American Samoa: Alternatives for Raising Minimum Wages to Keep Pace with the Cost of Living and Reach the Federal Level
Published: 2016-12-02T00:00:00

Fast Facts:
The federal minimum wage has not been applied in American Samoa for many years. In 2007, Congress passed legislation to raise the territory's minimum wages, but subsequent legislation delayed or reduced these increases. The current schedule would raise all of the territory's minimum wages to the current federal level by 2036—although any increase to the federal minimum wage will delay this schedule.
We identified two basic approaches to raising American Samoa's minimum wages to keep up with the cost of living and reach the federal level:
(1) Indexing minimum wages to the cost of living, and
(2) Raising minimum wages according to a schedule.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal minimum wage, established by the Fair Labor Standards Act of 1938, has not been applied in American Samoa for many years. In 2007, Congress passed legislation to incrementally raise minimum wages in American Samoa to the federal level. Subsequent legislation postponed or reduced these increases.
Pub. L. No. 114-61, enacted in October 2015, included a provision for GAO to report on alternative ways of increasing minimum wages in American Samoa to keep pace with the territory's cost of living and eventually equal the federal minimum wage. In addition, Pub. L. No. 111-5, enacted in February 2009, included a provision for GAO to report periodically on the economic impact of minimum wage increases in the territory. This report examines (1) the history of minimum wage implementation in American Samoa; (2) the status of the American Samoa economy, including changes in employment, earnings, and key industries since scheduled minimum wage increases began in 2007; and (3) alternative approaches for increasing minimum wages in American Samoa to meet GAO's two reporting criteria in Pub. L. No. 114-61. GAO reviewed American Samoa local and federal earnings information; collected data from American Samoa employers in a key industry through a questionnaire; and reviewed methods used to set minimum wages in the United States and around the world.
Commenting on a draft of this report, the Department of the Interior suggested further study and the American Samoa government suggested creating a committee to set minimum wages in the territory.
section_title: What GAO Found
paragraphs: Federal legislation passed in 2007 created a schedule of periodic increases to minimum wages in American Samoa. During the previous 50 years, special industry committees had periodically recommended industry-specific minimum wages. Historically, minimum wages in the U.S. territory have generally remained below the federal minimum wage (see fig.). The current schedule of increases would raise all American Samoa minimum wages to the current federal hourly rate of $7.25 by 2036. However, any new increase in the federal rate will lengthen the time required to achieve convergence.
American Samoa's gross domestic product (GDP) per capita is less than a quarter of the U.S.'s GDP per capita and, adjusted for inflation, has declined over the past decade. Local government and tuna canneries are the largest employers, accounting in 2014 for 42 percent and 14 percent of the workforce, respectively. From 2007 to 2014, overall employment fell by 4 percent, and workers' average inflation-adjusted earnings fell by about 11 percent. During the same period, cannery employment decreased by 50 percent, and the minimum wage for cannery workers rose. Cannery officials reported labor costs and fisheries access among the challenges of operating in the territory, and one of the two canneries announced plans to suspend operations indefinitely in December 2016. The American Samoa government has expressed concern that continued minimum wage increases are at odds with sustainable economic development.
There are two basic approaches for increasing American Samoa's minimum wages to keep pace with the cost of living in American Samoa and to eventually equal the federal minimum wage—the criteria included in the provision for GAO to report on this issue. The first approach relies on indexing minimum wages to the cost of living. The second approach relies on using a schedule of future adjustments. Aspects of each approach could also be combined, as needed, with respect to the amount and timing of future increases to the territory's minimum wages. Given concerns about potential negative effects of increasing American Samoa's minimum wage on the territory's economy, other design options could be incorporated to safeguard against such effects. For example, minimum wage increases could be reduced or suspended based on economic indicators that reflect the general health of the American Samoa economy or critical sectors.

section_title: Letter
paragraphs: American Samoa, a U.S. territory, has historically had higher levels of  poverty than the U.S. states and has not been subject to the federal  minimum wage for many years. In 2007, Congress passed legislation that  established a schedule of periodic increases that would have raised  minimum wages in American Samoa to the current federal minimum  wage ($7.25 per hour) by 2016. In subsequent years, Congress passed  legislation postponing or reducing the scheduled increases.
The most recent of these legislative actions, adopted in 2015, included a  provision for GAO to report on alternative ways of increasing minimum  wages in American Samoa to keep pace with the cost of living in the  territory and to eventually equal the federal minimum wage. In addition,  prior legislation included a provision for GAO to report on the impact of  past and future increases in minimum wages in American Samoa by April  2017. This report examines (1) the history of minimum wages in American  Samoa; (2) the status of the territory’s economy, including changes in  employment, earnings, and key industries since scheduled minimum  wage increases began in 2007; and (3) alternative approaches that could  be used to ensure that minimum wages in American Samoa keep pace  with the cost of living and eventually equal the federal minimum wage.
We took the following steps to address these objectives (see app. I for  further details of our methodology).
To examine the history of minimum wages in American Samoa, we  analyzed U.S. Department of Labor (DOL) records. We undertook an  analysis of the extent to which prior minimum wages in American  Samoa kept pace with the cost of living and fell at or below the federal  minimum wage.
To examine the status of American Samoa’s economy, including  changes in employment, earnings, and key industries since scheduled  minimum wage increases began in 2007, we reviewed relevant GAO  reports and analyzed data obtained from the American Samoa  government; from American Samoa tuna industry employers, in  response to a questionnaire that we provided; and from the U.S.  Department of Commerce. We used consumer price index (CPI) data  from American Samoa to determine inflation-adjusted wages. We  estimated tuna canneries’ costs in applying future scheduled minimum  wage increases and interviewed cannery representatives regarding  the impact of these increases and other competitive challenges facing  their industry. Although our approach yielded information on trends in  employment, wages, and earnings in American Samoa, we were not  able to distinguish between the effects of minimum wage increases  and the effects of other factors, such as changes in the global  economy, fluctuations in energy prices, and global trade liberalization.  Our analyses of employment and earnings included data through  2014, extended to 2015 where possible. After we had completed our  analyses and provided a draft of this report to federal agencies and  the American Samoa government, one of the two companies with  canning operations in American Samoa announced that it would  suspend these operations indefinitely in mid-December 2016. Our  report acknowledges this development as well as earlier  announcements of short-term suspensions of operations by the other  company. However, in the absence of full information for 2016, we did  not revise our overall analyses of changes in employment or earnings  to reflect these developments.
To examine alternative approaches for increasing minimum wages in  American Samoa, we reviewed literature on the minimum wage- setting systems in the United States, in U.S. states with their own  minimum wage, and in other countries. We also examined cost-of- living indices generated by the U.S. government and analyzed  associated data. Using historical cost-of-living data, we estimated the  length of time it would take for American Samoa’s minimum wages to  reach the current federal minimum wage under varying rates of  increase in the cost of living. We produced similar estimates using  various hypothetical schedules for increasing American Samoa  minimum wages. We also developed scenarios illustrating how  indexing and schedule-based approaches could be combined to meet  both criteria. The scope of our work was limited to examining  approaches for increasing American Samoa’s minimum wages that  would directly address the criteria specified for GAO’s review. Our  work did not cover other programs and policies that could supplement  the incomes of low-wage workers, such as the Earned Income Tax  Credit. Our work also did not cover possible adjustments in U.S. trade  or tax policies that might help offset potential negative impacts of  minimum wage increases on employers.
We conducted this performance audit from November 2015 through  December 2016 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: American Samoa
paragraphs: American Samoa consists of five volcanic islands and two coral atolls in  the South Pacific, located about 2,600 miles southwest of Hawaii (see fig.  1). The territory has a combined land area of 76 square miles, slightly  larger than Washington, D.C.
The 2010 U.S. Census found American Samoa’s population to be 55,519,  a decrease of 3 percent from its 2000 population (see fig. 2). Individuals  who are neither U.S. citizens nor U.S. nationals, most of them from the  Independent State of Samoa, composed approximately 35 percent of the  territory’s population in that year.
The 2010 census also reported that American Samoa’s median  household income remained well below, and its poverty rate well above,  those of the United States. In 2009, American Samoa’s median  household income was $23,892, 47 percent of the U.S. median  household income; American Samoa’s poverty rate was 57.8 percent, in  contrast to the U.S. rate of 15.1 percent. Approximately 98 percent of the  population of American Samoa lives on the main island of Tutuila, and  most economic activity (including tuna canning) and government  operations take place in and around the harbor of the capital city, Pago  Pago, on Tutuila. Most of Tutuila consists of rugged terrain, with little level  land (see fig. 3).
U.S. interest in the Samoan islands began in 1872 with efforts by the U.S.  Navy to establish a naval station in Pago Pago harbor. A U.S.-British- German protectorate over all Samoan islands ended in 1899, when the  islands that comprise American Samoa were placed under U.S. control.  The U.S. Naval Station in the territory was established in 1900. From 1900 through 1904, the U.S. government negotiated control over  American Samoa, and the U.S. Navy subsequently took responsibility  for federal governance of the territory. In 1951, governance was  transferred to the Secretary of the Interior. In 1960, American Samoa  residents adopted their own constitution, but amendments to the  constitution may be made only by an act of Congress.
Persons born to non-U.S. citizen parents in American Samoa are U.S.  nationals but may apply to become naturalized U.S. citizens. In addition,  U.S. noncitizen nationals from American Samoa have the right to travel  freely, live, and work throughout the United States. American Samoa  exercises authority over its immigration system and customs through  locally adopted laws. While American Samoans may serve in the U.S.  military, they do not have the right to vote in U.S. national elections and  do not have voting representation for legislation passed before the full  U.S. Congress, including legislation setting the minimum wage in  American Samoa.
section_title: U.S. Government Support for the American Samoa Economy
paragraphs: The U.S. government has supported American Samoa’s economy  through trade and tax policies.
U.S. trade policies provide tariff-free access to the U.S. market for  processed tuna from American Samoa, while foreign suppliers  generally are subject to tariffs for these goods. For example, foreign  suppliers’ canned or pouched tuna packed in oil is subject to a 35-  percent tariff, and their canned or pouched tuna not packed in oil is  subject to a 12.5 percent tariff. However, U.S. trade agreements  with certain countries may provide those countries tariff-free or  reduced-tariff access to the United States.
U.S. tax policies have reduced federal taxes on income earned by  qualifying U.S. corporations investing in American Samoa. Under  the Internal Revenue Code, qualifying American Samoa tuna  canneries have received a tax credit for U.S. corporate income  taxes. Canneries in American Samoa have also benefited from  exemptions from local taxes.
The United States provides assistance to the government of American  Samoa. In fiscal year 2015, American Samoa’s single audit reported  that U.S. federal grants provided $164 million of $255 million in total  government revenue to American Samoa. Ranked by grant  expenditures, the largest federal grantors were the Departments of  Health and Human Services ($40.1 million), the Interior ($34.8  million), Agriculture ($32.7 million), Education ($23.7 million), and  Homeland Security ($10.2 million).
section_title: Systems for Setting Minimum Wages
paragraphs: Systems for setting minimum wages vary across the United States and  internationally in many respects. Appendix II provides information about  systems for setting minimum wages around the world, drawn largely from  the International Labor Organization (ILO). Key attributes of these  systems include the following:
Decision-making authority: the entity responsible for decisions on  how to set minimum wages. For example, decisions may be made by  the government itself or delegated to a board or committee created for  this purpose.
Objectives: the primary outcomes that a minimum wage is designed  to achieve. Such outcomes may relate to the needs of workers,  conditions facing employers or the overall economy, or both. Systems  employ varying degrees of specificity in this regard; some list factors  to be considered, while others define specific criteria.
Adjustment mechanisms: procedures for making adjustments to a  minimum wage. For example, a minimum wage may be indexed to an  economic indicator (e.g., changes in the CPI) and adjusted at  specified intervals to reflect changes in that indicator.
Coverage: the population of workers to which a minimum wage  applies. Some minimum wage systems exclude workers of a certain  age, industry, or occupation from minimum wage coverage.
Level: the rate of a minimum wage. This rate may be viewed in  nominal terms; systems may set a single—usually hourly—minimum  wage or may set multiple minimum wages that vary by industry,  occupation, or region. The minimum wage rate may also be viewed in  comparative terms: Minimum wages may be set at low levels relative  to other indicators (e.g., average wages) and thus apply to a  comparatively small share of the workforce. Alternatively, they may be  set at relatively high levels and thus apply to a comparatively large  share of the workforce.
section_title: Minimum Wages in the United States
paragraphs: The federal minimum wage was first enacted as part of the Fair Labor  Standards Act of 1938 (FLSA). The FLSA specified that for industries  engaged in commerce or in the production of goods for commerce, its  policy was to correct and, as rapidly as practicable, to eliminate labor  conditions detrimental to the maintenance of the minimum standard of  living necessary for health, efficiency, and general well-being of workers  without substantially curtailing employment or earning power. Since  1938, there have been nine amendments to the FLSA establishing new  minimum wages and usually raising the rate through a series of steps  over 2 to 4 years (see table 1; also see table 6 in app. III for a summary of  selected federal laws related to minimum wages in American Samoa).
The U.S. federal minimum wage applies generally to any employee  engaged in commerce or the production of goods for commerce, with  certain exemptions. For example, federal minimum wage and overtime  requirements do not apply to individuals engaged in agriculture if their  employer is an immediate family member. These exemptions are also  extended to individuals processing seafood while at sea. As of July  2009, the federal minimum wage was set at $7.25 per hour. According to  DOL, 3.3 percent of workers in the United States who were paid on an  hourly basis in 2015 earned wages at or below the federal minimum  wage.
In general, individual U.S. states, the District of Columbia, and local  governments may also set their own minimum wages. As of January  2016, all but five U.S. states, as well as many cities and counties, had  adopted their own minimum wage laws. According to the DOL, as of  January 2016, 29 states and the District of Columbia had established  minimum wages that are higher than the federal minimum wage. In  addition, according to data assembled by the University of California  Center for Labor Research and Education, 40 U.S. cities and counties  have adopted minimum wages that are higher than the federal minimum  wage. Some states and localities have scheduled increases to their  minimum wages in a series of steps over several years. Others adjust  their minimum wage by indexing it to an economic indicator—in most of  these cases to a CPI as calculated by the Bureau of Labor Statistics  (BLS). (See app. IV for a summary of state minimum wage laws.)
section_title: History of Minimum Wages in American Samoa
paragraphs: For 5 decades beginning in 1956, federal policy called for the minimum  wage rates for industries in American Samoa to reach the federal  minimum wage as rapidly as was economically feasible without  substantially curtailing employment. Special industry committees (SIC)  were directed to recommend the highest minimum wages for industries in  American Samoa that would not substantially curtail employment in the  industry or give any industry in American Samoa a competitive advantage  over any industry in the rest of the United States. In 2007, Congress  passed the Fair Minimum Wage Act of 2007, which eliminated the SICs  and created a schedule of increases to American Samoa minimum wages  that has since been revised and applied over a number of years. Since  1957, American Samoa minimum wages have generally remained below  the federal minimum wage. American Samoa minimum wages did not  keep pace with changes in the cost of living in American Samoa in the  decade before 2007 but have generally kept pace since then.
subsections: section_title: Special Industry Committees Set American Samoa Minimum Wages from 1957 to 2006
paragraphs: From 1957 to 2006, SICs periodically recommended minimum wages for  American Samoa. While the FLSA was enacted in 1938, according to  testimony before congressional committees in 1956, wages in American  Samoa were generally below the federal minimum wage in effect at that  time for a variety of reasons. The act was amended in 1956 to provide  for American Samoa minimum wages to be established through an SIC  process similar to that used in Puerto Rico and the U.S. Virgin Islands.  (See text box.)
SICs and Scheduled Minimum Wage Increases in Puerto Rico and the U.S. Virgin  Islands  In its progression from special industry committees (SIC) to scheduled increases, the  history of minimum wage-setting in American Samoa is similar to that of two other U.S.  territories, Puerto Rico and the U.S. Virgin Islands. Although the United States does not  currently use special purpose boards or committees to set federal minimum wages, the  Fair Labor Standards Act of 1938 (FLSA), as originally written, provided that “industry  committees” could be employed to recommend minimum wages, with a view toward  increasing the wages in lower-wage industries to reach the newly established statutory  minimum wage. This provision was briefly applied in the United States and, in 1940,  Congress enacted legislation to apply it in Puerto Rico as well as the U.S. Virgin  Islands.   Beginning in the 1970s, Congress passed legislation that set minimum wages for  certain industries in these two territories to equal the federal minimum wage and  created a schedule of increases for minimum wages in the remaining industries to  eventually equal the federal minimum wage. These minimum wage increases were  subject to potentially higher increases as recommended by the SICs. Minimum wages  in the U.S. Virgin Islands reached parity with the federal minimum wage by 1989, when  Congress passed legislation amending the FLSA to eliminate the SIC provisions for  setting minimum wages in that territory. The same act provided for a final series of  increases to bring all minimum wages in Puerto Rico to parity with the federal minimum  wage by April 1, 1996.
The SICs were directed to investigate conditions in all industries and  enterprises in American Samoa covered by the FLSA and to file a report  containing their findings of fact and recommendations for minimum wages  with the Secretary of Labor. The FLSA charged the SICs with  recommending the highest minimum wages possible without substantially  curtailing employment in the industry and without giving any industry in  American Samoa a competitive advantage over any industry in the rest of  the United States. After the SICs filed their report with the Secretary of  Labor, the Secretary was required to issue a wage order establishing  minimum wages in American Samoa based on SIC recommendations  after the expiration of 15 days, following the publication of the  recommendations in the Federal Register.
The Secretary of Labor was directed to appoint each SIC’s chairman and  an equal number of members to represent the American Samoa public,  employees in the industry, and employers in the industry. In addition, the  Secretary was to provide each SIC with an economic report containing  data on the matters before the SIC, as well as a lawyer and an economist  to assist the committee. The DOL appointed the first SIC in 1957 and  appointed subsequent SICs periodically thereafter.
The SICs recommended minimum wages for a growing number of  industry categories. The first SIC recommended minimum wages below  the federal minimum wage for each of four industry categories—fish  canning and processing, shipping and transportation, petroleum  marketing, and miscellaneous industries. These categories changed over  the course of the SIC period. The final SIC, which recommended  minimum wages to be applied in 2005 and 2006, recommended minimum  wages for 18 industry categories. These 18 industry categories remain in  existence for present-day minimum wages in American Samoa.
section_title: American Samoa Minimum Wage Increases Have Been Set by Law since 2007
paragraphs: Since 2007, federal legislation has determined minimum wages in  American Samoa. The Fair Minimum Wage Act of 2007 amended the  FLSA, raising the federal minimum wage from $5.15 to $7.25 per hour in  a series of three steps. Initially, when the bill for the Fair Minimum Wage  Act of 2007 was introduced in the U.S. House of Representatives, it did  not mention American Samoa; however, according to floor statements  attached to the bill, it was subsequently amended to include the territory  after some congressmen expressed concern that the act’s application of  the minimum wage increases to the CNMI, but not American Samoa,  represented a “loophole” to benefit the tuna industry. The amended  provision eliminated the SICs and introduced a schedule for raising the  minimum wages, by equal amounts, until all 18 minimum wage categories  in American Samoa reached the federal minimum wage. According to  the DOL, when the law was enacted, nearly 80 percent of eligible  American Samoa workers earned less than $7.25 per hour. Since 2007,  the schedule has been amended four times to delay or reduce scheduled  increases.
After the initial Fair Minimum Wage Act of 2007 schedule, each  subsequent law revising the schedule of minimum wage increases for  American Samoa extended the projected dates for American Samoa  minimum wages to reach the federal minimum wage. The initial (2007)  schedule, which called for $0.50 annual increases, would have increased  all American Samoa minimum wages to the current federal level by May  2016. Measures adopted in 2009 and 2010 retained the $0.50  increases but delayed their application, so that convergence between  American Samoa minimum wages and the federal minimum wage would  have occurred in 2018 rather than 2016. Subsequent measures— applying increases every third year and reducing each increase from  $0.50 to $0.40—delayed convergence of American Samoa minimum  wages with the federal minimum wage by more substantial intervals.  (App. V shows the projected dates for American Samoa minimum wages  to converge with the federal minimum wage under the past and current  legislated schedules.)
If American Samoa minimum wages continue to increase by $0.40 every  3 years as scheduled, and if the current federal minimum wage does not  increase, the highest minimum wage in American Samoa, for the  stevedoring (dockworker) industry, will reach the federal minimum wage  in 2027, while the lowest minimum wage, for the garment manufacturing  industry, will reach the federal minimum wage in 2036. Minimum wages  for the largest employer overall, government, and the largest private- sector employer, the fish canning and processing industry, will reach the  federal minimum by 2036 and 2033, respectively. Table 2 shows past and  projected American Samoa minimum wages for these industries. (See app. VI for the DOL Wage and Hour Division publication of the current  federal minimum wage in American Samoa by industry.) However, any  change in the current federal minimum wage will alter the projected dates  when American Samoa minimum wages will reach the federal minimum  wage. If the federal minimum wage rises above $7.25 before all American  Samoa minimum wages reach that level, then American Samoa minimum  wages will reach the federal minimum wage sometime after the current  projected timeframe of 2027-2036. Federal legislation to increase the  federal minimum wage was last passed in 2007, with annual increases  phased in over 3 years. Before 2007, there had been no increase in the  federal minimum wage for 10 years.
section_title: Minimum Wages in American Samoa Remain Lower Than the Federal Minimum Wage
paragraphs: Since 1957, American Samoa minimum wages have risen, first as  recommended by SICs and then in accordance with schedules set by  legislation. However, with the exception of 1986, when the highest  American Samoa minimum wages—for fish canning and processing,  petroleum marketing, and stevedoring—converged with the federal  minimum wage of $3.35, American Samoa minimum wages have  remained below the federal minimum wage. (See fig. 4.) The DOL had  advised the SIC that once the minimum wage rates in American Samoa  converged with the federal minimum wage, they would remain at that  level, unchanged by later SICs. Among American Samoa residents who  testified in 1986 before the 17th SIC, employees favored the minimum  wage increase, tuna cannery representatives opposed the increase, and  government representatives expressed mixed opinions. Congress passed  legislation declaring that the final rule establishing new minimum wage  rates based on the findings of the 17th SIC would have no effect and  directing that another SIC establish new rates based on the FLSA. In  1987, according to an American Samoa government report, the minimum  wage for the fish canning and processing industry decreased to $2.82 per  hour, and the minimum wages for petroleum marketing and stevedoring  both decreased to $2.80 per hour. No minimum wage in American Samoa  has since converged with the federal minimum.
The average annual growth rate of American Samoa minimum wages  was higher from 1957 to 2006, under the SIC system, than since 2006,  when scheduled increases began, possibly reflecting differences in  inflation rates during the two periods. Under the SICs, the highest and  lowest minimum wages in American Samoa increased at an annual  average rate of 4.2 percent and 4.4 percent, respectively. In contrast,  from 2006 through 2016, the highest and lowest minimum wages  increased at an annual average rate of 3 percent and 4.2 percent,  respectively. The average annual growth rate of the federal minimum  wage was also higher in the earlier period—3.9 percent—than in the later  period—1.6 percent. The difference between the American Samoa and  federal minimum wage growth rates before and after 2006, when the Fair  Minimum Wage Act of 2007 amended the FLSA, may reflect, in part,  pronounced differences in inflation during those two periods: Prices in the  United States grew annually by an average of 4.1 percent from 1957 to  2006 and by an average of 1.8 percent from 2006 to 2015.
Minimum wages in American Samoa are currently higher relative to the  federal minimum wage than they were during the SIC period. At present,  American Samoa minimum wages are 63 to 83 percent of the federal  minimum wage. In contrast, American Samoa minimum wages were 35 to  45 percent of the federal minimum in 1957 and were 52 to 79 percent of  the federal minimum wage in 2006.
section_title: Since 2007, Minimum Wages in American Samoa Have Generally Kept Pace with Changes in the Cost of Living
paragraphs: From 1997 through 2006, the later years of the SIC period, minimum  wages in American Samoa declined when adjusted for change in the cost  of living in either American Samoa or the United States overall. Since  scheduled increases in American Samoa minimum wages began in 2007,  however, minimum wages have generally kept pace with these  changes. The scheduled minimum wage increases in 2007, 2008, and  2009 raised minimum wages when adjusted for inflation in either  American Samoa or the United States overall. Inflation-adjusted minimum  wages then declined, as scheduled increases were postponed through  2014, but they rebounded as the most recent scheduled increase went  into effect in 2015. Overall, minimum wages in American Samoa, if  adjusted for inflation in either the territory or the United States, are slightly  higher today than in the year before scheduled increases began. For  example, if adjusted for inflation in American Samoa, the highest  minimum wage in the territory was about 4 percent higher in 2016 than in  2006. If adjusted for inflation in the United States, the highest minimum  wage was about 24 percent higher in 2016 than in 2006. However, when  adjusted for inflation in American Samoa, the highest minimum wage rate  in the territory was lower in 2016 than in 1997, despite the scheduled  increases that began in 2007. (App. VII illustrates changes in the highest  minimum wage from 1997 through 2016.)
section_title: Status of the American Samoa Economy
paragraphs: Government and tuna canning remain the territory’s largest employers,  although tuna exports and tuna cannery employment have declined. Total  employment declined from 2007 through 2010 but rebounded through  2014, while tuna cannery employment fell by 50 percent. Adjusted for  inflation in American Samoa, earnings for all employees also declined  from 2007 levels, although the minimum wage for cannery workers  increased. According to the tuna canneries, the canning industry faces a  number of challenges, including rising labor costs, decreased access to  fisheries, and erosion of preferential trade status. One of the two  companies with canning operations in American Samoa recently  announced that it would indefinitely suspend these operations, while the  other temporarily suspended operations for the second time in a year.  The American Samoa government has indicated that it sees minimum  wage increases to be in conflict with sustainable economic development.
subsections: section_title: American Samoa’s Gross Domestic Product
paragraphs: American Samoa’s GDP and GDP per capita are lower than those of the  United States.
The U.S. Department of Commerce’s Bureau of Economic Analysis  (BEA) estimated American Samoa’s GDP in 2015 at $641 million.
American Samoa’s GDP per capita in 2015 was $11,167— approximately 80 percent less than the overall U.S. GDP per capita of  $56,066.
From 2005 to 2015, American Samoa’s real GDP—that is, adjusted for  inflation in the territory in 2009 dollars—fell by 13 percent, and its GDP  per capita fell by 0.6 percent from 2005 to 2015, even as its population  declined. (Fig. 5 shows American Samoa’s GDP in 2002 through 2015  with and without inflation adjustment, as measured by the U.S. BEA.)  When adjusted for inflation, the U.S.’ GDP rose by 15 percent, and its  GDP per capita rose by 6 percent during the same period.
According to the BEA, changes in American Samoa’s tuna industry have  been important determinants of changes in its GDP. For example, the  BEA attributes the decline in the territory’s GDP to declines in activity in  the tuna canning industry, such as when canned tuna exports fell in 2010.  However, according to the BEA, increased activity in the tuna industry in  2014, including the construction of a multimillion-dollar tuna processing  plant, contributed to growth in private investment and goods exports due  to an increase in exports of canned tuna.
section_title: Government and Tuna Canning Remain Key Sectors of the Economy
paragraphs: The government sector and the tuna canning industry have historically  employed the largest numbers of workers in American Samoa. In 2014,  the government sector employed about 42 percent of the workforce in  American Samoa, and the canneries employed about 14 percent (see fig.  6).
Tuna exports to the United States from all sources, and from American  Samoa in particular, have dropped over the last few years (see fig. 7).  From 2008 to 2015, the nominal dollar value of canned tuna exported to  the United States from American Samoa fell by 37 percent.
Three tuna canneries have operated in American Samoa in the last  decade.
StarKist Co. has had a cannery in American Samoa for more than 50  years. In 2008, the StarKist brand was purchased from Del Monte  Foods (USA) by Dongwon Industries (South Korea), a multinational  firm that has diversified into multiple sectors of the seafood industry  as well as many other industries. Dongwon Industries also has, or is  developing, production facilities in Ecuador, Senegal, Thailand, and  Papua New Guinea. StarKist’s headquarters remains in Pittsburgh,  Pennsylvania. As of January 2016, StarKist employed 2,094 hourly  wage workers in American Samoa.
Chicken of the Sea International’s parent company, Thai Union  (Thailand), closed its American Samoa cannery in September 2009.  The company relocated its canning operations to the U.S. state of  Georgia while outsourcing the more labor-intensive processes,  including cleaning and cooking tuna loins (a low-tariff U.S. import), to  countries with lower labor costs. Chicken of the Sea’s headquarters is  located in San Diego, California.
Tri Marine International, a trading company with investments in  fishing, processing, trading, and marketing, acquired the former  Chicken of the Sea facility in American Samoa, located adjacent to  the StarKist cannery, on October 5, 2010. Tri Marine’s headquarters is  located in Bellevue, Washington. As of January 2016, Tri Marine  employed 616 hourly wage workers in American Samoa. Tri Marine  announced in October 2016 that it would indefinitely suspend canning  operations at this facility in December.
The canneries have provided a number of indirect benefits to other  industries and the economy in American Samoa. For example, many  businesses exist to support the canneries, such as the company that  manufactures the cans. Maintenance for the canneries and for the  vessels that supply the canneries also has brought business and jobs to  the island. Cannery workers spend money at local establishments, such  as restaurants and retail stores. Additionally, exported cannery products  and delivery of materials to the canneries reduced the shipping cost of  bringing other goods to American Samoa.
section_title: American Samoa Employment and Inflation- Adjusted Earnings Have Declined since 2007
subsections: section_title: Total Employment Fell and Rebounded from 2007-2014, while Cannery Employment Declined
paragraphs: From 2007 to 2014, total employment in American Samoa declined and  then increased, while tuna cannery employment increased before  dropping sharply (see fig. 8). In 2014, total American Samoa employment  was about 4 percent lower than in 2007, while cannery employment was  about 50 percent of its 2007 level. Because American Samoa tax data  were not yet available for 2015, we were unable to determine the overall  level of employment for that year. However, our survey of cannery  employers indicated that from June 2014 to June 2015, the number of  hourly workers at the canneries increased by about 17 percent (from  2,315 to 2,704).
From 2007 to 2014, average annual inflation-adjusted earnings of  American Samoa workers fell by about 11 percent. This decline reflects  an approximately 22-percent increase in average annual earnings and a  38-percent increase in prices as measured by the American Samoa CPI.  During the last year of this period (2013-2014), average inflation-adjusted  earnings fell by 1 percent, reflecting static average earnings accompanied  by a 1-percent increase in prices. From 2014 to 2015, prices in American  Samoa fell by 0.9 percent (during the same period, the U.S. CPI  increased by 0.1 percent). Figure 9 shows the average annual earnings  and average annual inflation-adjusted earnings in American Samoa in  2007 to 2014.
From 2007 to 2015, the hourly wage of minimum wage cannery workers  who retained their jobs rose by a greater percentage than prices in  American Samoa, as measured using the American Samoa CPI. By  2015, the minimum wage had risen by 58 percent (from $3.26 to $5.16)  since the first half of 2007—before the minimum wage was increased in  that year—while prices rose by 36 percent. From 2014 to 2015, the  minimum wage rose by 8 percent (from $4.76 to $5.16), while prices fell  by 1 percent.
section_title: American Samoa Tuna Canning Industry Faces Challenges, and Canneries Plan to Reduce Operations
subsections: section_title: Scheduled Minimum Wage Increases Will Eventually Affect Wages of Almost All Tuna Cannery Workers
paragraphs: As American Samoa minimum wage increases continue, they will affect a  growing percentage of workers in the territory’s tuna canning industry.  American Samoa employers’ responses to our questionnaire regarding  workers’ wages as of January 2016 indicated that the scheduled increase  of the industry’s minimum wage to $5.56 in September 2018 would affect  91 percent of canning industry hourly workers, who currently earn that  amount or less. Future minimum wage increases would affect the  wages of 93 percent of current cannery hourly workers when the  industry’s minimum wage reaches $5.96 in September 2021 and would  affect 98 percent of current canning industry hourly workers when it  reaches $7.25 in 2033. By 2033, the extra annual cost added by minimum  wage increases after January 2016 would be approximately $4,027 per  worker (see table 3).
In the spring of 2016, representatives from the two tuna canneries in  American Samoa expressed concerns about challenges related to the  scheduled minimum wage increases, decreased access to fishing  grounds in the Pacific, and potential erosion of the territory’s preferential  trade status. In the fall of 2016, each of the canneries announced plans to  suspend canning operations, one for an indefinite period and the other  temporarily, in response to these challenges.
According to Tri Marine representatives, every $0.10 increase in the  minimum wage will result in about $150,000 to $200,000 in additional  annual costs. In June 2011, we found that the three minimum wage  increases since 2007 had increased labor costs for tuna canning in  American Samoa relative to other locations, such as Thailand,  where the minimum wage is currently $1.07 an hour. StarKist  representatives told us that they had begun to explore using other  manufacturing locations to lower labor costs, including shifting some  production to an affiliate plant in Senegal. They also reported  exploring options for moving fish-cleaning processes to a foreign  country and establishing packaging facilities in the mainland United  States, similar to the approach used by competitors. (App. VIII  provides illustrative information on four alternative scenarios for  cannery operations currently located in American Samoa.)
StarKist and Tri Marine representatives cited access to fisheries as a  benefit of operating in American Samoa, but both companies have  raised concerns with the U.S. government regarding the impact of  regulation of Pacific tuna fisheries on the companies’ access to fishing  grounds. In 2014, the National Oceanic and Atmospheric  Administration (NOAA) issued a rule reducing the number of fishing  days for the U.S. purse seine tuna fleet in the U.S. exclusive  economic zone and the high seas to comply with a Western and  Central Pacific Fisheries Commission’s Conservation and  Management Measure. Under the most recent South Pacific Tuna  Treaty, the U.S. fleet retained access to fishing grounds in the  Western and Central Pacific region, although the Pacific island  nation of Kiribati limited the U.S. fleet’s fishing in its waters to 300  days, according to Tri Marine. Tri Marine indicated that these two  factors—NOAA’s rule reducing fishing days and the limited access to  Kiribati fishing grounds—dramatically reduced access to fishing  grounds for U.S. purse seine boats operating out of American Samoa.  In April 2015, American Samoa’s Fisheries Task Force requested  that NOAA recognize the Small Island Developing State status of  American Samoa and grant the territory relief from the limit on U.S.  purse seine tuna fishing. A month later, Tri Marine requested that  NOAA issue an exemption to the high-seas fishing limit for any U.S.- flag purse seine vessel that delivers at least 50 percent of its catch to  tuna processing facilities in American Samoa. In 2016, NOAA  released an interim rule that again combined in-zone and high-seas  fishing efforts, enabling the U.S. fleet to shift fishing efforts that had  previously been allocated only to in-zone areas into the high seas.  Previously, in-zone and high-seas fishing limits had been set  separately.
StarKist and Tri Marine representatives also cited tariff-free access to  the U.S. market as an advantage of operating in American Samoa but  expressed concern that changes in the trade status of other tuna- exporting countries may erode American Samoa’s preferential trade  status. For example, they cited the possibility that the proposed  Trans-Pacific Partnership, which includes one tuna-producing country,  Vietnam, would result in additional competition to the American  Samoa tuna industry if Vietnam is granted tariff-free access to the  U.S. market.
Both canneries announced plans to suspend canning operations in  American Samoa in response to such challenges. In September 2016,  StarKist announced that it would close its American Samoa plant for one  week (October 10-17, 2016)—its second short-term closure this year— owing to fish-supply shortages associated with fisheries regulations and  limited freezer capacity. While this short-term closure was in effect, Tri  Marine announced that it would indefinitely suspend canning operations  at its American Samoa facility on December 11, 2016, stating that the  challenging economics of canning tuna in American Samoa, combined  with external factors, made operating its plant in the territory economically  unsustainable. Tri Marine indicated that it plans to continue using this  facility as a logistics hub but noted that the suspension of canning  operations will mean a much reduced labor force.
section_title: American Samoa Government Sees Minimum Wage Increases Conflicting with Sustainable Economic Development
paragraphs: The American Samoa government, the territory’s largest employer,  continues to report concerns about the economic impact of the scheduled  minimum wage increases. In commenting on our 2014 report on the  American Samoa minimum wage, the government noted that the  territory’s economic base is narrow and fragile, supported primarily by the  American Samoa government and the tuna industry, which is subject to  global market forces outside the government’s control. The government  also stated that tethering American Samoa’s minimum wage to the  federal minimum wage is misguided because median income and per  capita GDP are significantly lower in the territory than in the 50 U.S.  states. In 2014, the governor’s office urged against future minimum wage  increases, calling the scheduled 2015 increase a “prescription for total  economic ruin.” American Samoa government officials subsequently  commented that the reduction in currently scheduled minimum wage  increases from $0.50 to $0.40 was helpful but that a more meaningful  solution based on local conditions is needed. The government’s economic  plan for fiscal years 2014 to 2017 states that the application of the federal  minimum wage in the territory is inappropriate and counterproductive to  sustainable economic development.
In August 2015, the American Samoa Department of Commerce  completed a living-wage study identifying $5.67 as the minimum wage  needed for a family of six to afford to live in the territory. Workers in  some industries in American Samoa currently earn minimum wages that  exceed this level. However, the proposed living wage of $5.67 exceeds  the hourly minimum wage for cannery workers by $0.51. In February  2016, the American Samoa government announced that the local  minimum wage for government workers would rise to $5.00, which is  $0.19 higher than the current federally determined minimum wage ($4.81)  for workers in this sector.
In light of the challenges affecting the tuna industry in American Samoa,  the local government is seeking to diversify the economy. According to  American Samoa government officials, construction of a multiline food  processing plant to produce seafood-based and juice products is  scheduled to begin by the end of the year. The government has also been  involved in efforts to attract a call center to the territory. Current territorial  plans propose the following ideas for economic diversification:
American Samoa’s economic development plan for fiscal years 2014  to 2017 outlines economic development goals for sectors such as  transportation and tourism as well as action items to achieve these  goals. For example, the plan outlines the tourism-related goal of  increasing the number of passenger air carriers to American Samoa.  According to the development plan, the government hopes to achieve  this by addressing federal restrictions on competition in passenger air  carrier service to American Samoa with the aim of attracting lower- cost carriers and more visitors. However, the government recognizes  constraints to attracting new business, including the cost of labor.
American Samoa’s 2016 Workforce Innovation and Opportunity Act  Unified Plan targets the development of five industries: fisheries and  agriculture, telecommunication and information technology,  manufacturing, visitors, and handicrafts. The plan notes that  American Samoa is experiencing emigration of workers to the United  States, countered in part by immigration of tuna cannery and fishery  workers from neighboring islands to American Samoa. The plan cites  low wages as a reason that highly skilled members of the labor force  leave the territory.
section_title: Alternatives for Increasing American Samoa Minimum Wages to Keep Pace with the Cost of Living and Eventually Equal the Federal Minimum Wage
paragraphs: There are two basic approaches for increasing American Samoa’s  minimum wages to (1) keep pace with the cost of living in the territory;  and (2) eventually equal the federal minimum wage—the criteria included  in the statutory provision for GAO to report on this issue. The first  approach relies on adjustments indexed to changes in the cost of living,  and the second relies on a schedule of adjustments within a specified  timeframe. In addition, aspects of each approach may be combined with  respect to the amount and timing of future increases to minimum wages.  Other factors would also warrant consideration, including design options  to safeguard against any negative effects that increasing minimum wages  might have on American Samoa’s economy.
subsections: section_title: Indexing American Samoa Minimum Wages to Changes in the Cost of Living
paragraphs: The first approach—adjusting American Samoa’s minimum wages on the  basis of changes in a cost-of-living index—addresses the first criterion  included in the provision for GAO to report on this issue. As of September  2016, 17 U.S. states and the District of Columbia indexed, or planned to  index, their minimum wages using cost-of-living measures. For  example, Colorado annually adjusts its minimum wage on the basis of  changes in consumer prices in the state. In most years since 2008,  Colorado’s minimum wage has increased, except in 2010 when it  dropped by 4 cents in response to deflation.
If an indexing approach were used to increase American Samoa’s  minimum wages, the primary consideration would be the selection of an  economic index that best reflects changes in American Samoa’s cost of  living. The following is a list of several indices, any of which could be  considered for this purpose.
BLS CPI, U.S. city average. The BLS generates this CPI each month  on the basis of surveys of retail establishments for a sample of goods  and services purchased for consumption. Categories include food and  beverages, housing, and medical care, among others. Currently, the  BLS does not collect CPI statistics from any U.S. territory. Versions of  the national CPI measure include the CPI for All Urban Consumers  (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers  (CPI-W). According to BLS officials, the two CPI measures offer  different advantages; the CPI-U is a broader measure, while the CPI- W focuses on the spending patterns of wage earners, which may be  more applicable to those earning the minimum wage. Of those U.S.  states with laws that include provisions to index their minimum wage  to a cost-of-living indicator, six use the U.S. city average CPI-U, and  six use the CPI-W.
BLS Hawaii (Honolulu) CPI. In addition to publishing the U.S. city  average CPI, the BLS also publishes CPIs for four regions and 26  metropolitan areas. Currently, two U.S. states and the District of  Columbia index, or plan to index, their minimum wage to the CPI-U for  either a region or metropolitan area. According to BLS officials, none  of the metropolitan or regional CPIs is ideally applicable to American  Samoa, because the territory is an isolated market where  transportation of commodities is relatively more expensive. The  officials suggested that, of these types of CPI measures, the CPI for  Honolulu, Hawaii, based on the cost of living for the Honolulu urban  area, might be best suited as an index for American Samoa, because  Hawaii is also geographically isolated in the Pacific.
BEA U.S. personal consumption expenditures (PCE) price index.
The U.S. Department of Commerce's BEA calculates the U.S. PCE  price index using retail price data that it collects monthly through  business surveys. However, the U.S. PCE includes different goods in  its calculation than the CPI. For example, it includes expenditures  made on behalf of consumers, in addition to consumers' own  expenditures, such as additional costs for medical care beyond what  consumers pay out of pocket. One U.S. state uses the U.S. PCE to  index its minimum wage.
BEA American Samoa PCE price index. BEA also generates an  American Samoa PCE price index primarily using price data on  household purchases of goods and services collected from the  American Samoa government. When local price data are not  available, BEA sometimes substitutes price data from the U.S. states.  BEA publishes the most recent and historical price indexes as part of  its periodic reports on American Samoa GDP. Its August 2016 report  presented American Samoa PCE price indexes for years 2007 to  2015.
American Samoa CPI. The American Samoa government has  developed a CPI as a measure of changes in the territory’s cost of  living. According to the government, it generates its index on a  quarterly basis using price data for commodities, such as food,  housing, clothing, and medical care collected in the territory. The  government notes that collecting data for its CPI can be challenging  because of the inconsistent flow of consumer goods to the islands.
Increases in the cost of living recorded by these indices have varied over  time and at different rates. Table 4 shows the average annual percentage  increase and the range of annual increases for each index from 2006 to  2015. The increases shown by the indices for Honolulu and American  Samoa suggest greater annual growth in the cost of living in those  locations, on average, than is shown by the U.S. national indices. In  addition, the increases shown by the American Samoa index have varied  more than those shown by the U.S. national indices, with a range of about  11 percentage points (-0.9 percent to 9.8 percent) for the American  Samoa CPI compared with, for example, about 5 percentage points (-0.5  percent to 4.4 percent) for the U.S. national CPI-U.
While adjusting American Samoa’s minimum wages on the basis of a  cost-of-living index would ensure that they keep pace with measured  changes in the cost of living, uncertainty would remain regarding when  American Samoa minimum wages would reach the current federal  minimum wage. The date of convergence with the federal minimum wage  would depend on the rate of future changes in the cost of living. Figure 10  shows the number of years it would take for American Samoa’s minimum  wages to converge with the current federal minimum wage based on the  historical average annual increases for various cost-of-living indices (for  additional projections, see app. IX, table 10). For comparison, figure 10  also shows the timeframe for convergence under the current schedule.
To reduce uncertainty about the time required for indexed minimum  wages to reach the federal minimum wage, an indexing approach could  be combined with a target timeframe and schedule for achieving this  convergence. This could help to offset the potential scenario of extended  periods of relatively small increases or decreases in American Samoa’s  cost of living, which would slow or reverse progress in reaching the  federal minimum wage. When an indexed increase was to take place, the  new minimum wage based on indexing would be compared with the  minimum wage that would result from following a schedule that ensures  convergence within a specified timeframe. If the indexed minimum wage  fell short of the schedule-based wage, it would be adjusted upward by all  or some portion of the difference (for an example of the steps involved,  see app. X, example 1). This would result in minimum wages that keep  pace with the cost of living and would also provide assurance of  convergence with the federal minimum wage within a targeted timeframe,  or sooner.
section_title: Scheduled Increases in American Samoa Minimum Wages
paragraphs: The second approach—applying scheduled increases to American  Samoa minimum wages—would establish a timeframe for ensuring that  American Samoa’s minimum wages eventually equal the federal  minimum wage, thus addressing the second criterion included in the  provision for GAO to report on this issue. The current schedule  establishes increases of $0.40 every 3 years, with the next increase  scheduled for September 2018. Under the current schedule, the 18  minimum wage sectors will reach the current federal minimum wage  ($7.25) in 2027 through 2036, depending on the sector.
If a new schedule-based approach were selected, the primary  considerations would be the frequency and amount of future increases.  Increases could occur at relatively short intervals (e.g., annually) or longer  intervals (e.g., every 5 years). Also, the scheduled increases could be set  as a nominal amount (e.g., $0.20 each year), as a proportion of the prevailing federal minimum wage (e.g., 10 percent each year), or in any  manner that results in convergence with the federal minimum wage in a  specified timeframe.
Figure 11 illustrates how various rates of increase under a scheduled  approach would affect the timing of American Samoa minimum wages’  convergence with the current federal minimum wage. To enable  comparison with an indexing approach, figure 11 shows the calculated  average annual rates of increase associated with past and current  schedules established by law. As shown, the frequency and amount of  scheduled increases directly affect the timing of convergence (for  additional computations of convergence based on other schedules, see  app. IX, table 11).
While a schedule-based approach would ensure that American Samoa  minimum wages will reach the federal minimum wage within a given  period of time, it would not guarantee that minimum wages will keep pace  with the territory’s cost of living. For example, under the current schedule,  wages for the tuna cannery employment sector will rise, on average, by  approximately 2 percent annually from 2017 to 2033, when they will  converge with the federal minimum wage. By contrast, the index  developed by the American Samoa government indicates that the  territory’s cost of living rose, on average, by just under 4 percent annually  from 2006 to 2015.
If scheduled minimum wage increases were determined to be lagging  behind increases in the cost of living, such as during a period of relatively  high inflation, they could be adjusted upward. This would require (1)  monitoring a cost-of-living index over time and (2) comparing scheduled- based and indexed minimum wages at the time of each scheduled  increase. If the schedule-based minimum wage were less than the  corresponding indexed minimum wage, it could be increased by all or a  portion of the difference between them. Combining a schedule, as the  primary driver of future minimum wage increases, with changes in the  cost of living, as a secondary mechanism, would ensure that American  Samoa minimum wages reach the federal minimum wage within a  targeted timeframe and also keep pace with the cost of living (for an  example of the steps involved, see app. X, example 2). However, such a  step could also result in convergence with the federal minimum wage  earlier than scheduled. After each adjustment to a scheduled increase, a  decision would be made whether to maintain the schedule’s frequency  and amount of future increases from that point forward or to reduce or  time them differently to accommodate the schedule’s original timeframe  for convergence.
section_title: Factors to Take into Account When Assessing Approaches for Increasing American Samoa’s Minimum Wages
paragraphs: A number of factors could be taken into account in deciding which  adjustment mechanism to use for increasing American Samoa’s minimum  wage.
Increases in the federal minimum wage. Future increases in the  federal minimum wage would lengthen the timeframe for American  Samoa’s minimum wages to reach the federal minimum wage. Under  an indexed approach, if the federal minimum wage increased by  $1.00 (to $8.25) before all of the American Samoa minimum wages  converge with the federal minimum wage, and if the American Samoa  cost of living subsequently rose by 2 percent annually after that point,  the wages would converge 6 years later than if the federal minimum  wage had not increased. The effect would be similar under a  schedule-based approach, and the additional time before the wages  converged would depend on the general rate of increase dictated by  the schedule.
Increases after convergence occurs. Under current law, once all of  the minimum wage rates for each industry and classification in  American Samoa converge with the federal minimum wage, the  adjustment mechanism governing increases to them would end.  However, during the period when some American Samoa minimum  wages begin reaching the federal minimum wage and others have yet  to do so, those that equal the federal minimum wage will remain at  that level while the remaining wages will increase until the wages for  all industries and classifications reach parity with the federal minimum  wage. If, during this period, the federal minimum wage increases, all  American Samoa minimum wages would once again be adjusted by  the established adjustment mechanism until they reach the federal  minimum wage. Once all American Samoa minimum wages reach the  federal minimum wage, the transition and adjustment period would  end, and the minimum wage rate in American Samoa would be the  federal minimum wage under the FLSA and subject to changes to the  federal minimum wage if or when they occur.
Administration. The need for administrative resources to apply and  oversee changes in American Samoa’s minimum wage could largely  depend on the complexity of the adjustment mechanism selected.  Because future minimum wage increases under either an indexed or a  schedule-based approach would be automatic, either approach could  potentially require minimal administrative activity. However, an  indexed approach would likely require somewhat more ongoing  administrative activity because of the need to monitor the cost-of- living index. Additional resources would also likely be needed if  components of the two general approaches were combined, which  could involve calculations to determine to what extent increases  should be adjusted upward. Selection of the most appropriate  administrator, whether in the federal government, the American  Samoa government, or another entity, also warrants consideration.
Volatility. Indexing American Samoa minimum wages to a cost-of- living indicator could result in fluctuations in the amount of increases  applied to minimum wages. For example, during the past decade,  annual changes in the cost of living as measured by the American  Samoa CPI ranged from approximately -1 percent to nearly 10  percent. In comparison, the BLS CPI-U ranged from approximately - .05 percent to around 4 percent during the same period. Scheduled  increases could be designed to limit minimum wage volatility, although  such volatility might result from adjusting scheduled increases upward  to ensure they keep pace with the cost of living.
Predictability. The difficulty of predicting increases in the American  Samoa cost of living would make it difficult to anticipate the amount of  future increases under an indexed approach. This lack of predictability  could inhibit employers’ ability to make sound business decisions,  workers’ ability to make employment and personal finance decisions,  and the government’s ability to anticipate accurate tax revenues and  develop budget and economic plans. Alternatively, a scheduled-based  approach would establish a series of future increases of known  amount and frequency. However, because the increases would not be  linked to economic conditions, such as the cost of living, they might  not be appropriate at the scheduled time.
section_title: Safeguards Could Be Used to Mitigate Potential Negative Economic Effects
paragraphs: Given the concerns that American Samoa government officials and others  have raised about the possible loss of jobs if the territory’s minimum  wages are increased, other design elements, or safeguards, could be  added to any of the approaches described above to reduce such risks.  For example, some U.S. states’ and localities’ minimum wage laws  include provisions that are generally designed to mitigate negative  economic effects, often by reducing or temporarily suspending periodic  increases. However, while reducing or suspending increases could  counteract possible negative effects, it could slow American Samoa  minimum wages’ progress in meeting the objectives of keeping pace with  the cost of living and equaling the federal minimum wage.
The following are examples of such safeguards.
Regulate adjustments. Whether based on an index, a schedule, or  some combination of the two, increases to minimum wages could be  reduced or suspended on the basis of one or more economic  indicators that reflect the general health of the American Samoa  economy or critical sectors. These indicators could include wage  rates, unemployment rates, the poverty level, productivity, or other  economic measures. For example, the minimum wage laws for the  state of Michigan and for the city of Chicago, Illinois, include a  provision to suspend future minimum wage increases if the  unemployment rate for the previous year has reached or exceed a  certain percentage. The state of California uses certain employment  rates and retail sales levels as indicators for the same purpose.
Set adjustment maximums. Minimum wage increases based on the  cost of living could be capped. For example, minimum wage laws for  the states of Minnesota, Nevada, and Vermont, among others, include  provisions to index their minimum wages to changes in the cost of  living, but the laws also limit increases to no greater than a specific  percentage in any given year.
Limit coverage. As allowed under the FLSA, certain occupations  could be exempted from the federal minimum wage. For example, in  the United States, certain farmworkers can be paid less than the  minimum wage. Provisions could be added to the legislation  governing American Samoa minimum wages to expand the number of  exempted occupations.
Vary increases. In the past, SIC procedures varied the amount of  minimum wage increases for specific American Samoa industries in  any given year. As with coverage, legislative provisions could  mandate that the amounts of increases differ depending on the  industry, region, or other attribute.
The safeguard that involves regulating minimum wage increases on the  basis of one or more economic indicators could entail certain challenges  that might inhibit its use in American Samoa. First, the data needed to  monitor such indicators may not be readily available. For example, the  federal government does not collect certain labor market information for  American Samoa, which impedes measurement of unemployment levels  in the territory. In addition, collecting and monitoring economic data  would require considerable administrative activity, and an administrator  might be needed to determine when the safeguard should be triggered.  For example, in California the Governor is authorized to use his or her  discretion to temporarily suspend that state’s minimum wage increases if  certain economic conditions are met. Finally, the time lag inherent to  economic indicators may reduce their effectiveness as a basis for  triggering a safeguard. For example, given American Samoa’s island  economy and dependence on the dominant private sector tuna canning  industry, the sudden exit of a cannery owing in part to an increase in  minimum wages would occur before the cannery’s exit affected  unemployment levels and before a safeguard could be triggered.
section_title: External Reviewers’ Views on Increasing the Minimum Wage in American Samoa
paragraphs: Four external reviewers of our report, with expertise encompassing labor  economics, Pacific island economies, and fisheries, provided their  perspectives on increasing minimum wages in American Samoa. The  following summarizes their views.
Potential consequences of increasing minimum wages in  American Samoa. Three reviewers expressed concern that  increasing minimum wages in American Samoa may result in negative  economic effects, given American Samoa’s current economic  conditions. One reviewer suggested that further study of minimum  wage increases’ possible effects on American Samoa workers and  industries—including a study to identify industries that might tolerate  larger increases without adverse effects—is warranted.
Applicability of the federal minimum wage level to American  Samoa. Three reviewers noted that raising American Samoa  minimum wages to equal the federal minimum wage might not be  appropriate for the territory given the differences between its economy  and that of the 50 U.S. states. One reviewer remarked that raising  minimum wages to the federal level could be viewed as somewhat  artificial in light of the territory’s economic conditions.
Suitability and feasibility of linking minimum wages to American  Samoa’s cost of living. One reviewer suggested that in small  economies, such as American Samoa’s, increasing the minimum  wage may in turn lead to increases in the cost of living. Another  pointed out that indexing to the cost of living may not be feasible in  American Samoa. Given that a cost-of-living index is typically based  on household expenses, one reviewer pointed out that the standard  definition of “household” used in the United States may not apply in  American Samoa given the territory’s cultural ethos of sharing with  extended family and fellow villagers.
Setting minimum wages in American Samoa commensurate with,  not equal to, the federal minimum wage. One reviewer suggested  setting a minimum wage in American Samoa that is proportionate  rather than equal to the federal minimum wage. For example, if a full- time minimum wage worker in the United States earns, on average,  35 percent of the U.S. median household income, the American  Samoa minimum wage would be set at 35 percent of the median  household income in American Samoa. The reviewer observed that  this approach would link minimum wage increases in American  Samoa to improvements in the territory’s median household income,  relative to the U.S. median household income, thus reducing the  potential for adverse economic effects.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the U.S. Departments of Commerce,  the Interior, Labor, and State as well as the American Samoa  government. We received written comments from Interior, DOL, and the  American Samoa government, which are reprinted in appendixes XI, XII,  and XIII, respectively. We received technical comments from the  Department of Commerce and DOL, which we incorporated as  appropriate. The Department of State did not provide any comments.
Interior stated that our report correctly depicts the economic challenges  facing American Samoa and that it is critical to consider the territory’s  particular circumstances, including local economic and labor market  realities, when adopting a process for adjusting minimum wages. Interior  suggested that an in-depth review of the approaches suggested in our  report should be conducted by appropriate personnel from Interior, DOL,  and the Department of Commerce, along with territory and industry  experts, to identify a method of adjusting minimum wages in American  Samoa that would keep pace with the cost of living and eventually  converge with the federal minimum wage.
DOL stated that studies examining the employment impact of increases in  the minimum wage have found a range of effects, with varying degrees of  reliability, and that the majority of these studies have concluded that  minimum wage increases have little to no significant effect on  employment of low wage workers. We incorporated DOL’s comment in a  footnote in our report that addresses these issues and reports relevant  findings from a CBO study.
The American Samoa government expressed appreciation for our report’s  coverage of the status of the territory’s economy and the challenges it  faces. The government added its appreciation for Congress’s  commitment to ensuring that the territory’s workers receive a salary that  will allow them to address the cost of living. However, the government  stated that setting minimum wages without consideration for the territory’s  prevailing economic conditions would likely result in a “countervailing”  impact. The government noted that, in light of prevailing economic  conditions, increasing the territory’s minimum wages to the federal level  may have negative consequences. The government recommended  creation of a DOL-constituted committee, similar to the SICs formerly  used to determine minimum wages in the territory, to set minimum wages  that would be appropriate for American Samoa. The government added  that it does not realistically foresee American Samoa minimum wages’  reaching the federal level without additional federal support for the  territory. The government further commented that if an indexing approach  were used to adjust American Samoa minimum wages, a U.S.-based CPI  would be preferable.
We are sending copies of this report to interested congressional  committees. We also will provide copies of this report to the U.S.  Secretaries of Commerce, the Interior, Labor, and State and to the  Governor of American Samoa. In addition, the report will be available at  no charge on the GAO website at http://www.gao.gov.
If you or your staffs have questions about this report, please contact  David Gootnick at (202) 512-3149, or gootnickd@gao.gov; Andrew  Sherrill at (202) 512-7252, or sherrilla@gao.gov; or Oliver Richard at  (202) 512-8424, or richardo@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix XIV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report (1) relates the history of minimum wages in American Samoa,  (2) examines the status of the territory’s economy, and (3) identifies  alternative approaches that could be used to ensure that minimum wages  in American Samoa keep pace with the cost of living in American Samoa  and eventually equal the federal minimum wage. Our discussion of the  American Samoa economy updates our previous reports on the impact of  minimum wage increases in American Samoa, including changes in  employment and earnings and changes in key industries since the most  recent federal minimum wage increase and since the scheduled  increases in American Samoa minimum wages began.
To relate the history of minimum wage implementation in American  Samoa, we analyzed past and current laws governing federal minimum  wages in the United States and its territories. We reviewed literature  regarding the history of American Samoa and the federal minimum wage  in the territory, including U.S. Department of Labor (DOL) and  Congressional Research Service reports. We also reviewed DOL records  from the special industry committees to identify all past minimum wages  in American Samoa since the minimum wage was first enforced in the  territory. We reviewed federal laws specifying revisions in the federal  minimum wage to identify timeframes for the convergence of American  Samoa minimum wages with the federal minimum wage. Finally, we  compared past minimum wages in American Samoa with historical cost- of-living data—specifically, the U.S. consumer price index (CPI) and the  American Samoa CPI measures for 1997-2016—to assess whether past  minimum wage increases had kept pace with changes in the cost of living  in American Samoa.
To describe the status of the American Samoa economy, we reviewed  relevant GAO reports and analyzed gross domestic product data from  the U.S. Bureau of Economic Analysis; tuna export data from the U.S.  Census Bureau; tax data from the American Samoa government; and  employment, earnings, and wage data gathered through a questionnaire  that we submitted to the two tuna canneries currently operating in  American Samoa—StarKist and Tri Marine. In addition, we reviewed data  and interviewed officials from the U.S. Departments of Commerce, the  Interior, and Labor, and the American Samoa government. We also spoke  with, and gathered information from, representatives of the four major  tuna companies operating in the United States, two of which currently  operate tuna canneries in American Samoa. In addition, we took the  following steps:  To estimate American Samoa employment and earnings, we analyzed  data from the American Samoa Department of Treasury’s Office of  Taxation as well as tuna canning industry employers’ responses to our  questionnaire. The Office of Taxation data—numbers and annual  earnings of persons employed at any point during the tax year—came  directly from the office’s tax system, with the exception of data for  American Samoa government employees in 2013 and 2014, which the  office provided separately. The Office of Taxation was unable to provide  2014 data for the American Samoa Medical Center; therefore, we used  the values reported for 2013. In accordance with other federal  employment surveys and with the methodology we employed in preparing  our 2010, 2011, and 2014 reports on the impact of minimum wage  increases in American Samoa and the Commonwealth of the Northern  Mariana Islands (CNMI), our employer questionnaire requested wage  data for mid-June pay periods in 2014 and 2015, with the addition of  information on a pay period in January 2016. The questionnaire asked  separately for data regarding workers paid an hourly wage and workers  paid an annual salary. For hourly wage workers, respondents were asked  to provide the number of employees paid at each wage rate. For salaried  workers, respondents were asked the number of full-time and part-time  workers paid at each salary level.
Before sending our initial questionnaire on this topic in 2009, we  pretested it over the phone with three employers in the CNMI and two in  American Samoa to make sure that the questions were clear and  comprehensive, the data were readily obtainable, and the questionnaire  did not place an undue burden on employers. While we eliminated some  questions in our current questionnaire, revisions to remaining questions  were minor and did not require additional pretesting.
We administered the questionnaire in February 2016. We sent the  questionnaire to StarKist and Tri Marine, the two canneries currently  operating in American Samoa, and received two completed  questionnaires for a 100-percent response rate. Employers received the  questionnaire by e-mail in an attached form that they could return  electronically after marking checkboxes or entering responses in open- answer boxes. We contacted employers to clarify responses and request  any missing data. We did not independently verify that the wage and  other information provided to us were correct. After recording the  questionnaire data, we verified all keypunched records by comparing  them with the corresponding questionnaires and corrected the errors we  found.
Data based on employers’ questionnaire responses include the reported  numbers of hourly workers at the canneries as of June in the given year  as well as the annual earnings of those workers. In compiling the  questionnaire-based earnings data for a given year, we assumed that all  hourly cannery workers earned the minimum wage for that year and  worked all year. When the minimum wage changed midyear, we assumed  that the original wage applied for the first half of the year and the revised  wage for the second half of the year. To adjust earnings for inflation, we  relied on the American Samoa CPI.
To provide information on changes in the territory’s key private sector  industry—tuna canning—we estimated the wage rates of cannery  workers, using tuna canning industry employers’ responses to our  questionnaire regarding the number of workers earning each wage rate  as of January 12, 2016. Using these data, we determined both the  median wage rate and the number of workers that would be affected by  future minimum wage rates because their wages were at or below future  scheduled minimum wages. We estimated the cost of future scheduled  minimum wages by, first, calculating the cost to the cannery of increasing  each worker’s wages to scheduled levels and, second, averaging the  results of this calculation for all current workers. This estimate assumed  that workers worked full time and all year (i.e., 2,080 hours) and that the  minimum-wage increase would not affect the wages of workers currently  earning more than the minimum wage.
We interviewed cannery representatives to obtain their views on  competitive challenges facing the industry, including changes in minimum  wage rates, access to fishing grounds, and preferential trade status. To  illustrate other potential tuna production scenarios, we developed a tuna  model where tuna production relocates from the current status quo in  American Samoa to one of three possible scenarios of loining or canning  tuna, or both, in other locations. Changes in labor and tariff costs are  compared to the status quo scenario in American Samoa. The model  uses the tuna employment count from the questionnaire responses,  World Bank data on minimum wage rates in other countries, and  information obtained during interviews with tuna cannery employers. (See  app. VIII for results of our analysis and more details about the  assumptions we used.) This model is an update of the model we used for  our June 2011 report.
After we had completed our analyses and provided a draft of this report to  federal agencies and the American Samoa government, Tri Marine  announced that it would suspend its canning operations in American  Samoa indefinitely in mid-December 2015. We revised our report to  acknowledge this announcement, including the reduction in cannery  employment that Tri Marine stated would result from its decision, as well  as StarKist’s earlier announcement that it would close its American  Samoa plant for 1 week in October 2016—the second such short-term  closure in a year. We did not attempt to collect revised employment or  earnings data from the canneries to reflect the suspensions’ impact. In  addition, since fully updated information on employment and earnings for  the canneries, and for the territory as a whole, was not available, we did  not revise our overall analyses of employment or earnings. We also did  not attempt to estimate the impact that these suspensions would have on  American Samoa tuna shipments or update the model of alternate tuna  production scenarios that appears in appendix VIII.
To identify alternative approaches for increasing minimum wages in  American Samoa that would ensure they keep pace with the cost of living  in the territory and eventually equal the federal minimum wage, we  reviewed relevant literature on the federal system for setting the minimum  wage, systems used by the U.S. states that set their own minimum  wages, and systems used to set minimum wages in other countries. We  identified common economic measures or indices of change in the cost of  living that are generated by the U.S. government and one generated by  the American Samoa government. To estimate how long it would take for  American Samoa’s minimum wages to converge with the federal  minimum wage if they were indexed to the cost of living, we projected  future increases based on historical trends in DOL’s CPI for the U.S. City  Average and Honolulu, Hawaii. We performed the same calculations  based on historical trends in American Samoa’s CPI and in the  Department of Commerce’s indices of personal consumption  expenditures in the United States and in American Samoa. We also  estimated the length of time it would take for American Samoa minimum  wages to reach the federal minimum wage given schedules dictating  future increases of differing amounts and frequency (see app. IX for these  projections). In addition, we developed scenarios illustrating how indexing  and schedule-based approaches could be combined to meet both criteria  set by Pub. L. No. 114-61 for GAO’s review (see app. X). The scope of  our work was limited to examining approaches for increasing American  Samoa’s minimum wages that would directly address these criteria. Our  work did not address other programs and policies that could supplement  the incomes of low-wage workers—for example, the Earned Income Tax  Credit. Our work also did not address possible adjustments in U.S. trade  or tax policies that might help offset the potential negative impacts of  minimum wage increases on employers.
We received comments on a draft of this report from four external  reviewers with substantial background in relevant topics including labor  economics, Pacific island economies, and fisheries. We also submitted to  businesses that operate in American Samoa, for verification, technical  material regarding cannery operations. We incorporated comments from  the reviewers and businesses into the report as appropriate.
We conducted this performance audit from November 2015 through  September 2016 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: Minimum Wage-Setting Systems around the World
paragraphs: Governments around the world employ a wide variety of approaches to  setting minimum wage rates. These systems vary widely, including with  respect to the entities holding decision-making authority, the objectives  they seek to address, any mechanisms for making regular adjustments,  and the effective coverage and level of the minimum wages.
subsections: section_title: Decision-Making Authority
paragraphs: Decisions on minimum wage rates may be made by governments, by  specialized bodies, or through collective bargaining.
Government. Most national systems assign responsibility for setting  minimum wage rates to the government, via legislative or executive  action, usually with some requirement for consultation. Governments  may be required to consult with social partners (i.e., workers and  employers). For example, according to the International Labor  Organization (ILO), the Bahamas assigns responsibility for setting  minimum wages to the government, but before taking action, the  government must consult with a representative confederation of  employers and a representative association of registered trade  unions. The text box describes the U.S. approach to setting the  federal minimum wage.
How Does the United States Set Its Minimum Wage?  The federal minimum wage in the United States has been set through the passage of,  and amendments to, the Fair Labor Standards Act of 1938 (FLSA). The FLSA states  that its overall policy is to correct and, as rapidly as practicable, eliminate, in industries  engaged in commerce or in the production of goods for commerce, labor conditions  detrimental to the maintenance of the minimum standards of living necessary for the  health, efficiency, and general well-being of workers without substantially curtailing  employment or earning power. Since 1938, there have been nine amendments to the  FLSA to establish new minimum wages, usually raising the rate through a series of  steps over a period of 2 to 4 years.   The federal minimum wage—currently $7.25—applies generally to any employee  engaged in commerce and to workers employed in enterprises engaged in commerce  or in the production of goods for commerce, with certain exemptions. However, U.S.  states and territories, the District of Columbia, and local governments may generally  also set their own minimum wages, and many have done so, often at rates higher than  the federal minimum wage.
The FLSA permits adoption of minimum wages at or above the federal level but prohibits payment of  minimum wages below the federal level for workers covered by the FLSA.  See Organization for Economic Co-operation and Development, “OECD Stat: Real Minimum  Wages,” accessed October 27, 2016, https://stats.oecd.org.
Specialized bodies. Some national systems assign responsibility for  setting minimum wages to specialized bodies, sometimes referred to  as wage boards or councils and usually comprising representatives of  workers, employers, and the public interest. For example, according  to the ILO, in Peru, minimum wage decisions are made by the  National Council for Labor and Employment Promotion, which  consists of government, worker, and employer representatives.  Alternatively, governments may be required to consult with  specialized bodies. For instance, according to the ILO, the French  government has the power to set minimum wages by decree, but  before doing so, it must consult with the National Collective  Bargaining Commission, which includes representatives of the  government, employers’ and workers’ organizations, and the Social  Section of the Council of State.
Collective bargaining. A small number of national systems, primarily  in Western Europe, set minimum wages through collective bargaining.  Germany and Finland are examples, according to the ILO.
Figure 12 shows the distribution of minimum wage–setting procedures  among 145 countries, as reported by the ILO.
A World Bank-sponsored review of minimum wage-setting practices in  Latin American countries provides an illustration of variation among  national systems in one region. The review identified 5 countries that set  minimum wage rates by government decision, 6 that set rates by  government decision with advice from wage boards or other  nongovernmental groups, and 13 that rely on wage boards to set rates.  Bolivia is an example of a country that relies on the government (in this  case, the Ministry of Labor) to set rates; according to the ILO, Bolivian law  does not require consultation with social partners. According to the ILO,   El Salvador relies on a specialized body—the National Minimum Wage  Council—to act in an advisory role, while Costa Rica relies on its National  Wages Council to determine wage rates. Both of these bodies include  government, worker, and employer representatives.
section_title: Objectives
paragraphs: National systems refer to a range of concerns and statistical markers to  be taken into consideration when determining minimum wage rates.  These concerns and markers generally fall into two categories: those  pertaining to the needs of workers; and those pertaining to the needs of  employers, the economy at large, or both.
While some national systems do not include any specific criteria for  determining minimum wages, most require consideration of one or more  indicators related to worker needs and economic factors. Table 5 shows  the various types of criteria specified by 98 national systems examined in  one ILO-sponsored study completed in 2005. As the table shows, the  study found that about one-quarter of these systems—including two that  employed collective bargaining to set minimum wage rates—did not  specify any criteria. Among the systems that did, inflation or the cost of  living was the most commonly specified consideration.
According to the ILO, some national systems list factors to be considered,  while others define specific indicators and describe how they should be  applied. For example, according to the ILO, Portugal’s system calls upon  decision makers to take into account the level of development of the  productive sector, the requirement for economic and financial stability,  and the accumulation of capital for development, among other factors; in  contrast, Ukrainian law specifies that the minimum wage cannot be fixed  below a minimum subsistence level and includes a defined minimum  consumption budget.
section_title: Adjustment Mechanisms
paragraphs: While most national systems provide for periodic revision of minimum  wage rates, many do not require reviews at specific intervals. According  to an ILO-sponsored report completed in 2005, only 23 percent of the  national systems examined required that their minimum wages be  reviewed on an annual or biennial basis. Some of these countries index  their minimum wage rates—that is, require the adjustment of minimum  wages, at specific intervals, on the basis of a given economic indicator.  For example, according to the ILO, Israel requires that the minimum wage  remain equivalent to a specific percentage of that country’s national mean  wage, while Malta’s system requires annual revision of the national  minimum wage to keep pace with the rate of inflation. Belgium indexes its  minimum wage rate to changes in its consumer price index, while France  links annual adjustments in the minimum wage to changes in both prices  and wages, according to the ILO.
Some countries include “safeguard” features that can be applied to  moderate increases in response to adverse economic conditions.  According to the ILO, for example, Costa Rica’s system calls for revising,  when inflation exceeds a certain limit, the formula normally used to  calculate minimum wage increases. Peru also normally employs a  formula to calculate increases, but application of the formula can be  revised to take into account factors such as a serious economic recession  or a significant increase in unemployment, according to the ILO. In  addition, some countries have responded to economic crises by  postponing minimum wage increases that would otherwise have taken  effect or by reducing minimum wage levels outright. According to the ILO,  for example, Spain froze its minimum wage rates in 2012 to encourage  job creation after a downturn in its economy. Greece first froze, and then  reduced, minimum wage rates in response to worsening economic  conditions beginning in 2010, also according to the ILO.
section_title: Coverage
paragraphs: Some national systems exclude specific groups of workers from  application of the minimum wage. According to the ILO, the most  commonly excluded groups are agricultural workers and those employed  in domestic service. Workers in family businesses or small enterprises  and younger workers or those serving apprenticeships are also excluded  in some countries. According to the ILO, a few systems maintain more  specific exclusions—for example, certain seafarers (five countries) and  workers in export processing zones (two countries), according to the  ILO. More generally, a 2014 ILO report observed that when wages are  set by sector and there is no generally applicable minimum wage to serve  as a backup, many workers may be excluded from coverage.  In  Cambodia, for example, minimum wage regulations apply only to specific  industries (i.e., textiles, garments, and shoe assembly), according to the  ILO.
section_title: Level
paragraphs: National systems produce widely varying minimum wage rates. As might  be expected, international comparisons generally show that lower-income  countries require lower minimum rates of pay. However, minimum wages  also vary greatly relative to prevailing economic conditions within  individual countries. For example, one Africa-focused study found  minimum wages by country ranging from less than 10 percent to more  than 100 percent of average wages.
While minimum wage rates set at very low levels relative to local average  pay rates will affect relatively few workers, rates set at very high levels  relative to local pay will apply to such a large portion of the covered  workforce that they become, in effect, the average wage for those  workers. However, comparatively high rates may heighten enforcement  challenges. Employer noncompliance and movement of substantial  numbers of workers into the informal economy may result in a substantial  portion of eligible workers earning less than the legal minimum wage. For  example, according to the World Bank, Paraguay established a  comparatively high minimum wage (equal to 72 percent of the national  mean wage) but reported that more than 40 percent of the eligible  workers earned less than the legal minimum wage.
Some national systems set a single minimum wage rate—applicable to all  or nearly all workers—while others establish multiple rates, varying by  occupation, sector, or region. Figure 13 shows the results of one ILO  review of minimum wage rate structures in 144 countries.
In addition, some systems specify lower minimum wage rates for certain  groups of workers. For example, many countries maintain lower minimum  wage rates for younger workers. While some countries exclude  agricultural and domestic workers from the minimum wage entirely, others  specify lower rates for these workers. Some countries with federal  systems of government have in place a single national rate, or both  national and state-level rates. Others assign minimum wage-setting  responsibility to states or provinces. For example, according to the ILO,  Canada’s provinces each set their own minimum wages. In India,  according to the ILO, minimum wage-setting authority lies with the federal  government for some sectors and with the states for others. The  Philippine system relies on regional wage boards to set minimum wage  rates not only by region but also by sector, resulting in a very large  number of minimum wages being in force at any given time, according to  the ILO.
Some nations with overseas territories establish minimum wages for  them. Others allow the territories to set their own minimum wages. For  example, according to the United Kingdom government, British overseas  territories have the authority to set their own minimum wages (see the  text box for an example). According to information obtained from the  government of France, that country’s overseas territories and  collectivities, such as French Polynesia, have the authority to set their  own minimum wages. However, according to the French government,  France applies its national minimum wage (as well as all other French  laws and regulations) to its overseas “départements”—entities such as  Martinique and French Guiana that are geographically separate from  mainland France but considered to be part of France for political and legal  purposes.
Minimum Wage in the Falkland Islands  The Falkland Islands applied its first territorial minimum wage in 2013, according to  Falkland Islands government documents. After reviewing multiple minimum wage- setting methodologies and consulting with the public, the territory began by adopting a  minimum wage that would provide an income equivalent to 60 percent of the territorial  median wage—a percentage that, according to Falkland Islands government officials, is  commonly regarded in the United Kingdom and other European Union countries as  equivalent to a poverty threshold income. In adopting this measure, Falklands officials  observed that a preferable alternative would be to base the minimum wage on actual  data on poverty levels and household expenditures in the territory, but such information  was not immediately available.   After initially setting the minimum wage at £5.05 per hour, the Falklands government  conducted a study of the cost of living in the islands. Government officials adapted  methodologies for determining a “living wage” used in the United Kingdom itself and in  other British overseas dependencies, gathered data on local costs, and came up with a  new target hourly minimum wage. According to an official from the Falkland Islands  government, effective January 1, 2016, the government increased the previous  minimum wage to £5.38, or 75 percent of the target “living wage” of £7.26 per hour.  Falklands officials reported that the government has also approved a second increase,  to 80 percent of the target level, to take effect in January 2017.
section_title: Appendix III: Selected Federal Laws Related to Minimum Wages in American Samoa, 1938-2015
paragraphs: Table 6 summarizes key federal laws regarding minimum wages in  American Samoa.
section_title: Appendix IV: State Minimum Wage Law Requirements Related to Adjustment Mechanisms
paragraphs: Table 7 summarizes certain aspects of state minimum wage laws in effect  as of September 17, 2016. Specifically, we reviewed state laws and  constitutions in each of the 50 U.S. states and the District of Columbia to  identify and summarize the method by which enacted state law as of  September 17, 2016, automatically adjusts the state minimum wage at  future dates. The methodology for compiling this table was to search each  state’s statutory and constitutional texts for the phrase “minimum wage”  and to identify and describe any requirements related to minimum wage  adjustment mechanisms. As an additional check, we scanned relevant  portions of the table of contents for each state statutory code and applied  professional judgment to consider any additional sections that appeared  to be relevant to the process for adjusting the state minimum wage.
Table 7 is not intended to be a comprehensive description of the  adjustment mechanisms of all state minimum wage laws. For example,  some states may have exceptions or exclusions from each state’s general  minimum wage laws such as industry-specific minimum wage laws;  minimum wage laws for tipped workers; and minimum wage laws for  alternative pay schedules, such as piece rate or commissioned workers.  Further, many municipalities have enacted minimum wage ordinances,  while some states have passed supremacy measures barring local  governments from minimum wage regulation. We did not attempt to  identify these minimum wage requirements or any related provisions  concerning the mechanism by which these minimum wage requirements  are to be adjusted. Rather, we focused only on states’ general minimum  wage laws and related adjustment mechanisms.
Federal minimum wage laws—to the extent they are applicable—provide  the absolute floor on workers’ wages, regardless of state law. This table  only reflects state statutory law and relevant constitutional provisions.  Though state executive orders, executive branch regulations, and state  court jurisprudence may supplement or modify the implementation of  these statutory provisions, we did not review these sources in compiling  this table. Importantly, some states empower their Labor Commissioner,  wage board, or similar entity to make adjustments to the state minimum  wage for specific occupations, industries, age brackets, vocational  students, or regions. This regulatory mechanism may have sweeping  effects but was outside of the scope of this table. The information in this  table has not been verified by cognizant state officials.
Table 8 summarizes the statutory adjustment mechanisms for states’  general minimum wage laws discussed in table 7. This summary includes  the number of states without a state minimum wage law and the number  of states with fixed, indexed or scheduled adjustment mechanisms in their  state minimum wage laws or a combination thereof.
section_title: Appendix V: Projected Convergence of American Samoa Minimum Wages with Federal Minimum Wage
paragraphs: Table 9 provides information on the time line for American Samoa  minimum wages to equal the federal minimum wage under the current  law and several former schedules.
section_title: Appendix VI: American Samoa Minimum Wage Poster
paragraphs: Figure 14 shows the U.S. Department of Labor (DOL) poster outlining  federal minimum wage requirements for American Samoa employers  subject to the Fair Labor Standards Act (FLSA). According to the DOL, all  such employers are required to post this information in conspicuous  places in every establishment where employees subject to the FLSA’s  minimum wage provisions are employed, so as to permit them to readily  observe it.
section_title: Appendix VII: Highest American Samoa Minimum Wage, Adjusted for Inflation
paragraphs: Figure 15 shows the minimum wage for the American Samoa stevedoring  sector (the highest minimum wage in 2015) from 1997 to 2016, adjusted  for inflation using the American Samoa Consumer Price Index and the  U.S. Consumer Price Index for All Urban Consumers.
section_title: Appendix VIII: Comparison of Labor and Tariff Costs for Four Potential Tuna Canning Business Models
paragraphs: Although American Samoa is located near rich fishing grounds, its labor  costs are significantly higher than those in competing countries.  According to cannery officials, the canneries’ current operations in  American Samoa are not competitive with other business models. To  illustrate tuna canning costs for other business models, we compared the  labor and tariff costs associated with four potential business scenarios for  the cannery operations currently located in American Samoa. The  following analysis provides cost estimates for the four possible models,  assuming constant total production under each model and including four  models that we presented in a 2011 report. Our analysis considers only  labor costs and tariffs, to show the effect of variation in different countries.  Our analysis excludes other associated costs, including transportation,  refrigeration, opening of a new plant (if needed), as well as costs  associated with establishing multiple production locations. Our analysis  also excludes nonwage labor costs, such as the costs of employer payroll  tax contributions.
Model A (tuna loining and canning located in American Samoa).
Tuna processing currently performed in American Samoa would  remain entirely in American Samoa. Canneries located in American  Samoa would hire local and foreign workers to loin (clean, cook, and  cut) and can the fish. In addition, the plant would process some loins  imported from countries with lower wages. The canned tuna from  American Samoa would be exported directly to the United States and  would benefit from tariff-free access to the U.S. market. With an  estimated workforce of 2,700 employees in American Samoa, the  associated labor cost would be $29 million in 2016, with zero tariff  costs.
Model B (relocating tuna loining to Thailand or another country  with lower labor costs and canning processed loins in the U.S.  states). The loining operation—the most labor-intensive part of the  operation—would move to low labor-cost countries, such as Thailand,  Trinidad, Fiji, Mauritius, or Papua New Guinea, where the fish loin  would be cut, cleaned, and cooked and then placed in pouches. The  fish would then be exported to the United States, where it would be  canned. The imported fish would carry a tariff of $11 per metric ton,  and workers would be employed in a low labor-cost country at $1.20  per hour; the combined tariff and labor cost in 2016 would be $21.4  million. No workers would remain in American Samoa cleaning fish,  and 540 workers would be employed in the 50 U.S. states at $14.00  per hour. However, according to an industry expert, relocating  operations from American Samoa could affect the canneries’ eligibility  for certain U.S. government contracts that require U.S.-sourced and - processed fish.
Model C (relocating all loining and canning to a tariff-free  country). Loining would take place in a country with zero tariffs on  canned tuna exported to the United States. Workers would be  employed at $1.20 per hour as in Model B. Under this model, the  American Samoa canneries would close, and all 2,700 positions  would be relocated to a tariff-free country. The cost would be $6.6  million for 2016, assuming no wage increases in the tariff-free country.  However, as in Model B, relocating operations from American Samoa  could affect the canneries’ eligibility for certain U.S. government  contracts.
Model D (half of production, including for certain U.S.  government contracts, located in American Samoa and the other  half relocated to a tariff-free country). In this hybrid model, the  American Samoa cannery would continue to supply canned tuna for  U.S. government contracts (20 percent of production from Model A),  while another 30 percent of production would remain in American  Samoa. The remaining 50 percent of production would move to a  country that exports canned tuna tariff free to the United States. For  this model, we assumed that 50 percent of the current workforce  would remain in American Samoa and the other 50 percent would be  located in a tariff-free country. The associated cost would be $17.8  million in 2016, with zero tariff costs.
Figure 16 shows that, considering only labor and tariff costs, Model A— processing all loins in American Samoa—has higher costs than the  alternatives. Model C—moving operations to a tariff-free country and  closing operations in American Samoa—presents the highest combined  labor and tariff cost savings but would result in approximately 2,700 fewer  jobs in American Samoa. Model D—moving 50 percent of production to a  tariff-free country and keeping 50 percent in American Samoa—would  present the next-highest labor and tariff cost savings while retaining  eligibility for certain U.S. government contracts and would result in about  1,350 fewer jobs in American Samoa. Model B—moving the loining  operations to a country with lower wages—also presents significant cost  savings; however, importing processed loins to the United States would  incur tariffs, and wages for canning in any of the 50 U.S. states would be  higher than in competing tuna processing countries.
section_title: Appendix IX: Projected Timeframes for American Samoa Minimum Wages to Equal Federal Minimum Wage
paragraphs: Table 10 shows projected timeframes for American Samoa minimum  wages, if indexed to the American Samoa cost of living on an annual  basis, to converge with the current federal minimum wage of $7.25 given  hypothetical annual increases in the cost of living.
Table 11 shows the projected timeframes for the American Samoa  minimum wage to equal the current federal minimum wage of $7.25 under  a schedule-based approach, given varying hypothetical amounts and  frequency of scheduled increases.
section_title: Appendix X: Examples of Combining an Indexed Approach with a Schedule-Based Approach
subsections: section_title: Example 1
paragraphs: If an indexing approach were selected as the primary adjustment  mechanism to increase American Samoa’s minimum wages, it could be  combined with a target timeframe and schedule for equaling the federal  minimum wage. Table 12 presents a hypothetical example of  supplementing indexed increases to American Samoa minimum wages  during periods of relatively low inflation. This example is based on the  following assumptions, chosen for illustrative purposes only: an American Samoa industry sector minimum wage of $4.58 for a primary adjustment mechanism of indexing future increases to  annual changes in American Samoa's cost of living; and a secondary adjustment mechanism that calculates a comparative  minimum wage for 2017, based on a schedule for equaling the current  federal minimum wage of $7.25 by 2027 through annual increases of  $0.25 beginning in 2017.
section_title: Example 2
paragraphs: If a scheduled-based approach were selected as the primary adjustment  mechanism, it could be combined with an indexing component to ensure  that the scheduled increases keep pace with American Samoa’s cost of  living. Table 13 presents a hypothetical example of supplementing the  amount of scheduled increases to American Samoa’s minimum wages  during periods of relatively high inflation. This example is based on the  following assumptions, chosen for illustrative purposes only: an American Samoa industry sector minimum wage of $4.58 for a primary adjustment mechanism of scheduled annual increases of  $0.20, beginning in 2017 and continuing until the American Samoa  minimum wage equals the current federal minimum wage of $7.25 in  2030; and a secondary adjustment mechanism that monitors an index of the  American Samoa cost of living and calculates a comparative minimum  wage for 2017 based on changes in the cost of living.
section_title: Appendix XI: Comments from the Department of the Interior
section_title: Appendix XII: Comments from the Department of Labor
subsections: section_title: GAO Comments
paragraphs: 1.  The Department of Labor suggested that our draft did not sufficiently  acknowledge uncertainty in the employment impact findings of a 2014  CBO study of potential minimum wage increases and also did not  adequately describe the study’s findings regarding such increases’  beneficial impacts. We concluded that additional information on  uncertainty in the study’s employment impacts was not needed but that  additional information on its findings regarding beneficial impacts  would help to more fully convey the report’s content. We therefore  added information on the number of people that the CBO study  estimated would be raised out of poverty by the minimum wage  increases it examined.
section_title: Appendix XIII: Comments from the American Samoa Government
subsections: section_title: GAO Comments
paragraphs: 1.  The American Samoa government expressed disappointment that we  did not extend our examination to include (a) possible adjustments in  U.S. trade and tax policies that could supplement the incomes of low  wage workers or help offset the negative impacts of minimum wage  increases on employers in the territory or (b) other federal programs  and policies that may present obstacles to the territory’s efforts to  encourage economic diversification, such as restrictions on  competition in passenger air carrier service. We recognize that  adjustments in other federal policies or programs could mitigate  possible negative effects of minimum wage increases, and  acknowledge the government’s concern about air service regulations.  However, in-depth examination of these topics was outside the scope  of our work.  2.  With regard to indices that could be used to adjust minimum wages to  keep pace with the territory’s cost of living, the American Samoa  government commented that the American Samoa Consumer Price  Index (CPI) would be an inappropriate choice and suggested that we  support the application of the U.S. CPI for All Urban Workers or the  U.S. CPI for Urban Wage Earners and Clerical Workers instead. The  scope of our work was limited to identifying alternative approaches to  setting minimum wages. Therefore, we presented a number of indices  that could be applied but did not recommend an index.
section_title: Appendix XIV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Pedro Almoguera, Benjamin  Bolitzer, Jillian Feirson, Emil Friberg, Michael McAtee, Clarita Mrena,  David Perkins, and Seyda Wentworth made key contributions to this  report. Benjamin Sinoff, Jill Lacey, Reid Lowe, Mary Moutsos, Mimi  Nguyen, and Alexander Welsh provided technical assistance.
section_title: Related GAO Products
paragraphs: American Samoa and the Commonwealth of the Northern Mariana  Islands: Economic Indicators Since Minimum Wage Increases Began.  GAO-14-381. Washington, D.C.: March 31, 2014.
American Samoa and Commonwealth of the Northern Mariana Islands:  Employment, Earnings, and Status of Key Industries Since Minimum  Wage Increases Began. GAO-11-956T. Washington, D.C.: September  23, 2011.
American Samoa and Commonwealth of the Northern Mariana Islands:  Employment, Earnings, and Status of Key Industries Since Minimum  Wage Increases Began. GAO-11-427. Washington, D.C.: June 23, 2011.
American Samoa and Commonwealth of the Northern Mariana Islands:  Wages, Employment, Employer Actions, Earnings, and Worker Views  Since Minimum Wage Increases Began. GAO-10-333. Washington, D.C.:  April 8, 2010.