage rates in American Samoa continued to be
determined by Special Industry Committees, and ASG is on record voting
to accept whatever the management and lawyers for these canneries felt
wages for our cannery workers and other low-wage earners should be.
I am on record as voting to increase the wages of our lowest-paid
workers because I believe that a Samoan is entitled to the same pay
from the same corporation if he/she does the same work as any other man
or woman born in any other part of America. Senator Borah of Idaho said
it best in the heat of the 1937 Fair Labor Standards debate. He said it
was his view that ``whether North or South, East or West, there [is] a
standard of American living, and we ought to recognize that and fix a
minimum wage upon that basis.''
Regrettably, ASG is on record, at least with the United Nations, in
suggesting that the U.S. federal government over-stepped by increasing
minimum wage in American Samoa. This is not the case. American Samoa
was exempted from mainstream increases for a period of about 50 years.
But when minimum wage was raised all across America in 2006, Congress
determined that it was time to raise minimum wage in American Samoa and
CNMI which were the only two remaining U.S. Territories which were not
up to federal minimum wage standards.
For American Samoa, I supported a one-time increase of $0.50 cents
per hour because our lowest paid workers were barely making above $3.00
per hour at the time. But because our cost of living is as high or
higher than the mainland, minimum wage was increased by $0.50 cents per
hour for a period of three years until the U.S. Congress, at my
request, stopped further increases until additional study could be
undertaken, given that there were never any comprehensive reports
issued regarding the overall economy of the territory. I ask that a
summary of my work on this issue be included for the record (see
attachments).
Regarding minimum wage's impact on the tuna industry in American
Samoa, I would refer the Subcommittee to a 2010 report issued by the
U.S. Government Accountability Office (GAO) which clearly showed that
before minimum wage ever went into effect, tuna canneries operating in
American Samoa were already operating at about a $7.5 million loss per
year when compared to canneries, like Bumble Bee.
This is because Bumble Bee adopted a business model of outsourcing
tuna preparation to cheap foreign labor and then bringing the almost
finished product into small U.S. operations for final packaging.
Chicken of the Sea followed suit by outsourcing Samoan jobs to Thailand
where workers are paid about $0.75 cents per hour. StarKist, which is
the only remaining cannery that cleans whole fish in America, can no
longer effectively compete against canneries like Bumble Bee and
Chicken of the Sea which outsource American jobs.
On another point, when the South Pacific Tuna Treaty was first
negotiated in 1987 it was negotiated for purposes of providing U.S.
foreign assistance to the Pacific Island Parties while also providing a
tangible benefit to the U.S. By the time the Treaty was renewed in 2002
until now, the U.S. provided the Pacific Island Parties about $18
million annually in exchange for our U.S. tuna boats to fish in the
Treaty area. The U.S. tuna boats also paid a collective, not
individual, fixed rate of about $3 million per year, and above that
amount depending on the amount of fish caught and the value of it.
When the Treaty first went into effect, all three major brands of
canned tuna in the U.S., including StarKist, Chicken of the Sea and
Bumble Bee, purchased their tuna from U.S. tuna boats authorized to
fish in the Treaty Area. These boats were 100% U.S. owned and the
majority of U.S. boats also off-loaded their fish in American Samoa,
i.e. a U.S. port. The fish was then cleaned in the U.S., including
American Samoa which was home to the largest cannery in the world
because of our close proximity to the fishing grounds.
Today, however, the majority of tuna boats (which are now 51% U.S.-
49% Taiwan owned, like those of the South Pacific Tuna Corporation that
includes investors from Bumble Bee and Chicken of the Sea) trans-ship
the fish they catch in the Treaty Area to Thailand. Thailand then buys
the tuna that comes out of the South Pacific Tuna Treaty Area and puts
our workers out of jobs because Thailand's fish cleaners directly
compete against workers in the U.S. who are paid in accordance with
federal minimum wage laws.
So contrary to critics' assertions, the primary factor for the
collapse of American Samoa's economy is not our wage rates but the wage
rates of foreign countries as well as the shift in the way Bumble Bee
and Chicken of the Sea and new tuna boats are doing business. Other
factors that also impacted our tuna industry include higher fish costs,
higher shipping costs, higher fuel costs, better local tax incentives
offered by Lyons, Georgia and Thailand, and the global economic
recession.
It should also be noted that a new cannery, Tri-Marine, one of the
world's largest fish trading companies, chose to invest in our
Territory knowing that American Samoa's wage rates have been increased
by $1.50 per hour which undercuts ASG's argument that minimum wage
increases have collapsed our tuna industry or led to ASG's fiscal
failure.
In its 2011 report, the GAO openly admits that `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.' The
GAO also reiterated that `American Samoa had lower income and higher
poverty rates than the mainland US'' and found that the ``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 increases in prices.'
ASG remained largely unaffected by minimum wage increases because
most of its employees earned more than $1.50 above the local minimum
wage set for government workers in 2007, as the GAO stated.
American Samoa's Current Economic Status
As for the current economic status of the American Samoa Government
(ASG), the GAO reported that `local government spending exceeded
revenues each year from 2005 to 2009.' The GAO also showed that more
than $240.8 million has been made available for ASG by the U.S.
Congress through the American Recovery and Reinvestment Act and that
only $61.6 million had been disbursed at the time of the report.
The GAO also noted that American Samoa has been designated as a
`high-risk'grantee by the U.S. Department of the Interior as
recommended by the Department's Inspector General and GAO. The GAO
further noted that `the office will remove this high-risk designation
once the American Samoa Government demonstrates its compliance with
certain fiscal and internal accounting requirements.'
In private discussion groups, the GAO said `private sector
employees said they were concerned about the fiscal status of the local
government and the possibility of harmful tax increases.' Private
sector employees also `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 increased 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.'
Clearly, the issues facing American Samoa's economy are complex and
neither minimum wage nor the U.S. federal government is the driving
cause of ASG's trouble. More importantly, the U.S. is doing its part to
help American Samoa, and the amount of federal funding and technical
assistance to the Territory from the U.S. underscores this point. In
fact, American Samoa continues to be the only State government that
continues to receive funding from the U.S. Treasury for the operations
of its local government.
Conclusion
Nevertheless, I have pledged to do everything I can to halt further
minimum wage increases in order to provide ASG with the time it needs
to put an action plan in place. I remain hopeful that ASG will base its
plans on the recommendations of the American Samoa Economic Advisory
Commission which released its report since 2002, well before the tuna
industry was under the threat it is today and long before minimum wage
hikes took place in the Territory.
To be clear, in 1999, former U.S. Secretary of the Interior Bruce
Babbitt approved my request for $600,000 to establish the American
Samoa Economic Development Study Commission. This was the first time
during our Territory's 106-year relationship with the U.S. that a
Commission of this nature was established. John Waihee, former Governor
of Hawaii, served as the Commission's Chair and the U.S. Department of
the Interior was the federal agency responsible for the Commission's
oversight.
What made this Commission unique is that its findings were not
based on the views of outsiders but rather the research emanated from
local input. ASG and community leaders participated in this undertaking
and the American Samoa Community College surveyed the public to
identify the attitudes, aspirations and long-range goals of our
community. Lieutenant Governor Togiola, at the time, served as a
Commission member and I served as an ex-officio member.
This historic study took two years to complete and, in FY 2000, the
Commission submitted its report to the Secretary of the Interior and to
the responsible Committees in Congress including the House Resources
Committee and the Senate Committee on Energy and Natural Resources.
Congress still awaits ASG's recommendations.
No doubt it has been difficult for ASG to diversify its economy due
to American Samoa's remote location, limited land, and infrequent air
and shipping services. Coupled with Chicken of the Sea's closure and
StarKist layoffs, American Samoa also has not been able to absorb the
rapid minimum wage increases mandated by federal law.
As noted earlier, we are aware that American Samoa cannot
indefinitely compete against companies like Bumble Bee and Chicken of
the Sea which outsource American jobs and exploit cheap labor in
foreign countries to clean and cook their fish. In fact, the GAO notes
that American Samoa's competitive advantage is `dwindling' because
`current operations in American Samoa were not competitive with other
models. Analysis of alternate models available to the industry suggests
that moving tuna canning 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, American Samoa does have an advantage when it comes to
U.S. government contracts which require tuna to be processed in the
U.S. Because StarKist cooks and cleans the bulks of its fish in the
U.S. Territory of American Samoa, it qualifies for U.S. government
contracting. Bumble Bee and Chicken of the Sea do not qualify because
their canned tuna is not American made. However, at some point, this
advantage in U.S. government contracting will not be enough.
This is why I am pleased that the U.S. Department of Labor provided
a disaster National Emergency Grant (NEG) of $24 million that could
have been expanded to include job re-training for our tuna cannery
workers. I continue to be supportive of our tuna cannery workers being
re-trained to become nurses, teachers, or whatever else they might want
to be because I believe in their future and the future of American
Samoa.
On behalf of the people of American Samoa, I thank Chairman Doc
Hastings of the Natural Resources Committee and also Chairman John
Kline and Ranking Member George Miller of the Education and Workforce
Committee as well as Senate Majority Leader Harry Reid, Senator Jim
DeMint, Senator John McCain, Senator Daniel Inouye, Senator Tom Coburn,
Congressman Jeff Flake, Speaker John Boehner, former Majority Leader
Steny Hoyer and others for working so closely with my office during the
last Congress to halt minimum wage increases for 2010 and 2011.
I am appreciative of what the U.S. Congress has done, and continues
to do, for us and, once more, I ask for your support to halt further
increases for 2012. To determine further increases, I recommend that we
establish a modified version of Special Industry Committees unlike the
previous Committees administered by the U.S. Department of Labor that
predetermined wage rates before the hearings began. It is also my
recommendation that we establish one minimum wage rate for American
Samoa, rather than the 18 different industry rates to which we are
needlessly subjected.
______
In 2006, after taking control of both chambers of Congress, the
Democrats promised to increase the federal minimum wage to $7.25 per
hour in the ``first 100 hours'' on the Floor. Following is a history of
how American Samoa came to be included in the national debate, and the
Honorable Eni F.H. Faleomavaega's record on minimum wage.
1.10.07 On January 10, 2007, the House passes H.R. 2, the Fair
Minimum Wage Act of 2007, by a vote of 315-116. CNMI is included in the
bill and subject to annual wage increases until the Territory reaches a
rate of $7.25 per hour. American Samoa is excluded from the bill
because, unlike CNMI, minimum wage increases for American Samoa are
determined by Special Industry Committees administered by the U.S.
Department of Labor. In response to American Samoa's exclusion, reports
suggest that Speaker of the House Nancy Pelosi excluded American Samoa
from H.R. 2 because Del Monte, then StarKist's parent company operating
in American Samoa, is a major contributor to Speaker Pelosi's campaign.
Reports are proved to be false. False reports also imply that the Fair
Labor Standards Act (FLSA) does not apply to American Samoa.
1.16.07 Faleomavaega responds by informing the press and Members of
Congress that the FLSA has applied to American Samoa since 1938 and
that since 1956, under Section 5 and 8 of the FLSA, Special Industry
Committees administered by the Wage and Hour Division of the U.S.
Department of Labor have determined wage rates in American Samoa.
Faleomavaega asks for Special Industry Committees to continue and for
CNMI to be brought under the Special Industry umbrella.
1.16.07 EF writes to U.S. Senator Daniel Inouye
1.16.07 EF writes to U.S. Senator Daniel Akaka
1.16.07 EF writes to U.S. Senator Lamar Alexander, Senate Committee
on Health, Education, Labor & Pensions (HELP)
1.16.07 EF writes to U.S. Senator Wayne Allard, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Jeff Bingaman, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Sherrod Brown, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Richard Burr, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Hillary Clinton, Senate Committee
on HELP
1.16.07 EF writes to U.S. Senator Tom Coburn, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Chris Dodd, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Michael B. Enzi, Ranking Member,
Senate Committee on HELP
1.16.07 EF writes to U.S. Senator Judd Gregg, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Tom Harkin, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Orrin Hatch, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Johnny Isakson, Senate Committee
on HELP
1.16.07 EF writes to U.S. Senator Edward M. Kennedy, Chairman,
Senate Committee on HELP
1.16.07 EF writes to U.S. Senator Barbara Mikulski, Senate Committee
on HELP
1.16.07 EF writes to U.S. Senator Lisa Murkowski, Senate Committee
on HELP
1.16.07 EF writes to U.S. Senator Patty Murray, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Barack Obama, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Jack Reed, Senate Committee on
HELP
1.16.07 EF writes to Senate Majority Leader Harry Reid
1.16.07 EF writes to U.S. Senator Pat Roberts, Senate Committee on
HELP
1.16.07 EF writes to U.S. Senator Bernie Sanders, Senate Committee
on HELP
1.16.07 EF writes to Congressman George Miller, Chairman, House
Committee on Education and the Workforce
1.16.07 EF writes to Congressman Howard Buck McKeon, Ranking Member,
House Committee on Education and the Workforce
1.16.07 EF writes to Speaker of the House Nancy Pelosi
1.18.07 EF speaks out on the House floor
1.19.07 EF speaks out on the House floor
1.22.07 EF & U.S. Senator Daniel K. Inouye write to U.S. Senator
Edward Kennedy, Chairman, Senate Committee on HELP, in support of using
Special Industry Committees to determine wage rates for American Samoa
and CNMI
1.24.07 In an attempt to make a stink about Democrats' minimum-wage
and territorial voting proposals, House Republicans take to the Floor
wearing white stickers on their suit jackets of StarKist's Charlie the
Tuna with a caption stating ``Something's Fishy!''--implying that
Speaker Pelosi is showing favoritism by excluding American Samoa from
the Fair Minimum Wage Act of 2007.
1.24.07 EF writes to U.S. Secretary of the Interior Dirk Kempthorne
1.24.07 StarKist & COS write to EF
1.30.07 Senate passes wage bill
2.05.07 EF writes to conferees, including U.S. Senator Edward
``Ted'' Kennedy, Chairman of Senate HELP Committee, in support of
strengthening Special Industry Committees
2.05.07 EF writes to U.S. Senator Michael B. Enzi, Ranking Member of
Senate HELP Committee and conferee
2.05.07 EF writes to Congressman Howard ``Buck'' McKeon, Ranking
Member of the House Committee on Education and the Workforce and
conferee
2.05.07 EF writes to Congressman George Miller, Chairman of the
House Committee on Education and the Workforce and conferee
3.12.07 EF writes to Congressman George Miller, Chairman of the
House Committee on Education and the Workforce
3.15.07 Minimum wage bill is attached to Emergency Iraq War
Supplemental bill and Republican Mark Kirk offers an amendment to
extend federal minimum wage rates to American Samoa by $0.50 cents per
hour every year until the Territory reaches the mainland rate of $7.25
per hour. Amendment is accepted by House Appropriations Committee.
3.15.07 EF writes to Congressman David Obey, Chairman of the House
Committee on Appropriations in opposition to the Kirk amendment. Obey
promises that the issue will be resolved during conference.
5.11.07 EF writes to Chairman George Miller of the House Committee
on Education and the Workforce offering compromise amendment to the
Kirk proposal in which workers would be provided a one-time increase of
$0.50 cents per hour and the U.S. Department of Labor would be
empowered to determine future increases, though Special Industry
Committees would be abolished
5.11.07 EF writes to Speaker of the House Nancy Pelosi
5.11.07 EF writes to Senate Majority Leader Harry Reid
5.11.07 EF writes to U.S. Senator Daniel Inouye
5.11.07 EF writes to U.S. Senator Daniel Akaka
5.11.07 EF writes to U.S. Senator Jeff Bingaman, Chairman of the
Senate Committee on Energy and Natural Resources
5.11.07 EF writes to Del Monte CEO Richard Wolford, forwarding copy
of letter and amendment to House and Senate
5.11.07 EF writes to Chicken of the Sea CEO John Signorino
5.11.07 EF writes to Del Monte CEO Richard Wolford to set the record
straight about comments made by Del Monte's Executive Vice President
regarding EF's position on minimum wage
5.18.07 EF, U.S. Senator Daniel Inouye, U.S. Senator Jeff Bingaman,
U.S. Senator Daniel Akaka & Congresswoman Donna Christensen write to
Chairman David Obey and Ranking Member Jerry Lewis of the House
Committee on Appropriations and Chairman Robert Byrd and Ranking Member
Thad Cochran of the Senate Committee on Appropriations urging support
of EF's amendment but with an initial increase of $0.35 cents per hour.
5.21.07 Del Monte CEO Richard Wolford writes to EF in support of his
efforts in Congress to resolve the challenges regarding the impact of
increased wages on tuna cannery operations in American Samoa
5.25.07 Conferees do not accept the proposal but do agree to include
EF language calling upon the U.S. Department of Labor to conduct a
study to determine impact of future increases. Wage hike with automatic
escalator clauses is included in the Iraq War supplemental spending
bill and President George W. bush signs it into law on May 25, 2007.
The first wage increase occurs on June 24, 2007.
6.06.07 EF writes to Congresswoman Donna Christensen, Chair of the
House Natural Resources Subcommittee on Insular Affairs requesting an
oversight hearing on the impact of the federal minimum wage
legislation. EF copies his letter to Governor and Legislature.
6.11.07 COS President John Signorino writes to EF, enclosing copy of
letter COS Senior Vice President Jim Davet wrote to Del Monte and
copied to Governor Togiola.
6.21.07 EF writes to Thai Union President Thiraphong Chansiri and
copies his letter to U.S. Senator Daniel Inouye, Governor Togiola,
Lieutenant Governor Sunia, ASG Legislature, COS President John
Signorino, and COS Vice President of Operations Jim Davet. EF responds
to Davet's comments and requests meeting with Thai Union President
Chansiri. Mr. Chansiri agrees to meet.
6.21.07 EF writes to COS President John Signorino and sets the
record straight about Mr. Davet's comments. EF encloses a copy of his
letter to Chairwoman Donna Christensen as well as his letter to Thai
Union President Thiraphong Chansiri
6.21.07 EF writes to Del Monte CEO Richard Wolford and encloses a
copy of his letter to Congresswoman Christensen requesting a hearing as
soon as possible.
6.21.07 EF writes to Governor Togiola informing him that he will
meet be meeting with StarKist, Chicken of the Sea, Del Monte, Thai
Union and boat owners in San Diego, California regarding the impact of
federal minimum wage law. EF also informs Governor that he will be
meeting with Thai Union President Thiraphong Chansiri on July 1, 2007.
EF copies his letter to U.S. Senator Daniel Inouye, Lieutenant
Governor, American Samoa Legislature.
7.1.07 EF meets with Thai Union President Thiraphong Chansiri in
Bangkok, Thailand.
7.24.07 EF meets with U.S. Department of Labor officials, including
Dr. Ronald Baird, Chief Economist from the Office of the Assistant
Secretary for Policy, who is tasked to undertake the study mandated by
Congress to determine impact of minimum wage increases.
7.25.07 EF writes to U.S. Secretary of the Interior Dirk Kempthorne
regarding his meeting with the U.S. Department of Labor and requesting
support in assisting ASG and CNMI officials in how to collect the
necessary data needed to make determinations about both economies.
1.25.08 U.S. Department of Labor (DOL) releases it report
1.29.08 EF introduces H.R. 5154 to condition further increases in
minimum wage on a determination by the Secretary of Labor
1.29.08 EF writes to Governor Togiola and provides him with a copy
of the DOL report and informs him that he has introduced H.R. 5154. EF
copies U.S. Senator Daniel Inouye, U.S. Secretary of the Interior,
Lieutenant Governor, ASG Legislature
2.12.08 EF writes to Paramount Chief Mauga regarding field hearing
to be held in American Samoa regarding impact of minimum wage increases
2.14.08 EF writes to Congressman George Miller regarding H.R. 5154
and thanking Chairman Miller for sending 2 professional staff members
to field hearing scheduled to be held in American Samoa on February 22,
2008
2.22.08 Congresswoman Donna Christensen, Chair of the House Natural
Resources Subcommittee on Insular Affairs, holds field hearing in
American Samoa at EF's request regarding impact of federal minimum wage
increases on American Samoa's economy.
2.22.08 EF testifies before the House Resources Subcommittee on
Insular Affairs
2.28.08 EF testifies before the Senate Committee on Energy and
Natural Resources regarding the Impact of the Recently Increased
Minimum Wage in American Samoa
3.14.08 Chairman George Miller writes to EF and raises concerns
about DOL study
3.14.08 EF, U.S. Senator Daniel Inouye, U.S. Senator Daniel Akaka,
U.S. Senator Jeff Bingaman write to Chairman Robert C. Byrd & Ranking
Member Thad Cochran of the Senate Committee on Appropriations
requesting delays in minimum wage
3.31.08 U.S. Secretary of the Interior to Dirk Kempthorne writes to
EF offering support
4.03.08 EF writes to U.S. Senator Daniel K. Inouye thanking him for
agreeing to offer an amendment based on H.R. 5154 to delay minimum wage
increases and to review further increases
4.03.08 EF writes to U.S. Senator Jeff Bingaman
4.03.08 EF writes to U.S. Senator Daniel Akaka
4.18.08 EF writes to Senate Majority Leader Harry Reid
4.20.08 EF writes to U.S. Senator Orrin Hatch
4.22.08 EF & Governor Fitial write to U.S. Senator Edward Kennedy,
U.S. Daniel Inouye, U.S. Senator Jeff Bingaman, & U.S. Senator Daniel
Akaka
4.22.08 EF & Governor Fitial write to Chairman George Miller
4.24.08 EF & Governor Fitial write to House Majority Leader Steny
Hoyer
5.13.08 EF and CAPAC members Congressman Mike Honda, Congressman
Joseph Crowley, Congresswoman Donna Christensen, Congressman Albio
Sires, Congressman Solomon Ortiz, Congresswoman Nydia Velazquez,
Congressman Bennie Thompson, Congressman Neil Abercrombie, Congressman
Al Green, Congressman Luis Gutierrez, Congresswoman Joe Baca,
Congresswoman Mazie Hirono, Congressman Hank Johnson write to Senate
Majority Leader Harry Reid, Speaker of the House Nancy Pelosi, House
Majority Leader Steny Hoyer, Chairman David Obey of the House
Appropriations Committee, Chairman Norm Dicks of the Interior
Appropriations Committee, Chairman George Miller of the Education and
Workforce Committee, Chairman Edward Kennedy of the Senate HELP
Committee, U.S. Senator Daniel Inouye, U.S. Senator Daniel Akaka, and
Chairman Jeff Bingaman of the Senate Committee on Energy and Natural
Resources requesting support for delays
5.21.08 Senate passes language in the Emergency Supplemental to
conduct new GAO study
5.30.08 2nd minimum wage increase goes into effect
7.31.08 EF & Chairman Rahall of the House Committee on Natural
Resources & Congresswoman Donna Christensen write to U.S. Secretary of
the Interior Dirk Kempthorne requesting technical assistance funds to
conduct comprehensive economic study of American Samoa
11.25.08 EF writes to StarKist regarding announcement to lay off
workers and copies letter to Senator Daniel Inouye, Governor Togiola
and Chairman Kim Jae-Chul of the Dongwon Group
1.28.09 EF writes to Chairman George Miller requesting delays in
further increases
1.30.09 EF meets with U.S. Senator Daniel Inouye and thanks him for
agreeing to include language in H.R. 1, the American Reinvestment and
Recovery Act (ARRA) that would require the GAO to conduct a new study
by April 15, 2010
2.17.09 H.R. 1 is signed into law with 3rd wage increase to go
forward and a mandate for a new GAO report to be released by April 2010
2.19.09 EF writes to Governor Togiola, President of the Senate
Gaoteote, Speaker Savali and asks them to join him in sending a letter
to Chairman Miller requesting a deferment of the 3rd increase until GAO
has time to complete its study
2.23.09 EF holds meeting in his DC office with Governor Togiola and
Governor Fitial for purposes of drafting a letter and sending a unified
message to Congress and the Administration regarding the need to delay
minimum wage
2.24.09 EF, Governor Togiola and Governor Fitial deliver their
letter to U.S. Secretary of the Interior Ken Salazar during meeting of
Interagency Group on Insular Affairs (IGIA)
5.07.09 EF writes to Governor Togiola re COS closure and copies
letter to American Samoa Legislature
5.30.09 3rd minimum wage increase goes into effect
7.24.09 EF responds to ASG petition to President Obama
12.14.09 House and Senate agree to EF's request to postpone 4th
minimum wage increase from May 2010 to September 2010 to give Congress
time to act on the GAO study
4.08.10 GAO releases new study on the impact of minimum wage hikes
in American Samoa and CNMI
4.30.10 EF thanks Chairman Miller for agreeing to his request to
modify minimum wage law based on findings of GAO and copies U.S.
Senator Daniel Inouye, Chairman Nick Rahall of the House Committee on
Natural Resources, U.S. Secretary of the Interior Ken Salazar, Governor
Togiola, & American Samoa Legislature
5.05.10 EF forwards U.S. Senator Daniel Inouye copy of letter to
Chairman Miller
5.12.10 U.S. Senator Daniel Inouye thanks EF for copy and assures
him of support in Senate
6.12.10 EF and Congressman Sablan of CNMI write to U.S. Senator
Daniel Inouye, Chairman of the Senate Appropriations Committee, and
include language approved by Chairman Miller that would halt minimum
wage increases in American Samoa for 2010 and 2011 and for CNMI for
2011 based on GAO report, and asking for inclusion in any legislative
vehicle that might be moving
6.12.10 EF and Congressman Sablan write to U.S. Senator Tom Harkin,
Chairman of the Senate HELP Committee
6.12.10 EF and Congressman Sablan write to U.S. Senator Bingaman,
Chairman of Senate Committee on Energy and Natural Resources
6.12.10 EF and Congressman Sablan write to Chairman David Obey of
the House Committee on Appropriations
7.27.10 U.S. Senator Jeff Bingaman & U.S. Senator Lisa Murkowski
agree to include EF and Sablan language in H.R. 934, a CNMI bill
already passed by the House, which is hotlined for Unanimous Consent
(UC) in the Senate. Bill clears Democratic hotline. Republican hold
placed on CNMI provision relating to submerged lands. Congressman
Sablan would not agree to take out his submerged lands provision. In
response, U.S. Senator Jeff Bingaman and U.S. Senator Lisa Murkowski
agree to include EF and Sablan minimum wage language in H.R. 3940, a
Guam bill already passed by the House, which is hotlined for Unanimous
Consent in the Senate.
8.03.10 EF writes to U.S. Senator Bingaman thanking him for agreeing
to include minimum wage language in H.R. 3940
8.03.10 EF writes to U.S. Senator Lisa Murkowski thanking her for
support
8.06.10 EF provides updates informing public that H.R. 3940 has
cleared Democratic holds but Republicans did not have time enough to
review before August recess
9.14.10 House returns from District work period. UC process begins
again. Senator Bingaman and Senator Murkowski's committee staff inform
EF and Sablan that Democrats have cleared H.R. 3940 for UC.
9.16.10 At 4 pm, Republican cloakroom informs Democrats that 2 holds
have been placed including one by one by Senator DeMint (R-SC). Senate
ends business for the day and does not go in Session on Friday.
9.18.10 Saturday night Senator Bingaman and Senator Murkowski's
staff inform EF and Sablan that there is nothing they can do to
overcome Senator DeMint's hold.
9.20.10 EF's office contacts Senator DeMint's Chief of Staff at
10:29 am. At 11:52 am, Senator DeMint's Chief of Staff responds stating
he has forwarded EF information and comments to policy staff for
review.
9.21.10 11:28 am, Senator DeMint's staff informs EF office that
Senator DeMint will agree to let minimum wage section pass, but
expresses concerns about Guam provision. EF office informs
Congresswoman Bordallo's office of concerns raised about Guam.
Congresswoman Bordallo's office begins process of working out
compromise regarding Guam provisions.
9.27.10 At 4:36 pm, Congresswoman Bordallo's office and Sen DeMint's
office reach agreement on new language regarding Guam provision.
9.28.10 At 9:45 am, Senator DeMint's office informs Republican
cloakroom that he has released his hold on H.R. 3940 pending the change
in language regarding the Guam provision. Change is made and H.R. 3940
is hot-lined again. At 1:36 pm, Democrats begin hotline process. At
3:48 pm, Democratic staff informs EF and Sablan that Senator Coburn is
raising questions but Senator Murkowski's staff is trying to resolve
his concerns. At 4:13 pm, EF speaks with U.S. Senator Majority Leader
Harry Reid asking that bill be placed on floor for UC once it clears
the Democratic and Republican cloakrooms. However, Senator Murkowski's
staff is unable to clear Senator Coburn's hold. At 4:42 pm, EF office
contacts Senator McCain's office asking for help to release Senator
Coburn's hold. Senator McCain's office agrees. At 5:17 pm, EF office
phones Senator Coburn's office. At 6:03 pm, Senator Coburn's office
informs EF's office that Senator Coburn has agreed to release his hold.
At 6:09 pm, Senator McCain's office also informs EF office that Senator
Coburn has agreed to release his hold. Senate passes H.R. 3940 by UC.
At 10:28 pm, EF sends letter to Speaker of the House Nancy Pelosi,
House Majority Leader Steny Hoyer, Chairman George Miller of the House
Committee on Education and Labor, & Chairman Nick Rahall of the House
Committee on Natural Resources requesting that H.R. 3940 be brought to
the House floor for immediate passage.
9.29.10 At 8:05 am, EF office phones House Majority Leader Steny
Hoyer's Chief of Staff again requesting that H.R. 3940 be brought to
Floor for passage. ML Hoyer's office states that Republican Leadership
must be on board. At 10:33 am, EF office contacts Republican Leader
John Boehner's Chief of Staff, Republican Whip Eric Cantor's Chief of
Staff, Republican Staff Director for Ranking Member John Kline of the
House Committee on Education and Labor, and Republican Staff Director
for Ranking Member Doc Hastings of the House Committee on Natural
Resources. At 10:38 am, EF office contacts Congressman Jeff Flake (R-
AZ), member of the Resources Committee and member of LDS Church,
requesting help in getting support from Republicans, including Ranking
Member Doc Hastings of the Natural Resources Committee. At 10:39 am,
Congressman Flake's office informs EF office that message will be
forwarded to Congressman Flake. At 12:08 pm, Congressman Flake sends
message saying he will speak to Ranking Member Doc Hastings of Natural
Resources Committee. At 12:31 pm, Republican Leader John Boehner's
Chief of Staff responds thanking EF office for bringing this to his
attention and stating that they will respond appropriately based on
conversations with their two Ranking Members. At 12:30 pm, EF speaks to
Ranking Member Doc Hastings on House floor, and also Congressman Jeff
Flake who has also spoken to Ranking Member Hastings. Ranking Member
Hastings and Ranking Member John Kline of the Education and Labor
Committee agree to let bill go to the Floor by suspension. At 12:38 pm,
EF office informs Majority Leader Hoyer's office that Republicans will
agree to let the bill go to the House floor by suspension instead of
UC, meaning a voice vote will be requested and that the measure must
win by a vote of 290. At 5:18 pm, ML Hoyer's office agrees to put bill
on House floor. ML Hoyer calls EF. At 8:52 pm, EF office begins
providing Samoa News with regular updates.
9.30.10 At 12:19 am, EF office informs Samoa News that vote is
taking place. At 12:27 am, EF issues press release stating bill passes
House by a vote of 386 to 5. At 12:31 am, EF office emails White House
requesting assistance to get bill on President's desk for signature. At
8:00 am, White House emails EF office thanking EF for flagging the bill
for signature. At 8:36 am, EF office contacts Majority Leader Hoyer's
Chief of Staff requesting assistance to get the bill from the House to
the White House. At 8:40 am, ML Hoyer's COS states he is working it. At
10:58 am, Majority Leader Hoyer's Chief of Staff informs EF office that
he has taken the bill to the Clerk's office and that it is at the
Parliamentarian's office awaiting clearance, then it goes to Speaker
Pelosi, then to the Senate, then to the President of the United States
for signature. At 5:06 pm, White House informs EF that President has
signed H.R. 3940. At 5:09 pm, EF office informs Samoa News bill has
been signed. Samoa News issues breaking news flash. At 5:38 pm, EF
issues press release announcing that bill has been signed into law.
______
Mr. Faleomavaega. Also for the record, the statement
submitted by Mr. In-Soo Cho, the President and CEO of StarKist
Cannery.
Dr. Fleming. Without objection, so ordered.
[The prepared statement of Mr. In-Soo Cho follows:]
Statement of Mr. In-Soo Cho, President and CEO, StarKist Co.
On behalf of the StarKist Company and its employees, I wish to
express our wholehearted gratitude to Chairman Fleming, Ranking Member
Sablan, and Delegate Faleomavaega for your interest in the American
Samoan economy and the impact of minimum wage increases on the
territory's economy and its global competitiveness. As you know,
StarKist is the largest private sector employer in American Samoa and
we have worked closely with the Congress for the last several years to
do everything we can to protect this fragile economy. So, we thank you
for your interest in this subject today and look forward to working
with you and the Congress to continue to protect the economy of this
important U.S. Territory.
With a private economy that is almost completely dependent on the
tuna fishing and processing industry, American Samoa's economy is at
constant risk of failure due to global cost pressures within this
highly competitive industry. Indeed, American Samoa has suffered
dramatic reductions in private sector employment since the
implementation of automatic wage increases starting in 2007. Current
wages in American Samoa are many multiples of the wages in competing
nations such as Thailand, where wages have been as low as 60 cents an
hour.
According to the U.S. Department of Labor in January 2007, the tuna
processing industry and ancillary businesses supported nearly 80% of
all private sector employment in American Samoa. Unfortunately, today a
substantial portion of that employment has already been lost with the
closure of the Chicken of the Sea, Inc. (COSI) processing plant on
September 30, 2009 and significant employment loss at our own facility.
We have done our best to maintain employment while remaining globally
competitive and have even from time to time been able to increase
employment on a seasonal or temporary basis, however, our regular
employment levels continue to remain significantly lower than our
historic levels.
With the departure of COSI, StarKist is the sole remaining full
production tuna processor in American Samoa, so we have a unique
perspective on the factors contributing to the Territory's loss of
global competitiveness. Canned tuna is priced as a global food
commodity and has very little elasticity in price. Therefore, a rapidly
increasing cost structure in American Samoa makes it increasingly
difficult for American Samoa to compete with other southeast Asian
countries that can pay workers pennies per hour.
Currently, there are two business models for the manufacture of
canned tuna intended for the U.S. market. One is our model which
manufactures canned tuna starting with the whole--or round--fish
purchased directly from boats and results in the finished product ready
for market. This model requires a significant investment in a U.S.
workforce to prepare, cut, clean, cook, and can the product. The other
model, used by many of our main competitors, instead outsources the
bulk of the manufacturing and the most labor intensive parts of the
process to extremely low-wage countries. These companies take advantage
of nearly duty-free importation of cleaned and frozen tuna ``loin''
into the mainland United States for final packaging using the least
amount of U.S. labor possible. The cost savings between a fully U.S.
manufacturing process and an outsourced manufacturing process is
substantial and places American Samoa at a distinct disadvantage vis-a-
vis competing economies.
The General Accounting Office as well as the U.S. Department of
Labor have both investigated the impact of recent wage increases and
have unanimously agreed that these wage increases have had a direct and
substantial negative impact on employment in American Samoa and a
direct and substantial negative impact on the territory's ability to
remain globally competitive in the tuna industry. In 2010 Congress
prudently delayed an automatic increase in the minimum wage scheduled
to occur on October 1, 2010. That increase was delayed for two years.
Because of the greater certainty provided by this two year delay, the
StarKist Company has been better equipped to make longer-term business
plans for 2011 and 2012 because we had greater confidence in the
underlying cost structure of manufacturing in the territory. This
greater certainty allows us to better plan procurement, negotiate
supply contracts, more aggressively compete for business, and to
stabilize our employment base.
However, as we come closer to the next automatic wage increase, the
global cost structure remains the same but our ability to make business
plans and to keep our cost structure as lean as possible is comprised.
For these reasons we strongly urge the Congress to again delay the next
scheduled increase in wages. American Samoa is already at a substantial
disadvantage and at risk of the elimination of its economic base.
Further, we would urge the Congress to consider the establishment of a
more reliable system by which the economics of the territory may be
evaluated on a systematic and automatic basis. There have been previous
proposals, which we would support, to grant authority to an appropriate
Cabinet agency for review of the economic condition of the territory
and subsequent decision on any scheduled wage increase to move forward
or not. We believe a system such as this would put American Samoa, its
businesses, and the government in a more stable position to plan for
the future knowing that the review would be automatic and a decision
maker would be known and empowered to make a timely decision on any
potential wage increase.
Once again, we thank you for your interest and hard work on this
subject.
______
Mr. Faleomavaega. Thank you, Mr. Chairman.
Mr. Chairman, probably many of our fellow Americans do not
know that for the past 111 years American Samoa has had a very
unique political relationship with the United States. American
Samoa has long been the backbone of the U.S. tuna industry,
tuna and processing industries. For more than 50 years, our
economy has been more than 80 percent dependent either directly
or indirectly to the major brands of canned tuna, that is
primarily StarKist and Chicken of the Sea. Regrettably though,
the tuna canneries in my humble opinion have had a history of
suppressing wages for American Samoa.
Mr. Chairman, I think within the context of the history,
the minimum wage issue is not something that just popped up the
past couple of years. I think if we read our history carefully,
after the Great Depression of 1929, or even previous to that,
there was an outrage in our country where many of our workers
in the South were paid 15, 10 cents an hour; no compensation,
no benefits whatsoever. In other words, slave labor, in my
humble opinion. And Congress was so outraged, and that is why
we passed the Labor Standards Act in 1938. And American Samoa
was included with other Territories along this national concern
that working people in America were paid cheap labor at the
expense of corporations and companies that were making a lot of
money. And don't get me wrong. I want companies to be
successful. I want them to make good profits.
Let me just add also as a matter of history, in 1956,
Chicken of the Sea, the predecessor of Van Camp, testified
before the U.S. Senate Committee on Labor and Public Welfare
urging the Congress to take American Samoa out of the fair
labor minimum wage requirements of the Act of 1938, commenting
on the company's desire to pay Samoan workers 27 cents an hour
as opposed to the prevailing minimum wage rate at the time of
$1 per hour. Let me quote what was stated by these executives.
``The company has found that it takes three to five Samoan
workers to perform what one continental worker in the United
States will do. It is therefore felt that this justifies
lowering the wages of Samoan workers.''
Forgive me for pausing here, Mr. Chairman, but what company
in good conscience in my opinion would suppress wages in a U.S.
Territory on the finding that more than 300 Samoan women
cleaning fish in the Territory for 27 cents an hour somehow is
inferior, inferior in its quality of its work performance to
stateside employees being paid $1 an hour?
While some may think that history does not matter, in my
humble opinion, Mr. Chairman, cannery workers in American Samoa
are only now paid $4.76 per hour as a result of three increases
of 50 cents per hour as mainland workers provided in the public
law that was passed in 2007.
Given that American Samoa has since suffered dramatic
reductions in employment in the tuna industry, other than
increased wages, what other factors contributed to the job
losses? I think the 2010 report of the GAO stated that even
before the minimum wage increase ever took place, our canneries
were already operating at a $7.5 million loss per year simply
because the whole tuna industry has evolved in a very different
economic situation.
So when this came about, American Samoa and the CNMI were
caught in these two huge forces between the labor unions and
all that we have been debating for all these years. Where is
really the proper balance, that we should provide decent wages
for American workers, but at the same time making sure that our
businesses make regional profits so that they can continue
doing their business. Because I think this is really where the
issue stands, Mr. Chairman.
I have so many questions I wanted to ask, and unfortunately
we don't have the time.
I want to thank our Governor for his testimony. I want to
work with him and the Interior Department. Setting up an
industry committee is another thing. I have very serious
concerns with the history of how the industry committees have
developed for all these years.
When these industry committees make recommendations of
increasing wages at 2 cents an hour, 3 cents an hour, what can
these workers possibly do for 24 cents an hour increase in
wages? It is impossible. But I will say, I am willing to work
with the Administration, with our Governor, to see if the
industry committee is another possible option so we can find a
solution, so that we don't have to come to the Congress every
time. Because every time we bring it, as you well know, Mr.
Chairman, Congress isn't exactly the best place to give us
answers to our problems.
I would like to ask Secretary Babauta if the Administration
is committed that we work together with the Governor as well as
with our office to see what we can do about establishing an
industry committee that has teeth, an industry committee that
is going to give better and more comprehensive reports about
the economic status of American Samoa.
With due respect, my good friend from CNMI, he knows enough
about CNMI that I am not going to address the issue.
But I want to say to Mr. Gootnick, the biggest
disappointment that I have with the GAO report that I have
suggested at the times we were meeting, we have 18 minimum
wages in American Samoa. The only jurisdiction in the whole
United States of America, not one minimum wage, 18 minimum
wages. As complicated as the issue is already, it is even more
complicated by the fact that GAO never addressed this issue.
But I will say that I appreciate your concerns. There is
absolutely no question. I think the challenge on this very
issue is how do we strike a balance on giving decent wages for
working people at the same time, at the same time that our
businesses will continue to grow and prosper and have a decent
margin of profit that they can operate under. And the very
question, why do companies in America leave to do their
business in foreign countries? Bottom line, cheap labor.
I think this is where the rubber meets the road in terms of
our national debate about the issue, working people, decent
wages, cost of living, standard of living. How does all this
play within the context of how we can get our businesses to
grow, but at the same time be fair to the working people, to
the working Americans who are also trying to make a decent
living. I think that is basically where I am coming from.
Mr. Chairman, again I want to thank our Governor and
Secretary Babauta and Mr. Gootnick. With all due respect, I
agree with the Governor, some of the findings and some of the
things that were brought to the attention of the Committee by
the GAO report, it was not enough.
Again, I know my time is up, but I do want to thank you,
Mr. Chairman, for extending me this time, too. I expressed my
feelings. I will have some follow-up questions.
Because of the essence of time, again, thank you, Mr.
Chairman.
Dr. Fleming. I thank the gentleman from American Samoa. I
will say certainly we can have another round of questions if
you like. With that, I will go ahead and recognize myself for
another five minutes. Maybe just some random comments here
about statements made.
First of all, the gentleman from American Samoa said that
perhaps Congress doesn't have all the answers to this. I would
say I am shocked to hear that, with tongue firmly in cheek. I
think way too often Congress thinks it has all the answers, and
really doesn't.
You know, I had a conversation I recall many years ago when
I was just high school age, and as a typical high schooler I
believed I was twice as smart as my dad, a man who had grown up
during the Great Depression and had been in World War II. He
made a statement about the fact that the economy after the
Great Depression picked up after the war began, and I corrected
him on his misunderstanding about history and said no, that it
was the New Deal and all of the legislation that occurred
during that period from approximately 1933 and on that really
saved our economy. I know this to be true because I read it in
my textbooks.
He came back and corrected me. He said, ``Son, we lived on
a farm, and sometimes we were lucky to eat one meal a day, and
the economy was bad despite all these regulations.'' It wasn't
until there was a robust effort in industry that this country
got back on its feet, and I think again that is instructive to
us today.
We can come up with all the artificial laws that we want.
We can set limits and set points that say we have to pay this
much and that much and so forth and guarantee this and
guarantee that. That is all well and good and I am certainly
not against having labor laws and things to make sure that we
take care of our citizens.
But the point I will make is that you can only go so far
with that; that the power of government to control economies is
much more limited than we often think, and the more we do to
encourage industry and to allow industry to be competitive and
robust, the better off I think we are in the long term in terms
of getting living wages, more productivity and a better
standard of living for our citizens, both in the continental
U.S. and elsewhere.
So, those are just some thoughts about our discussion today
that I think is important. I really think this discussion,
while it is so important for CNMI and American Samoa, as Dr.
Harris pointed out, it has a much wider scope of consideration
about where we are today in our world and our economy and how
we are going to get out of the lassitude of commerce that we
have today.
Returning to questions, I want to ask this: New industries
have been proposed, call centers for both Territories, tourism
in American Samoa and agriculture and aquaculture in the
Northern Mariana Islands. So I like that. I am glad that there
is some consideration for some new areas, that we don't just
stay with an industrial or factory base, but maybe look at
other things.
I also want to just kind of comment on the statement made,
why is it that Guam can do OK with minimum wage but some of the
other islands cannot. I lived on Guam. I visited Saipan. Guam
has a tremendous military footprint. Lots of money flows to
Guam. Then it has some of the other benefits like tourism that
these other places do not have.
So it is obvious that it is more difficult to meet those
minimum wage targets for other island groups. And I do like the
idea, although I haven't studied it and am not ready to endorse
it, of again returning to some sort of a local commission or
board that kind of looks at this and applies these laws and
rules, for one thing in a very consistent way rather than 18
different minimum wages, which is ridiculous, but also takes
into account what the local economic situations are.
Anyway, are these viable options for the Territories, as I
say, call centers, et cetera? Anyone.
Governor Tulafono. Call centers specifically were
introduced to American Samoa, and we have taken a few years to
investigate it. As it turned out, the technology is available.
It is viable, but not in a very major, major way that it was
initially introduced. A 1,000-seat call center has not been
ruled to be totally impossible and unfeasible. The
recommendation is for us to go with smaller centers like 50 to
100 seats. It is what we can support with employment. Turnover
is very, very high in that industry. We need a lot of people
and we do not have the employment base to support a major
industry like that. But it is possible.
One of the factors that we continue to struggle with is
bringing our educational system to a standard where we can
actually elevate the kinds of industries and jobs that we can
have. So we have to deal with that issue as well, because it is
going to take a few years for us to catch up to that, and that
is part of the reason why some of these industries may be
difficult, although it is possible to some degree, but on a
large scale it is not possible to replace the kind of 2,000
employment that the manufacturing jobs provide.
To us, there is no better way of controlling wages than the
competition in industry. When industry is successful and they
are vibrant, wages do naturally increase with good competition
and a vibrant private sector. When that doesn't exist, you
cannot depend on the government to pick up that difference and
the government should never be the standard for setting wages
for that work.
Dr. Fleming. Let me ask Mr. Arenovski, did you have
something you were going to add to that discussion?
Mr. Arenovski. Yes, sir. This past March we actually had an
economic summit here in the CNMI and we talked about
aquaculture, ecotourism and call centers. We right now have one
of the largest shrimp producers in our region. Our limitation
is export out of Saipan. We can't get the shrimp or our
agricultural, our produce, between Rota and Tinian and Saipan.
We have wonderful produce. It is cost prohibitive to get it to
Guam, which has a large population, we have been told they
would buy it from us if we can get it there at a reasonable
price. But, unfortunately, that is difficult to do. Right now
we have some industry that could grow, but, unfortunately, some
of these forces, air freight and shipping out of the NMI, is
prohibitive.
Call centers we don't think will be viable here in the
future for the NMI, but we believe we have a very bright future
for ecotourism. The point being though that these industries
combined, plus anything else you could think of, including
casinos, will never make up the economic benefit that we had in
the garment factory. So what we have to understand is we will
have a tapered economy into the future.
But these industries, agriculture, aquaculture and
certainly ecotourism, are certainly something that can flourish
in the future.
Dr. Fleming. Thank you. My time is up. I yield to the
Ranking Member, Mr. Sablan.
Mr. Sablan. Thank you again, Mr. Chairman.
I don't know if anyone has ever done this and I don't know
if it is my place to do it, but Governor and my good friend Eni
and the people from American Samoa, I am very sorry and I
apologize that our officials in the Northern Mariana Islands
who went to bed with people like Jack Abramoff and brought this
whole thing, actually dragged American Samoa into the
situation, because our government paid Mr. Abramoff millions of
dollars of taxpayers' money and then actually it became an
issue that Congress noted, and unfortunately for the people of
American Samoa, you got trapped. So if no one has apologized to
the people of Samoa, I am making that apology today.
Let me ask another question, and I don't have too much
time, but I want to know, Mr. Secretary, and then I will go to
Mr. Gootnick, why exactly didn't the industry committee work in
American Samoa? The Governor alluded to seeing this thing in
New Caledonia, in Noumea, where he saw this mansion next to a
shanty house. Now, that is maybe the problem, right, in the
mansion is the people who are using the people living in the
shanty house. And that is what we are trying to avoid here. But
why didn't the special industry committee work in Samoa?
Mr. Babauta. I think I would agree with Congressman
Faleomavaega that it maybe didn't work to the extent that it
lifted wages higher when it should have when the canning
industry and the canneries were there and it was a strong,
vibrant industry. Wages should have gone up probably higher
than they did, certainly more increments than 2 cents every
year.
Mr. Faleomavaega. Will the gentleman yield?
Mr. Sablan. Real quick.
Mr. Faleomavaega. With all due respect, here again I have a
love-hate relationship with our canneries. I love them because
they provide jobs for our people, but I have very serious
problems with the way they went about making business. I think
our Territories, the gross sales of these canneries were well
over $100 billion in gross sales, and for that period of time,
the people were being paid $2 an hour, $3 hour an hour for this
50-year period.
What happened is that every time the industry committee
comes, the attorneys, the lawyers for the canneries made sure
that pressure is being put upon our government officials and
the community, if you raise the wages we are going to leave.
That has been the way it has happened in my opinion. That is
how why the industry committees have not been very effective.
Mr. Sablan. So reclaiming my time, so it is the people in
the mansion was influencing the government so that the people
in the shanty house remain in that shanty house, which is why
we need this law.
Mr. Gootnick, hold on, I guess this is for Secretary
Babauta again. You reported--or Mr. Gootnick. Right, this is
for Mr. Gootnick.
You reported, sir, that employers in the Northern Mariana
Islands face a perfect storm of factors dragging down the
economy. One of them is poverty, or people needing power and
water. Of course, increasing the minimum wage is supposed to
lift these people out of poverty.
Can you tell me something about poverty in and of itself,
how it has a negative effect on the economy?
Mr. Gootnick. That is a challenging question, Congressman.
The language ``perfect storm,'' I am not sure that is our
characterization. That is perhaps a more colorful term than we
would employ. But I think the factors associated with that
storm we don't disagree with.
Poverty in and of itself, as I understand it, does have
some long-term relationship with minimum wage in that the
health and education of the population, as the health and
education of the population improves, poverty can be reduced.
So a poor health status certainly entails costs. Poor
educational status is kind of a vicious cycle, discouraging the
opportunity for workers to move into higher skilled professions
and higher skilled jobs.
Mr. Sablan. Thank you. We will talk about this some more.
Mr. Secretary, again, I will go back to you, because you
say going forward in your testimony, we have three options, and
I am sure you don't mean that that is exclusive. But we either
do nothing and let the 50-cent increase continue, we stop the
increases entirely, or go back to the wage boards that used to
be used in American Samoa.
But there are other options. I will associate myself with
Congressman Faleomavaega that we need to work together and
address this issue for the Northern Mariana Islands and
American Samoa. I support whatever they agree to. But, of
course, there are other things I am thinking of, maybe a 25-
cent increase. Because you have heard my opening statement. I
have no objection to people having an extra, some loose change
in their pocket. Because where I come from, once you pay COC,
you don't have money for food, period. No and's, if's and
but's. It is reported in the media. People tell me they have a
choice, paying for utilities or putting food on the table,
because there is nothing there. And these are people who are
working.
So we need the other options available. We really would
like to continue to work with you, Mr. Secretary. I am very
grateful to your Department and to you for putting some money
out for the Census Bureau to do this analysis that we have. I
am sorry that is all they did, because that was a very
important report where they reported that the GDP in the
Northern Mariana Islands decreased by that much, the gross
domestic product.
My time is up, so, Mr. Chairman, I yield. Thank you very
much for being here, Mr. Secretary.
Mr. Babauta. Mr. Chairman, if I could just respond, we
agree that wages need to go up and there needs to be a very
strong minimum wage that helps create a middle class for both
the CNMI and American Samoa and puts money into people's
pockets and into families. At the same time, we also agree with
Mr. Faleomavaega and want to work to be able to strengthen
those special industry committees if the decision is to
reinstitute them so they are not making decisions with respect
to wages increasing at very small levels.
Dr. Fleming. Before I recognize the gentleman from American
Samoa, I think that is very accurate. The only thing I would
add is we can pass all the laws in the world, but unless there
is a robust industry to make that happen, it just won't happen.
Governor Tulafono. Mr. Chairman, may I inject a perspective
to the special industry committee? It would be a fallacy to
think that minimum wages never went up in American Samoa. It
went from 25 cents to $3.25 by 2006. The difference in my
opinion was in the early beginnings of the special industry
committee, they had the power to insist on receiving how
canneries calculated their profit margins and where they passed
those two, how they passed those numbers around. Instead of
using the American Samoa cannery only as a cost center and
shift all their profits to another location, they were able to
detect that before the law changed in 1972, when Congress
changed the law where the canneries were not obligated to
disclose that any more. That was the argument I made, that if
we put that back in the hands of the special industry committee
and give them the ability to see those numbers, then they will
be able to not just say that there is no increase this year,
because they were totally reliant on whatever the canneries and
the industry provided.
We need a special industry committee with the power to see
those numbers, how do they calculate their profits, how do they
work those numbers, especially now with multinationals and all
that. That was the argument we wanted to make and we did make
before the installation of the first escalation of the minimum
wage.
Dr. Fleming. Thank you. I now yield to Mr. Faleomavaega for
his questions.
Mr. Faleomavaega. Mr. Chairman, I couldn't agree with the
Governor more and I appreciate his comments on this issue.
Mr. Chairman, I thank you. I think it is an interesting
observation that maybe American Samoa is a good micro example
in terms of bringing this to the national forum as far as the
minimum wage issue is concerned.
One of the ironies of this issue, Mr. Chairman, it was my
good friend, a Republican Member who is now a U.S. Senator in
the Congress, he was the one who proposed to add American Samoa
for increased wages in the minimum wage when the deliberations
were made. The reason for this is because my Republican friend
would come up to me and say Eni, why should you be exempted
from the national requirements that the minimum wage should be
the same throughout America? This is America. Why should CNMI
and American Samoa be made exceptions to the rule? My district
has 20 percent unemployment. Why should you be exempted because
of your economic situation?
So I think in terms of philosophical terms, Mr. Chairman,
you are correct. And I think the pendulum swings. I think too
much government is just as bad as no government, and I think we
found out what happened recently, what Wall Street did, which I
think primarily was the big cause of our big economic
recession. I am not going to pass judgment any further because
I am not an economist. But I really would like to pursue this
issue about how we can better establish an industry committee
for the simple fact again because Congress sometimes in its own
clumsy way provides cures or remedies that are not necessarily
helpful in that regard.
What I mean is that for 10 years, no consideration of how
American workers should be given increases in their wages, and
that is when the whole debate flared up in 2006 when we had
this problem. So maybe the industry committee might be a way
that we could really put substance, make it comprehensive.
Because the reluctance that I have always had in putting
increases in wages in our economy, Mr. Chairman, is the fact
that we never were able to get in our hands a good report that
really tells us the bottom line, other than the fact that there
are symptoms. We know there are indicators that our economy is
going down the tube. But at the same time we just were not able
to come up with a bottom line to tell the Congress, to tell the
Administration we need help in this.
Again, I do want to thank our Governor for his statement,
because they are right to the point. And I sincerely hope that
in the coming weeks we are going to be able to get together
with Secretary Babauta and the Governor's office, if we can
look at the industry committee as an option, how we can get
better review the process so that wages can be in some way
commensurate with the realities of how our economy is
functioning.
I agree with you. I think there is a very critical role
that the free market system should operate in such a way so
economic growth occurs in the same way. But at the same time I
think the government also has a responsibility in providing
services to facilitate opportunities for companies to do well,
but at the same time make sure that our workers are also
mutually getting the benefits as well as part of our overall
economic situation, whether it be here in our country, as well
as in this little Territory called American Samoa.
So I do want to say that we need this. I don't know if
asking the GAO for another study is going to be helpful,
because it seems that we are going to have to find a better
way. Since the Interior Department is the lead agency
representing American Samoa, I am going to lean very heavily on
Secretary Babauta and the Secretary of the Interior for
assistance in giving us the proper resources so that we can
make this thing a go and make it really functioning so if this
industry committee can be done administratively or by law.
Whatever that we can do between now and when the deadline
comes, I sincerely hope, Mr. Chairman, that we will be able to
do this.
Again, I want to thank our Governor for traveling all this
way to come here and testify before our Committee. And to you
especially, Mr. Chairman, thank you for your leadership and for
your sensitivity in calling this hearing that is so critical
and important for American Samoa.
I yield back.
Dr. Fleming. I thank the gentleman from American Samoa, and
quite agree that too much government can be as bad as no
government at all, and gladly welcome you to the Republican
Conference should you choose to do that.
OK. I would like to thank all of our witnesses for their
valuable testimony and contributions. Members of the
Subcommittee may have additional questions for the witnesses.
We ask you to respond to these in writing. The hearing record
will be open for 10 days to receive these responses.
So, with that, again I want to thank our witnesses and our
witness direct from Saipan today, tonight I guess for you, sir.
But I want to thank you all. It is very interesting testimony.
As I say, while the focus has been on CNMI and American
Samoa, I think that there is a lot that is instructive here
around the world to these issues as we move forward, and I
certainly pledge to work with the gentlemen, Mr. Sablan and Mr.
Faleomavaega, to work on these issues and to try to resolve
them so we can have a robust economy and middle-class lifestyle
available for all of the citizens concerned.
Thank you, and we are adjourned.
[Whereupon, at 10:30 a.m., the Subcommittee was adjourned.]