The report by the investigative arm of the U.S. Congress stated that the gradual minimum wage increases since 2007 imposed additional costs on businesses during a time in which “multiple factors made it difficult to operate.”
The employers who responded to the GAO questionnaire reported reduction in work hours, freeze hiring, decreased benefits and raising prices of goods or services.
“Some respondents attributed these actions to minimum wage while others cited other factors including [the federal] immigration law and declining population,” the report stated.
Other employers cited the big decline in tourist arrivals and flight seats between 2005 and 2010 from Japan — the CNMI’s largest tourist market.
The report stated that since 2006, hotel occupancy hovered between 58 and 64 percent while “inflation-adjusted room rates declined by 12 percent” from 2006 to 2009.
“If the trends continue, the [next] scheduled minimum wage increase will increase the share of the hotels’ total operating costs to payroll from approximately 29 percent of operating costs in 2010 (minimum wage increases represent 1 percent of total operating costs) to 34 percent in 2016 (minimum wage increases represent about 8 percent of total),” the GAO report stated.
Although workers welcomed the wage increases, the report said they also expressed fear of losing jobs and work hours.
Employment in the CNMI went down by 13 percent from 2008 to 2009, and 35 percent from 2006 to 2009 reflecting the closure of the garment factories.
The GAO pointed out that the exodus of foreign workers had little impact on the unemployment rate in the CNMI.
But future minimum wage increases would affect the wages of 95 percent of the current workers of the CNMI’s remaining industry — tourism.
The GAO report described the economic decline in the CNMI as “substantial,” adding that budget shortfalls threaten the ability to fund public services and make investments in support of future economic development.
Moreover, despite the identification of opportunities for new industries and investments, the CNMI did not succeed in attracting significant new investments, the report stated.
The U.S. Congress passed a law in 2007 gradually raising the minimum wage in the CNMI by 50 cents each year until it reaches the U.S level of $7.25 per hour. The CNMI has had three increases since then, but the one for 2011 was delayed due to the local leaders’ concerns that businesses needed a “breathing room” amid a worsening economy.
Prior to the 2007 wage increase, the CNMI minimum wage rate was $3.05. Local attempts to raise it were repeatedly blocked by the garment industry.
You can access the report at www.gao.gov/Products/GAO-11-427.
Accurate
The Saipan Chamber of Commerce said the report accurately depicted the impact of the 67 percent increase in the local minimum wage rate on businesses since 2008.
Chamber president Douglas Brennan said the escalating costs of doing business — which include higher utility, shipping and oil costs — have affected the number of jobs, consumer pricing, delivery of public services and a standard of living “we took for granted not that long ago.”
“The GAO report illustrates this well,” said Brennan.
In a statement, the chamber claimed that while the report “properly notes the…changes in world trade agreements [and their impact on] the industry, the actual impact of those minimum wage increases are ignored when one considers apparel operations remained until into 2009. It was increased wage rates that drove the industry out of Saipan, not [international trade rule] changes.”
Most local garment factories, however, began shutting down when the new international trade rules took effect in 2005 after a 10-year transition period.
According to the chamber, the elimination of the garment industry “has had the single largest negative effect on the CNMI economy.”
The chamber noted that the 2008 GAO report predicted the local economy would get worse and the population would decline further.
“Then why did the U.S. Congress implement four successive increases in minimum wage rates knowing full well the effects GAO predicted would likely occur? The U.S. Congress certainly can’t ignore GAO’s new found data now,” Brennan said.
The GAO report, he added, is “anti-climactic.”
This issue now is what the U.S. Congress will “do to address the impact” on the CNMI as reported by GAO, he said.
Press Secretary Angel Demapan, for his part, said the administration thanks the GAO for its reports regarding the local economy.
“We noticed the recent report is comparable to the previous report on the same topic with the exception of the ongoing uncertainties with regard to the pending transitional worker regulations, increasing energy costs, and several other factors,” said Demapan.
He said they recommended that GAO conduct a living standards studies.
“We believe it is important to gauge the level of poverty in the CNMI to get a clearer understanding of where we stand in terms of living below or above the national poverty level. Are we above it or right on the line? And if we are below and/or on the poverty line, what can the U.S. Congress, federal agencies and the local government do to improve that?”
