GAO Minimum Wage Report Released

April 10, 2010

The report is 165 pages and paints a very clear picture of the employment and wages since the inception of the minimum wage.

I am addressing the CNMI part of the report.

Much of the data was gathered during a September 2009 visit to the CNMI. GAO personnel "analyzed available CNMI administrative and survey data, including Consumer Price Index data and CNMI data on the number and earnings of workers from the CNMI Department of Finance’s tax returns. The CNMI tax data provide ranges of earnings for both public and private sector workers and for both citizens and noncitizens, for 2005 to 2008."

Why GAO Did the Study:
In 2007, the United States enacted a law incrementally raising the
minimum wages in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI). The law applied the first $.50 per hour increase in July 2007 and mandated additional increases in each subsequent year until the minimum wages reach the level of the U.S. minimum wage-currently $7.25 per hour. American Samoa’s lowest paid will reach that wage in 2016, and the CNMI in 2015. In American Samoa, one of two tuna canneries employing almost a third of workers closed in September 2009. In the CNMI, where the garment industry was one of two major employers, the last garment factory closed in early 2009.

The American Recovery and Reinvestment Act requires GAO to report annually on the impact of the minimum wage increases in American Samoa and the CNMI. In this report GAO describes, since the increases began, wages, employment, employer actions, inflation-adjusted earnings, and worker views. GAO reviewed existing information from federal and local sources. GAO also collected data from large employers (at least 50 employees) through a questionnaire and from small employers and workers through discussion groups, in addition to conducting interviews during visits to each area.

GAO shared the report with relevant federal agencies and the governments of American Samoa and the CNMI and incorporated their comments as appropriate.
Highlights From GAO Concerning CNMI:
  • In the CNMI, the first minimum wage increase raised wages for about a third of workers at private sector employers that responded to GAO’s questionnaire. June 2009 wage data from GAO’s questionnaire indicate that the future increases will affect the wages of more than 80 percent of those employers’ workers by 2015.
  • CNMI government data show that following the 2007 wage increase, employment continued an existing downward trend largely reflecting the garment factory closures. Small employers and other private sector officials expressed mixed views about the future increases, and many expressed greater concern about immigration changes.
  • In questionnaire responses, employers reported having taken cost-cutting actions, such as freezing hiring, since the increases began and also reported planning such actions by the end of 2010. Employers attributed their actions both to the minimum wage increases and to other factors. Based on an analysis of responses from CNMI employers in the hotel industry, GAO found that raising room rates to cover higher wage may cause a 2.6 to 13.7 percent decline in visits to the CNMI.
  • CNMI government tax data show that average annual inflation-adjusted earnings declined by about 6 percent from 2006 to 2008. GAO estimated that annual inflation-adjusted earnings for minimum wage full-time workers who retained their jobs and hours rose by about 12 percent.
  • In discussion groups, CNMI workers generally expressed support for the minimum wage increases and cited other factors affecting living standards.
Minimum Wage Increases Have Not Raised Standard of Living
We all know (unless you are the governor or one of his obedient Covenant followers) that no one could maintain a decent standard of living in the CNMI while earning the present wage of $4.55. It is impossible to earn that meager wage and to be able to own a modern house or pay rent for a decent apartment, to afford to buy and maintain a vehicle, and to pay for necessities like food, utilities, medical insurance or care, clothing, food, etc. Especially considering that commodities cost far more in the CNMI than they do it the U.S. mainland where very few workers can survive on the U.S. minimum wage without working two or three minimum wage jobs. Most CNMI minimum wage earners pool resources, share housing, skimp, or go without.

Minimum wage is not a living wage as was illustrated perfectly in the book, Nickeled and Dimed: On Not Getting By in America by journalist Barbara Ehrenreich. (If you have not read this book, read it!) You can also check out the living wage calculator which illustrates living wage, poverty level, and minimum wage for specific cities and states. Minimum wage does not even reach the poverty level in most localities, and certainly not in the CNMI.

The GAO report stated:
From 2006 to 2008, average annual inflation-adjusted earnings in the CNMI declined by about 6 percent. In particular, according to CNMI government tax data, average annual earnings rose by about 12 percent to $12,781 in 2008. However, from 2006 to 2008 average prices increased by about 19 percent. Therefore, inflation eroded all income gains over the 2006-2008 period.
According to the CNMI government, most consumer goods in the CNMI are imported. As a result, the increase in local prices from 2006 to 2008 appears to have been largely due to price increases in imported goods such as food and utilities. In particular, the CNMI Consumer Price Index shows that prices rose by about 19 percent from 2006 to 2008. Over the same period, the price of imports such as food increased by about 8 percent and the price of housing and utilities such as electricity increased by 53.5 percent. According to data from the CNMI’s Commonwealth Utilities Corporation, electricity rates increased by 25 percent in 2007 alone. In contrast, the price of education and communication services, mostly a domestic product, has dropped from 2006 to 2008 by 0.5 percent.
This report points out something else that I stated in my 2008 status report: The foreign contract workers' earnings have actually backtracked since minimum wage increases have taken place. Employers who previously provided housing or barracks either stopped that benefit or charge for the housing. Likewise with the food benefit. GAO stated:
However, for foreign workers whose employers chose to add charges for food and lodging after the minimum wage increases, inflation-adjusted earnings may have increased less or have decreased since 2006. According to the CNMI government, employers providing room and board are permitted to deduct up to $100 for lodging and $100 for food per month from the wages of foreign workers. Employers and workers we spoke with told us that in response to minimum wage increases, some employers started to make these deductions from foreign workers’ paychecks

Therefore, we estimate that in 2008, foreign workers could earn from $5,700 to $8,100, depending on deductions for food and lodging.25 As a result, those workers may have experienced a range of changes in their inflation-adjusted earnings from 2006 to 2008, from a 12 percent increase with no change in deductions to a 21.4 percent decrease with the maximum allowable deduction.
What the report does not say is that employers have also routinely violated contracts by either not paying for medical expenses or deducting them from the foreign employee's pay. The foreign workers also reported that employers routinely told them if they wanted to be renewed, they would have to pay for the application fees including the cost of a physical and permit fees to DOL. So in reality many employer have stuck it to the foreign workers with much more than added housing and food expenses.

The GAO report included some history that describes how the CNMI got to where it is today and the vast differences between private sector and public jobs wages:
During the expansion of the CNMI garment and tourism industries prior to 1995, the CNMI economy became dependent on foreign labor, as the CNMI government used its authority over its own immigration policy to bring in large numbers of foreign workers and investors. In 1995, two-thirds of the CNMI working population were temporary residents, including about 93 percent of workers in the garment industry and slightly over 72 percent in the tourism industry. In contrast, in the same year, U.S. citizens and permanent residents of the CNMI held about 96 percent of jobs in the public sector. As a result, the CNMI economy developed a two-tiered wage structure, with U.S. citizens and permanent residents earning 3.5 times more than temporary residents in 1995.
The report also states that most hourly workers support minimum wage increases:
Salaried and hourly workers we spoke with generally expressed support for the minimum wage increases. For example, the majority of WIC recipients we spoke with in Saipan and Tinian favored future minimum wage increases. Hotel human resources staff also stated that the minimum wage increases were long overdue. Local workers in the discussion groups expressed their desire to earn higher wages to cope with increasing costs. However, some workers also said they were uncertain whether increases in labor costs due to the minimum wage increases had been responsible for price increases.
CNMI Department of Commerce Secretary Michael Ada sent a letter to GAO challenging many aspects of the report that the CNMI government was given a chance to review. That letter is included in the report. While he questions the validity of the report, it is important to note that the Fitial Administration questions any report that they have not written or controlled, and any report that disagrees with their agenda so that is not surprising.

GAO responded to the Fitial Administration's comments:
1. The CNMI government stated that our summary-level finding regarding CNMI wages is insufficient and not representative of the overall CNMI workforce because of our large-employer questionnaire’s coverage. First, it noted that the questionnaire covers employers with 50 or more employees but excludes smaller employers. Because key federal sources of data on the U.S. labor market do not cover these insular areas, we collected our own data on employers through the questionnaire, discussion groups, and other methods such as interviews. Our report appropriately states the limitations of the questionnaire data and repeatedly notes that the data may not be representative of all CNMI workers and employers. In addition, we determined that the most effective and least burdensome method of collecting information from small employers would be to conduct discussion groups targeting these employers. Both the Saipan and Tinian Chambers of Commerce assisted us in inviting small employers to discussion groups in the CNMI, and our report summarizes their views (see app. IV, employment section). Small employers also were invited, among others, to share their views at a public forum we held in the CNMI and to send comments to an e-mail account we established for this purpose. Furthermore, while we use the terms “large employers” and “small employers” in our report for clarity, the U.S. Small Business Administration generally defines small employers as having, depending on the industry and other factors, employees numbering from 500 to 1,500 or fewer. By these definitions, our questionnaire covers many small employers. Second, the CNMI government expressed concern about the questionnaire’s response rate, given that 33 out of 61 employers responded to our questionnaire. While we spent considerable effort to obtain as high a response rate as possible, employers were not required to respond, and the response rate reflects the individual decisions of CNMI employers who received the questionnaire about whether to provide information regarding the extent to which minimum wage increases had affected their operations.

2. The CNMI government incorrectly stated that the report does not include findings related to employees in the public sector. Our findings related to public sector employees are included in multiple sections of appendix IV. In addition, the CNMI government stated that our summary-level finding related to wages should note that the questionnaire included greater coverage of public than private sector employees. We disagree. Our report findings on public and private sector employees combined note that the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined. However, this limitation is not relevant to findings on public sector workers alone or on private sector workers alone.

3. The CNMI government stated that GAO’s findings related to employer actions understate the negative impact of minimum wage increases on small employers. We note that the employer actions section does not address the actions of small employers because they were not covered by the questionnaire; however, findings related to small employers are included in the preceding report section on employment.

4. The CNMI government comments on the inflation-adjusted earnings findings reflect misunderstanding of the analysis presented. The CNMI government commented that the analysis of changes in earnings should, but does not, account for changes in local prices. In fact, the inflation-adjusted earnings data we present account for changes in local prices, using local Consumer Price Index data from the CNMI Department of Commerce. Accordingly, the findings based on the earnings analyses for both average wage earners and minimum wage earners fully account for CNMI price increases.

5. The CNMI government stated that it questions the findings related to worker views based on our discussion groups. As we note in the report’s objectives, scope, and methodology section, discussion groups are not designed to provide results generalizable to a larger population or to provide quantitative estimates. However, discussion groups are a qualitative research method capable of adding valuable information that may be difficult or impossible to collect through quantitative methods. Given the relevance of the minimum wage increases to workers, we considered it critical to include their views; however, no existing federal data source provided this information. We believe the discussion groups were an appropriate and worthwhile approach for collecting and including the views of workers.

6. The CNMI government stated that we should ask for more time to study the effects of minimum wage increases; however, the law does not permit additional time for this report. The American Recovery and Reinvestment Act of 2009 requires that GAO report annually on the impact of past and future minimum wage increases in American Samoa and the CNMI, and the reports are due between March 15 and April 15 of each year.
What are the CNMI officials who oppose minimum wage increases really supporting? The right for politicians to maintain power in having control over who gets the high paying government jobs? (As in, "Vote for me and I'll give you a government job.") The right to keep the CNMI as a chain of poor islands where the vast majority of the population lives far below the poverty level? The right to continually rely on U.S. taxpayers to supplement the incomes of families living at below poverty level with medicaid and food stamps? The right to allow the rich to get richer, and the poor to get poorer?

An ever-increasing number of locals have left or are leaving the islands for higher paying jobs in the U.S. Soon the same exodus will take place with foreign workers. Seriously, who does this administration that opposes minimum wage increases think that they will be able to recruit to work for $4.55 an hour?

Lastly, American Samoa and the CNMI have two very different economies and the two should not be tied together in considering minimum wage increases. They should be viewed separately.


Saipan Writer said...

I scanned the report, but get glassy-eyed when I read these things.

(Must confess-I also scanned you're post. I'm looking for easy /quick points.)

Did you have any sense of whether the report favors a delay in the minimum wage or staying on track as legislated?

Wendy said...

I do not think it favors a delay, which is why Ada wrote the letter questioning the report. The DOI wrote a letter criticizing the fact that GAO did not have sufficient commentary on the future impact of minimum wage in Am. Samoa and the CNMI. The report said that workers in the CNMI generally supported the increase.

Anonymous said...

Of course the workers will support the increase in the minimum wage. It is the private sector that won't.
I personally think the wages should be raised every 6 months and not every year to get this wage up faster so that many of the soon to be ex Govt. workers will be able to support their family and also to get the "vote" away from the intimidation of the politicians.
This also has a benefit for the contract workers that may not qualify for employment under the Fed guide lines in the future.
This will enable them to maybe pay off their houses and other things in their homeland faster in the face of their uncertain future.