Marianas Variety

Tuesday, September 30, 2014-1:47:02A.M.

Last updateTue, 30 Sep 2014 10am

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GAO: Hotels raised prices, cut costs due to wage increases

IN the aftermath of federally mandated wage increases, Northern Marianas hotels had to implement cost-cutting measures and raise prices from 2010 to 2013.

This was part of the latest report by the U.S. Government Accountability Office to the U.S. Congress on economic indicators since the implementation of minimum wage increases.

The investigative arm of Congress, GAO cited responses to the questionnaire it distributed among hotel workers and said that 99 percent of those polled indicated that their employer hotels used cost-saving strategies and 95 percent said the hotels raised prices.

This was attributed “to a moderate or large extent” to the minimum wage increases.

The CNMI’s current minimum wage rate is $5.55 an hour — up from $3.05 in 2007. It is due for another 50-cent increase on Sept. 30, 2014. The local rate will be gradually increased until it reaches the current federal minimum wage of $7.25 an hour by 2018.

Not only hotels but other business establishments in the CNMI have increased prices, reduced work-hours or laid off workers to cope with the gradual wage hikes.

GAO said hotels attributed cost-cutting measures to the minimum wage increases; however, they recognized a number of other factors as well.

Other factors include increased utility, material and transportation costs.

GAO said employers representing 60 percent or more of workers employed by questionnaire respondents cited, among other things, changes to U.S. immigration law as contributing to their actions.

Based on the responses in the questionnaire, with further increases to the minimum wage looming, the hotels planned to take further actions to introduce labor- or cost-saving strategies and to raise prices.

GAO also found that hotels planned to reduce operations, delay expansion, lay off hourly employees, reduce hours or reduce overtime.

Employment

The GAO report noted that since 2006, employment in the Northern Marianas has dropped by 45 percent.

It also said that average inflation-adjusted earnings of those employed fell by about 2 percent overall from 2006 to 2012 “but rose by 1 percent from 2011 to 2012.”

Referencing CNMI tax data, GAO said overall CNMI employment dropped every year from 2006 to 2012.

In 2011-2012 alone, there was a 6 percent decrease, from 25,229 to 23,720.

The report acknowledged that the early decreases could be attributed to the closure of the garment factories in the CNMI which employed many foreign workers.

GAO also gathered that employment of U.S. citizens fell by less than 1 percent from 2011 to 2012.

There was a close to 9 percent drop in 2006-2012, 10,882 to 9,934.

GAO also pointed out it was not able to report on the employment level for 2013 as tax data were not available as yet.

Based on the 2013 questionnaire, hourly employment in the responding hotels increased by 3 percent in 2012-2013, from 1.715 to 1,763.

Flat economy

The Northern Marianas economy has remained relatively flat since 2009, according to GAO.

“The CNMI’s 2012 real GDP per capita of $11,537 was an approximately 24 percent decrease from the 2006 real GDP per capita of $15,150,” the GAO report said.

The latest U.S. Department of Commerce’s Bureau of Economic Analysis estimated the CNMI’s GDP in 2012 at $701 million.

But GAO said in real terms, GDP decreased by about 36 percent from 2006 to 2012.

GAO is mandated to report in 2014 and every three years thereafter to measure the impact of the minimum wage increases.