American Samoa and Commonwealth of the Northern Mariana Islands: Wages, Employment, Employer Actions, Earnings, and Worker Views Since Minimum Wage Increases Began
Released: 2010-04-08T00:00:00

Letter

American Samoa Wages, Employment, Employer Actions, Inflation-Adjusted Earnings, and Worker Views

Wages. Responses to our American Samoa large-employer questionnaire indicate that the hourly wages of about three-quarters of private sector workers employed by respondents were low enough to be affected by the first $.50 minimum wage increase, in July 2007. From 2007 to 2009, as a result of the first three wage increases, median hourly wages rose by almost $1.50 (44 percent) among tuna canning workers employed by questionnaire respondents, compared with $1.00 (25 percent) among other private sector respondents’ employees. In addition, the 2007 through 2009 wage increases narrowed the wage gap between the lowest and highest paid employees of questionnaire respondents by 37 percent. Based on American Samoa large-employer questionnaire responses about workers’ wages as of June 2009, the minimum wage increases scheduled for 2010 through 2016 would affect the wages of close to 95 percent of those private sector workers by 2016.

Employment. Available data show that from 2006 to 2007, the total number of people employed in American Samoa grew by 5.5 percent (from 17,551 to 18,518) and that from 2007 to 2008, employment growth slowed to 3 percent (from 18,518 to 19,060). Questionnaire responses show that employment of workers employed by respondents dropped about 12 percent from 2008 to 2009. Although data for all of 2009 are not yet available, employment in American Samoa dropped further with the loss of 2,000 jobs when the cannery closed in September 2009. Public and private sector officials expressed concern about the significant impact on employment if future minimum wage increases led the remaining cannery to close or made it more difficult to attract new industries to the territory.

Employer actions. American Samoa employers responding to our questionnaire reported having taken cost-cutting actions, including freezing hiring and reducing workers’ benefits, since the minimum wage increases began. Employers also reported plans to reduce costs by the end of 2010, including laying off workers. Employers representing 84 percent of private sector workers employed by respondents, including the cannery that has now closed, said they planned to close or relocate. More employers attributed their actions largely to the minimum wage increases than attributed their actions to other factors, such as transportation and shipping costs. Tuna cannery officials said that minimum wage increases were a significant contributing factor in the closure of one cannery, in addition to other factors. Our analysis shows that outsourcing cleaning operations from low labor-cost areas, such as Thailand, provides opportunities to significantly reduce cannery operating costs.

Inflation-adjusted earnings. Earnings data from SSA and consumer price data show that from 2006 to 2008, median inflation-adjusted earnings dropped by about 6 percent, resulting from a rise in median annual earnings of about 8 percent while local prices rose by about 15 percent. Although earnings data do not allow for a direct comparison of median and minimum-wage annual earnings or for tracking the earnings of workers who lost their jobs, we estimate that inflation-adjusted earnings of full-time minimum wage workers who retained their jobs and full benefits rose by about 14 percent from 2006 to 2008.

Worker views. Workers participating in discussion groups said that their support for the minimum wage increases had dwindled because of the closure of one cannery and uncertainty about the future of the remaining cannery, as well as concern about job security and reductions in benefits related to the wage increases. Workers also expressed an obligation to support extended families and the broader community negatively affected by the minimum wage increases. In addition, workers expressed a belief that wages had increased less than the cost of living. Cannery workers we spoke with generally opposed future minimum wage increases, but the attitudes of other community members varied.

See table 1 for key findings and appendixes III and V for detailed findings and tables on American Samoa.

CNMI Wages, Employment, Employer Actions, Inflation-Adjusted Earnings, and Worker Views

Wages. About a third of private sector workers employed by CNMI questionnaire respondents were directly affected by the first minimum wage increase, in July 2007, according to large-employer questionnaire responses. From 2007 through 2009, as a result of the first three wage increases, the median wage rose by about 19 percent in the tourism industry compared with about 18 percent for the rest of the private sector, for workers employed by questionnaire respondents. The gap between the lowest and highest paid workers narrowed by 9 percent. Based on questionnaire responses about workers’ wages as of June 2009, the future minimum wage increases would affect the wages of 82 percent of those private sector workers by 2015.

Employment. From 2006 through 2008, the total number of people employed fell by about 27 percent, according to CNMI government tax data, largely reflecting the garment factories’ closure. Small employers and other private sector officials expressed mixed views about the future minimum wage increases, including concern that they would make it more difficult to attract new industries to the CNMI; however, many expressed greater concerns about changes to immigration law. Public sector officials said CNMI government employees will be more directly affected by future increases, increasing budget pressures.

Employer actions. CNMI employers responding to our questionnaire reported having taken cost-cutting actions, such as freezing hiring, since the minimum wage increases began. Employers also reported planning to take such actions by the end of 2010, and some attributed their planned actions largely to the minimum wage increases. Employers also noted other factors, such as changes to immigration law and increased shipping and maintenance costs, that contributed to their actions. Based on an analysis of responses from CNMI employers in the hotel industry, we found that raising room rates to cover higher wage costs may cause a 2.6 to 13.7 percent decline in visits to the CNMI.

Inflation-adjusted earnings. CNMI government tax data and consumer price data show that, from 2006 to 2008, average inflation-adjusted earnings dropped by about 6 percent, resulting from a rise in average annual earnings of about 12 percent while local prices rose by about 19 percent. Although earnings data do not allow for a direct comparison of average and minimum wage annual earnings or for tracking the earnings of workers who lost their jobs, we estimate that inflation-adjusted earnings for CNMI minimum wage workers who retained their jobs and full hours rose by about 12 percent from 2006 to 2008.

Worker views. Workers participating in our discussion groups generally expressed support for the minimum wage increases and cited other factors affecting living standards. Participants observed that although the wage increases had led some employers to reduce benefits for foreign workers, the wage increases had benefited local workers. In addition, participants expressed concern about the implementation of U.S. immigration law.

See table 2 for key findings and appendixes IV and VI for detailed findings and tables on the CNMI.

Agency Comments and Our Evaluation

We provided a draft of this report to officials in DOC, DOI, DOL, SSA, and in the governments of American Samoa and the CNMI for review and comment. We received written comments from DOI, the American Samoa government, and the CNMI government, which are reprinted in appendixes VIII, IX, and X, respectively. We also received technical comments from DOL and DOC, which we incorporated as appropriate. SSA had no comments. We shared excerpts of the draft with several private sector entities and experts and incorporated their comments as appropriate.

Following are summaries of the written comments from DOI, the American Samoa government, and the CNMI government, with our responses.

Department of the Interior. In its written comments, DOI agreed with our findings and noted that the report contained useful information on American Samoa and the CNMI. However, DOI commented that the report included insufficient commentary on the future impact of minimum wage increases in American Samoa and the CNMI. We note that information on the potential impact of future minimum wage increases appears in the report’s discussions of employment, employer actions, and worker views for both American Samoa and the CNMI.

American Samoa. In its written comments, the American Samoa government generally agreed with our findings. In addition, the comments stated that the report findings lead to the conclusion that without a change to the existing incremental minimum wage increases, American Samoa will face very serious economic difficulties. The comments further stated that the economy was losing jobs more quickly than expected and that with the closure of one cannery and continuing significant job losses in the private sector, government revenues and funding available for government services and employment will decrease. American Samoa’s comments also noted that increases in shipping costs due to decreased tuna exports will likely further increase the cost of imported goods and the overall cost of living. Appendix IX provides our more detailed evaluation of the American Samoa government’s letter.

CNMI. In its written comments, the CNMI government agreed with some of our findings but raised concerns about several aspects of our report methodology and analysis. Specifically, the CNMI government expressed concerns about our large-employer questionnaire’s coverage, noting that the questionnaire covers employers with 50 or more employees but excludes smaller employers. In response, we note that because key federal sources of data on the U.S. labor market do not cover the insular areas, we collected our own data on employers through the questionnaire, discussion groups, and other methods such as interviews. Our report appropriately states the limitations of the questionnaire data and repeatedly observes that the data may not be representative of all CNMI workers and employers. Moreover, our report summarizes the views of small employers based on the method that we determined would be most effective and efficient in collecting information from them—through discussion groups targeting small employers (see app. IV, employment section). The CNMI government also expressed concern about the questionnaire’s response rate, given that 33 of 61 employers responded to our questionnaire. While we spent considerable effort to obtain as high a response rate as possible, employers were not required to respond, and the response rate reflects the individual decisions of CNMI employers who received the questionnaire about whether to provide information regarding the extent to which minimum wage increases had affected their operations. Further, the CNMI government states that it questions our findings related to worker views based on our discussion groups, because of the limitations of this approach. Given the relevance of the minimum wage increases to workers, we considered it critical to include their views; however, no existing federal data source provided this information. We believe the discussion groups were an appropriate and worthwhile approach for collecting and including the views of workers.

In addition to expressing concerns about our methodology, the CNMI government expressed concern that the annual minimum wage increases will greatly and negatively affect the CNMI economy, particularly small employers. The CNMI government proposes capping the minimum wage in the CNMI at the current rate of $4.55 to allow an in-depth assessment of the effects of the minimum wage increases on the private and public sectors, including small employers, and it proposes allowing the economy to adjust to the $4.55 minimum wage level. The CNMI government also stated that we should ask for more time to study the effects of the minimum wage increases; however, the American Recovery and Reinvestment Act does not permit additional time for this report. Appendix X provides our more detailed evaluation of the CNMI government’s letter.

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, to the Commissioner of Social Security, and to the Governors of American Samoa and the CNMI. In addition, the report will be available at no charge on the GAO Web site 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. 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 XI.

Appendix I: Objectives, Scope, and Methodology

This report describes, for American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) since 2007—the year the minimum wage increases began—(1) wages, (2) employment, (3) employer actions, (4) inflation-adjusted earnings, and (5) workers’ views regarding the minimum wage increases.

To describe wages, we collected wage data through a large-employer questionnaire during site visits in each area. To describe employment, we analyzed data from the large-employer questionnaire, earnings data from the Social Security Administration (SSA), and tax data from the CNMI government, and we conducted interviews with public and private sector officials. To describe employer actions, we collected responses through the large-employer questionnaire. To describe inflation-adjusted earnings, we analyzed SSA data and tax data from the CNMI government, and we adjusted earnings data using Consumer Price Index (CPI) data for each area. To describe workers’ views, we conducted discussion groups with workers. We provide additional information on each data source below.

In preparing this report, we interviewed officials from the U.S. Departments of the Interior (DOI), Commerce (DOC), and Labor (DOL), as well as from SSA. We reviewed relevant reports and data from DOL and other U.S. government sources. We also reviewed U.S. minimum wage laws and other relevant laws and regulations. We did not focus on the extent to which laws were properly enforced or implemented, although we considered enforcement as appropriate. The scope of our study also does not include workers in the underground economy.

Site Visits

Because key federal sources of data on the U.S. labor market do not cover the insular areas, we collected our own data in each area. We visited American Samoa in August 2009, after one tuna cannery announced it would close and just before it actually closed, and we visited the CNMI in September 2009, after the closure of all garment factories. During our visits, we conducted interviews and discussion groups with government officials, smaller employers, other private sector representatives, workers, and community members to obtain views and information on the minimum wage increases and related topics. In each area, we held an open public meeting and established e-mail accounts to obtain comments from the public. We also collected detailed data from large employers in each area including through a questionnaire, as described below.

In American Samoa, we visited the island of Tutuila and interviewed officials in the Office of the Governor, the Department of Commerce, the Department of Human Resources, the Department of the Treasury, the Department of Program Planning and Budget Development, the Office of Samoan Affairs, and other American Samoa agencies, as well as the legislature. We also interviewed representatives of the private sector, including representatives from the tuna canneries, and workers.

In the CNMI, we visited the islands of Saipan and Tinian and interviewed officials in the Office of the Governor, the Department of Commerce, the Department of Labor, the Department of Finance, and the Marianas Visitors Authority, as well as several other CNMI agencies. We also interviewed representatives of the private sector, including representatives from hotels, and workers. We also visited the island of Rota in January 2010 and interviewed several employers.

Employer Questionnaire

We collected detailed data from large employers in each area through a questionnaire on employment, wage structure, past and planned employer actions, and related topics for the years 2006 to 2009. We defined a large employer as one that employed 50 or more workers in recent years. The employers selected to receive the questionnaire comprised for-profit, not- for-profit, and public sector employers. We sent the questionnaire only to employers with 50 or more workers because we did not have sufficiently reliable frames from which to draw a probability sample of employers and because we could contact only a limited number of employers in each area, given available resources. By limiting our questionnaire to the largest employers, we were able to concentrate data collection efforts on those who employed a disproportionately large percentage of the workforce.

For American Samoa, we used local tax return data to identify employers that filed 50 or more employee wage and tax statements (i.e., Form W-2) in either 2007 or 2008, and we verified this list with the American Samoa government and Chamber of Commerce. We sent questionnaires to 40 employers in American Samoa, covering approximately 84 percent of the American Samoa public and private sector workforce.

For the CNMI, we did not receive local tax return data in time to develop our list. We generated our original list from 2007 Labor and Immigration Identification and Documentation System data from the CNMI government. Because the data include only foreign workers, the CNMI government and Saipan Chamber of Commerce identified additional employers that likely had more than 50 employees. We sent questionnaires to 63 employers in the CNMI, covering approximately 37 percent of the CNMI public and private sector workforce, with greater coverage among public sector workers. The percentage of the workforce covered by our large-employer questionnaire was later calculated by the CNMI government’s Department of Finance.

In accordance with other federal employment surveys, our large-employer questionnaire asked for wage data for the 2007, 2008, and 2009 pay periods containing June 12. We selected June as the reference month because it spanned one month before the first minimum wage increase (July 2007) and one month after the most recent increase (May 2009), allowing us to study changes since before the first minimum wage increase and through the most recent increase. The questionnaire asked separately for data regarding workers paid an hourly wage and workers paid an annual salary. The questionnaire also included detailed questions about changes in benefits, about employers’ past and possible future actions, and about the extent to which employers attributed these actions to past and future minimum wage increases. (The questionnaire is reproduced in app. VII.)

Before sending the questionnaire to employers, 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. Pretest participants included business owners or general managers and, where applicable, financial personnel responsible for maintaining the payroll system. The questionnaire was also reviewed by members of the American Samoa, Saipan, and Tinian Chambers of Commerce, which also provided their endorsements, and an independent GAO reviewer. We made appropriate changes to the content and format of the questionnaire after the pretests and independent reviews.

Most employers received the questionnaire by e-mail in an attached Microsoft Word form that they could return electronically after marking checkboxes or entering responses in open-answer boxes. Questionnaires were sent 1 to 2 weeks prior to the start of our visits to each insular area. If we could not obtain an e-mail address for an employer, we delivered a paper copy of the questionnaire during our visits. Employers returned questionnaires by e-mail, mail, or fax. The deadline for the questionnaire was set midway through our visits so that we could conduct nonresponse follow-up in person and by phone while in the insular areas. We also contacted nonrespondents by e-mail and phone after returning from the insular areas. In addition, we contacted respondents to clarify responses and request any missing data.

In American Samoa, 20 of the 40 employers completed the questionnaire, resulting in an unweighted response rate of 50 percent, as shown in table 3. These respondents represented about 87 percent of the workforce employed by questionnaire recipients (those with 50 or more employees) in 2008 and about 72 percent of the total workforce, including 57 percent of the private sector workforce. Questionnaire respondents represented about 99 percent of the public sector workforce in 2008 (all public sector employers received the questionnaire). American Samoa questionnaire respondents provided wage data on a total of 9,685 full-time workers as of June 2009. American Samoa questionnaire respondents included the two tuna canneries and other employers in the sectors of manufacturing, wholesale and retail trade, food services, hotel, construction, transportation, publishing and communication, and health care, as well as the American Samoa government and other public sector employers.

In the CNMI, 33 of the 61 employers completed the questionnaire, resulting in an unweighted response rate of 54 percent, as shown in table 4. We confirmed that two employers had closed, and thus we did not count them in the final response rate. The respondents represented about 79 percent of the workforce employed by questionnaire recipients (those with 50 or more employees) in 2008 and about 29 percent of the total workforce, including 20 percent of the total private sector workforce. Questionnaire respondents represented about 89 percent of the public sector workforce employed by questionnaire recipients and about 87 percent of the total public workforce in 2008 (4 public sector employers were not covered by questionnaire because they had fewer than 50 employees). CNMI questionnaire respondents provided wage data on a total of 7,535 full-time workers as of June 2009. CNMI questionnaire respondents included hotels and other employers in the sectors of food service, utilities, construction, manufacturing, retail, and transportation, as well as the CNMI government and other public sector employers.

In reporting the percentages for questionnaire responses throughout our report, we weighted each percentage to reflect the proportion of workers employed by the responding employers relative to all workers employed by all questionnaire respondents. As a result, the responses of larger employers affect our findings more than those of smaller employers. We determined the number of employees at each employer by summing the number of hourly and salaried workers that employers reported in questionnaire responses. In addition to asking a direct question about number of employees, the questionnaire asked respondents to complete a separate table listing the number of employees at each wage or salary level. Separate tables were required for hourly wage and salaried workers. In cases in which the employers completed the table but did not answer the direct question, the sum of the tabled responses were used as the weight. In the few cases in which employers did not report any employees, they were assigned a weight of zero. To apply the weights, we cross- multiplied the number of employees by the employer response, then divided by the total number of employees in the sample. For example, if three of five employees attributed an action to the minimum wage to a moderate extent, the unweighted response would be 60 percent. However, if those three employers represented 300 of 400 employees, the weighted response that we report would be 75 percent.

From our questionnaire, we obtained information on earnings and employment for both hourly wage and salaried workers during the pay periods that included June 12, 2007, 2008, and 2009. For hourly wage workers, respondents were asked to provide the number of employees paid at each wage rate, and the number of both regular and overtime hours worked during the pay period. For salaried workers, respondents were asked the number of full-time and part-time workers paid in salary ranges (such as from $10,000 to $19,999). In order to determine the wage rate for salaried workers, we assumed that each worker was paid at the midpoint of the range. Because it was unclear the hours each worked, we excluded part-time employees. For any given employer, this may either over or under estimate the wage rate, depending on whether more employees for that employer tend to be at the top or bottom of the range. This particularly affected our reported data regarding government workers. To determine the number of workers affected by each minimum wage increase, we assumed that all workers employed by questionnaire respondents were legally required to receive the minimum wage. If some are not covered or are exempt, the minimum wage increases would affect fewer workers.

After recording the questionnaire data, we verified all keypunched records by comparing them with the corresponding questionnaires and corrected the errors we found. Less than 0.5 percent of the data items we checked had random keypunch errors that would not have been corrected during data processing. Analysis programs were also independently verified. However, we did not independently verify that the wage and other information provided to us were correct.

The questionnaire responses cannot be used to make inferences about all employers and workers in each insular area, particularly in the CNMI. First, because the lists of employers that received the questionnaire were intended to include only those with more than 50 employees, the lists were not representative of all employers. Second, we were unable to survey employers that had closed between 2007 and our questionnaire date, including those in the CNMI garment industry. Third, some nonresponse bias may exist in some of the questionnaire responses, since characteristics of questionnaire respondents may differ from those of nonrespondents in ways that affect the responses (e.g., if those that employ a larger number of workers would have provided different responses than those that employ a smaller number). Last, it is possible that some employers’ views of the minimum wage increases may have influenced their responses.

In addition, the tuna canneries and local government in American Samoa employed a large percentage of workers employed by all questionnaire respondents, as in the actual American Samoa workforce; as a result, these employers’ responses significantly affected our reported questionnaire data. Among CNMI employer responses, the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately affect our questionnaire results on the public and private sectors combined.

SSA Data

We obtained SSA data on the earnings, employment, and demographic characteristics of individual taxpayers in American Samoa and the CNMI from 2005 to 2008. While the SSA data cover all types of workers in American Samoa and were sufficiently reliable for our purposes, three large groups of people in the CNMI were not required to report earnings to SSA and thus are excluded from the SSA data—Filipino, Korean, and CNMI government workers. In 2008, these three groups represented approximately half of all CNMI workers, according to CNMI government tax data. We have chosen not to report the CNMI SSA data due to these coverage gaps.

For American Samoa, SSA told us that all employees were subject to SSA withholding—no group was systematically excluded. In addition, the data were generally consistent with information from other sources, including local American Samoa W-2 data and our questionnaire results. We used SSA data to review trends in employment in American Samoa since the federal minimum wage increases were implemented. We used SSA earnings data to determine two aspects of employment of American Samoa workers from 2005 to 2008. First, we used SSA data to determine the level of employment. Our count of employed people was based on the number of people that had positive reported earnings to SSA. Second, we reported the median earnings per employed person in American Samoa. Because of data limitations, we were unable to report earnings that were not reported to SSA, either because of a failure on the part of the employer or because the earnings were not subject to SSA withholding. We also were unable to report on earnings that exceeded the SSA withholding cap.

To assess the reliability of the data, we interviewed agency officials at SSA. As discussed above, to the extent possible, we compared employment counts from the SSA data to counts from other sources. We determined that the available data were adequate and sufficiently reliable for the purposes of depicting trends in employment and earnings in American Samoa.

Discussion Groups

We conducted structured discussion groups with Chamber of Commerce members in American Samoa, Saipan, and Tinian to collect information on the impact of the minimum wage increases on employers not covered by our large-employer questionnaire, although several participants did receive the questionnaire. For each discussion group, the president of the Chamber of Commerce invited members to participate. In the CNMI, we also held discussion groups with hotel human resources managers and members of the Korean and Chinese business communities. Participants in these groups were also invited by their organizations’ leadership. The number of participants in each group ranged from 4 to 10 business owners or managers.

To collect information on current living standards and workers’ views of the minimum wage increases, we conducted structured discussion groups with various worker and community groups with different organizational affiliations. In each case, we asked the organizations’ leadership to invite members to the discussion groups. In American Samoa, we conducted two worker discussion groups at each of the two canneries, one group with the U.S. Department of Agriculture’s Women, Infants, and Children (WIC) program recipients, and one group recruited by the Office of Samoan Affairs in the American Samoa government. In the CNMI, we conducted discussion groups with hotel workers at two different hotels, one group with the U.S. Department of Agriculture’s Nutrition Assistance Program (NAP) recipients, one group with Filipino workers, one group with former garment factory workers, and one group recruited by the DOI Labor Ombudsman’s Office in the CNMI. The number of participants in each group ranged from 4 to 13. We also distributed questionnaires to WIC recipients in Saipan and Tinian who visited the WIC office on the day we were there. The questionnaires asked about changes in living standards and views on the minimum wage increases.

All discussion groups were moderated by a GAO employee following a structured guide with open-ended questions about current living standards and the effects of the minimum wage. At the end of each discussion group, we also collected written responses to our questionnaire about changes in living standards and views on the minimum wage increases. Discussion groups are generally designed to obtain in-depth information about specific issues that cannot be easily obtained from single interviews. Methodologically, they are not designed to provide results generalizable to a larger population or provide statistically representative samples or quantitative estimates. They represent the views only of the participants in our 18 groups and may or may not be representative of the population of employers and workers in these insular areas. Therefore, the experiences of other employers and workers may be different from those who participated in our discussion groups. In addition, while we attempted to hold discussion groups with as many groups as our resources allowed, the groups and participants in the groups were not random samples of employers and workers in these insular areas.

Local Administrative Data We also analyzed available American Samoa administrative and survey data, including the American Samoa Department of the Treasury’s tax revenues and demographic data from the American Samoa Department of Commerce. We analyzed available CNMI administrative and survey data, including CNMI data on the number and wages of workers from the CNMI Department of Finance’s tax returns. The CNMI tax data provide ranges of earnings, including all payments to employees such as overtime, shift differentials, cash housing and meal allowances, bonuses, etc. The data cover both public and private sector workers and both citizens and noncitizens, and we analyzed data for 2005 to 2008.

We also obtained data on federally funded income-based programs administered by the insular area governments. We obtained data from the U.S. Department of Agriculture’s Food and Nutrition Service on the beneficiaries’ participation in the WIC Nutrition Program in American Samoa for fiscal years 2005 to 2008. We also obtained data on approved, withdrawn and terminated cases, as well as submitted and denied applications from the CNMI Division of Nutrition Assistance Program for 2006 to 2009. We estimated the number of active cases as the difference between those approved and those withdrawn and terminated.

In addition, we obtained historical data on the CPI from both areas. The quarterly CPI series for American Samoa cover the time period from the third quarter in 1997 to the second quarter in 2009, and those for CNMI cover the period from the second quarter of 1988 to the second quarter of 2009. However, both areas have revised the CPI series at several points in time, including updating the weights of individual components and adding more groups in the CPI composition. For American Samoa, because the CPI was rebased in the fourth quarter of 2007, we recalculated the quarterly index series from the fourth quarter of 2008 back to the fourth quarter of 2007 by finding a rebasing factor such that the old and new indexes in the fourth quarter of 2007 were identical. We averaged the quarterly price indexes to compute an annual price level to use in computing year-to-year changes in earnings. We also use the annual price indexes to estimate annual inflation for the 2006 through 2008 period on a consistent basis.

Limitations and Data Reliability

Our review had certain limitations in addition to those already noted. In particular, although our approach yielded information on trends in employment, wages, and earnings in both areas, it is difficult to distinguish between the effects of minimum wage increases and of other factors, including the global recession in 2009, fluctuations in energy prices, global trade liberalization, and the application of U.S. immigration law to the CNMI.

In general, to establish the reliability of the data that we used for reporting trends and statistics for both American Samoa and the CNMI, we systematically obtained information about the way in which data were collected and tabulated. When possible, we checked for consistency across data sources. While the data had some limitations, we determined that the available data were adequate and sufficiently reliable for the purposes of our review.

We conducted our work from April 2009 to April 2010 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any findings and conclusions in this product.

Appendix II: Background

American Samoa comprises five volcanic islands and two coral atolls, covering a land area of 76 square miles—slightly larger than Washington, D.C.—about 2,600 miles southwest of Hawaii. In 2005, American Samoa had a population of about 63,780. Its capital, Pago Pago, is on the main island of Tutuila, which consists mostly of rugged terrain with relatively little level land; most economic activity and government operations on Tutuila take place in the Pago Pago Bay area.

Commonwealth of the Northern Mariana Islands

The CNMI is a group of 14 islands in the western Pacific Ocean, lying just north of Guam and 5,500 miles from the U.S. mainland. Most of the CNMI population—65,927 in 2005— resides on the island of Saipan, with additional residents on the islands of Tinian and Rota.

CNMI–U.S. Relations

The United States took control of the Northern Mariana Islands from Japan during the latter part of World War II. After World War II, the U.S. Congress approved the Trusteeship Agreement that made the United States responsible to the United Nations for the administration of the islands. Later, the Northern Mariana Islands sought self-government and permanent ties with the United States. In 1976, after almost 30 years as a trust territory, the District of the Mariana Islands entered into a covenant with the United States establishing the island territory’s status as a self- governing commonwealth in political union with the United States. This covenant grants the CNMI the right of self-governance over internal affairs and grants the United States complete responsibility and authority for matters relating to foreign affairs and defense affecting the CNMI. The covenant initially made many federal laws applicable to the CNMI, including laws that provide federal services and financial assistance programs. The covenant preserved the CNMI’s exemption from certain federal laws that had previously been inapplicable to the Trust Territory of the Pacific Islands, including federal immigration laws with certain limited exceptions and certain federal minimum wage provisions. However, under the terms of the covenant, the federal government has the right to apply federal law in these exempted areas without the consent of the CNMI government.

Until recently, the CNMI retained legislative authority over most aspects of immigration, regulating entry into the CNMI through a permit system. In 2008, federal legislation amended the U.S.-CNMI Covenant to establish federal control of CNMI immigration; the law includes several provisions affecting access to the CNMI by foreign workers, tourists, and foreign investors that were implemented beginning in November 2009. As we reported in August 2008, the potential impact of the legislation’s implementation on the CNMI’s labor market will largely depend on decisions that the U.S. Departments of Homeland Security and DOL make in implementing a program to provide foreign workers temporary permits to work in the CNMI during a transition period that ends in 2014. Although modest reductions in CNMI-only permits for foreign workers would cause minimal impact, any substantial and rapid decline in the availability of CNMI-only work permits for needed workers would have a negative effect on the economy, given foreign workers’ prominence in key CNMI industries.

In fiscal year 2008, the CNMI government spent approximately $51.5 million in grants from several federal agencies, including DOI, DOC, DOL, the Department of Homeland Security, and the Department of Health and Human Services. For example, in 2008, the CNMI government spent $9.35 million provided by DOI. The CNMI also has begun receiving federal funds under the Recovery Act that temporarily supplement local government revenues.

CNMI Economy

The CNMI’s garment and tourism industries have contributed directly to its economy by generating employment and bringing revenue from outside the CNMI via exports. For example, in 1999, these two industries accounted for about 85 percent of the CNMI’s total economic activity and 96 percent of its exports.

Several developments in international trade caused the CNMI’s garment industry to decline dramatically. In January 2005, in accordance with a World Trade Organization 10-year phaseout agreement, the United States eliminated quotas on textile and apparel imports from other textile- producing countries, exposing the CNMI apparel industry’s shipments to the United States to greater competition. Subsequently, the value of CNMI textile exports to the United States dropped from a peak of $1.1 billion in 1998, to $98.2 million in 2008, to close to zero in 2009 (see fig. 3). The number of licensed CNMI apparel manufacturers decreased rapidly, from 34 firms in 1999 to 6 firms as of July 2008. By the end of the first quarter of 2009, the last garment factory in the CNMI had closed.

In addition, the CNMI economy has been negatively affected by trends in the tourism industry. For example, tourism in the CNMI experienced a sharp decline in the late 1990s as a result of the Asian financial crisis. In 2003, according to CNMI officials, tourism slowed for several months in reaction to the SARS epidemic, which originated in Asia, and the war in Iraq. Visitors from Japan account for the greatest share of visitor arrivals in the CNMI—56 percent of the total in fiscal year 2009. Total visitor arrivals to the CNMI dropped from a peak of 726,690 in 1997 to 375,808 in 2009, a decline of 48 percent (see fig. 4). The CNMI tourism industry also may be affected by the November 28, 2009, implementation of final rules for a joint visa waiver program for visitors to the CNMI and Guam, as part of the application of U.S. immigration law.

During the expansion of the CNMI garment and tourism industries prior to 1995, the CNMI economy became dependent on foreign labor, as the CNMI government used its authority over its own immigration policy to bring in large numbers of foreign workers and investors. In 1995, two-thirds of the CNMI working population were temporary residents, including about 93 percent of workers in the garment industry and slightly over 72 percent in the tourism industry. In contrast, in the same year, U.S. citizens and permanent residents of the CNMI held about 96 percent of jobs in the public sector. As a result, the CNMI economy developed a two-tiered wage structure, with U.S. citizens and permanent residents earning 3.5 times more than temporary residents in 1995. However, with the decline of the garment and tourism industries, the number and proportion of noncitizens in the CNMI labor force and population has decreased (see fig. 5). Noncitizen workers in the CNMI are predominantly Chinese or Filipino. As noted above, the application of U.S. immigration law might result in further changes in the composition of the CNMI’s workforce.

In addition, the CNMI’s economy may be affected in the future by the planned build-up of the U.S. military in neighboring Guam, possibly bringing new business and tourism opportunities for the CNMI. The U.S. Department of Defense aims to move 8,000 Marines and an estimated 9,000 dependents from Okinawa, Japan, to Guam by 2014, increasing Guam’s current population by an estimated 25,000 active duty military personnel and dependents.

Current federal data on income and poverty levels in the CNMI do not exist; however, the most recent available data show that the CNMI had lower income and higher poverty rates than the mainland United States. For example: In 2004, the CNMI median household income was $17,138, while the U.S. 50-state median household income was $44,389.

In 2004, the CNMI poverty rate for all persons was 53.5 percent, while the U.S. 50-state poverty rate for persons age 15 and older was 12.7 percent.

Minimum Wage Law

U.S. Minimum Wage Law

The federal minimum wage was first enacted as part of the Fair Labor Standards Act of 1938 (FLSA). As of July 2009, the federal minimum wage was set at $7.25 per hour. Federal minimum wage laws apply generally to any employee engaged in commerce, with limited exceptions and exemptions. Certain employees who would otherwise be covered under the FLSA definitions are exempted by law from the minimum wage requirements—for example, employees involved with seafood at sea are exempt. Employees not covered by FLSA include, for example, individuals engaged in agriculture, if the employer is an immediate family member.

DOL’s Wage and Hour division enforces a variety of U.S. labor laws, including laws related to minimum wage, overtime pay, child labor, and family medical leave. The division uses a number of strategies, including investigations and partnerships with external groups, such as states, foreign consulates, and employee and employer organizations.

Minimum Wage Law in American Samoa

From 1956 to 2007, employers in American Samoa were allowed to pay their employees at hourly rates less than the federal minimum wage. During that period, rates were set by special industry committees established by DOL. The special industry committees system continued to exist until May 2007, when Congress required an incremental increase in the minimum wage for all industries in American Samoa, at $.50 per year in each industry, until it reaches the full federal minimum wage. For example, if the current federal minimum wage of $7.25 remains unchanged, the minimum wage for American Samoa tuna canning industry workers will reach $7.25 in 2014 (see table 5).

Under the terms of the CNMI-U.S. covenant, until May 2007, the CNMI was exempt from the minimum wage provisions of the FLSA and maintained control over its own minimum wage system. The most recent legislative changes to the federal minimum wage specified that the CNMI would be subject to the federal minimum wage, through a staged $.50 incremental approach. The law raised the CNMI established minimum wage from $3.05 to $3.55 per hour in July 2007 and requires a $.50 increase every year thereafter until the FLSA-CNMI minimum wage equals the full federal minimum wage (see table 6).

Prior Studies of Minimum Wage Increases in American Samoa and the CNMI

The federal government has conducted or funded several reports on minimum wage increases in American Samoa and the CNMI in recent years.

In May 2007, DOL’s Wage and Hour Division issued a report on the minimum wage in American Samoa as part of DOL’s biennial review process under the special industry committees. The report analyzes American Samoa’s wage and employment structure based on a 2006 employment and wage survey, and it provides the numbers of employees in each industry who would be affected by a range of possible minimum wage increases.

In January 2008, DOL issued a report on the economic impact of minimum wage increases in both American Samoa and the CNMI, as required by the 2007 supplemental appropriations bill. For American Samoa, the study noted concern that the tuna canneries would close before the minimum wage reached the U.S. federal minimum wage of $7.25 per hour, causing substantial job losses. For the CNMI, the study found that although data were not available to precisely quantify the impact of the scheduled minimum wage increases, it seemed likely that the CNMI’s existing economic decline would be made worse and that the CNMI population would continue to decline.

DOI funded studies of the American Samoa and CNMI economies, including the minimum wage increases.

A February 2008 study assessing the relationships between different sectors of the American Samoa economy found that a doubling of American Samoa’s minimum wage in a 7-year period could result in the end of the fish processing industry and serious consequences for the economy.The authors predicted that costs would rise, and that, under a worst-case scenario, American Samoa could lose 46 percent of all jobs in the territory.

An October 2008 study of the CNMI examined the impact of both federal immigration policy and the minimum wage increases. In framing this analysis, the study found that lifting of quotas on garment imports to the United States had rendered the CNMI’s garment industry unfeasible and estimated that the loss of 16,800 garment jobs could ultimately cost the CNMI economy about 25,200 jobs, about 60 percent of peak employment in 2004. The study projects the combined effect of the closure of the garment industry with the implementation of the federal minimum wage and an application of federal immigration policy, whereby almost the entire foreign workforce is removed from the CNMI economy. In this projection, the employment of U.S.- qualified residents increases by 21 percent from 2005 to 2015, but real wages and salaries of U.S.-qualified residents fall by 19 percent. In addition, immigration-policy changes quickly remove foreign workers on government-approved contracts from the economy, and U.S.- qualified residents take jobs in the visitor industry. Despite the increased minimum wage, most of the jobs are projected to pay lower wages than U.S.-qualified residents had come to expect. The study also provides an alternative projection under which the minimum wage is held at $4.05, foreign labor is not restricted, and an aggressive promotion program successfully doubles visitor arrivals by 2015. In this projection, the employment of U.S.-qualified residents increases by 4 percent from 2005 to 2015, and real wages and salaries of U.S.- qualified residents increase by 15 percent. The authors suggested, among other recommendations, that the law extending the minimum wage requires further analysis and notes that officials are seeking to modify the scheduled increases. Possible modifications include lengthening the period over which the minimum wage is increased, basing increases on measures of worker productivity, or using a special program for adjustment as had previously been done in American Samoa.

Appendix III: American Samoa Wages, Employment, Employer Actions, Inflation- Adjusted Earnings, and Worker Views

In American Samoa, the first minimum wage increase raised the wages of about three-quarters of workers of large private sector employers that responded to GAO’s questionnaire. Based on June 2009 wage data from our questionnaire, the future minimum wage increases would affect the wages of 95 percent of those private sector workers by 2016. Federal data show that employment grew from 2006 to 2008, while questionnaire responses show that employment dropped from 2008 to 2009. Since the September 2009 closure of one tuna cannery, employment has continued to drop. Public and private sector officials expressed concern that future increases could impact the remaining cannery and American Samoa’s ability to attract new industries. Employers representing many workers employed by questionnaire respondents reported taking cost-cutting actions, including those affecting workers’ income and benefits, since the increases began. Private sector employers also reported planning actions such as leaving American Samoa or closing by the end of 2010. More employers attributed their past and planned actions to the minimum wage increases than to other factors. Cannery company officials said in interviews that the minimum wage increases were a significant contributing factor in the cannery’s closure, in addition to other factors. Our analysis shows that outsourcing cleaning operations from low labor- cost areas, such as Thailand, provides opportunities to significantly reduce cannery operating costs. Earnings data from SSA show that median annual inflation-adjusted earnings in American Samoa declined by about 6 percent from 2006 to 2008. Although earnings data do not allow for a direct comparison of median and minimum-wage annual earnings or for tracking the earnings of workers who lost their jobs, we estimated that inflation-adjusted earnings for full-time minimum wage workers who retained their jobs and hours rose by about 14 percent. In discussion groups, workers generally said that their support for the wage increases had dwindled because of concerns such as the cannery closure, job insecurity, and loss of benefits.

Minimum Wage Increases through 2016 Would Affect Wages of Almost All American Samoa Private Sector Workers Employed in 2009, Particularly in Canning Industry

Wages of Most Private Sector Workers Were Low Enough to Be Raised By Minimum Wage Increases in 2007-2009

According to wage data provided in large private sector employers’ responses to our questionnaire, before the first minimum wage increase in July 2007 about 74 percent of those employers’ workers earned wages close enough to the minimum to be affected by that first increase (see fig. 6).

Tuna canning industry. About 80 percent (3,784 of 4,751) of canning industry workers employed by questionnaire respondents earned no more than 50 cents over that industry’s minimum wage.

Other private sector industries. About 35 percent (260 of 747) of hourly workers employed by questionnaire respondents in other private sector industries earned no more than 50 cents over the minimum wages for those industries.

For the first three minimum wage increases in 2007 through 2009, wage data provided by respondents to our large-employer questionnaire showed the following: In July 2007, about 86 percent of private sector workers in American Samoa had wages no more than $1.50 over the minimum and therefore would have been affected by the minimum wage increases in 2007 through 2009.

In the public sector, according to American Samoa responses to our questionnaire, at most 30 percent of government workers earned wages no more than $1.50 over the minimum in 2007 and therefore were directly affected by the first three minimum wage increases.

Rise in Median Wage after Three Increases Was Greatest for Canning Industry Employees

After the first three minimum wage increases, the median wage for the tuna canning industry increased more than for other parts of the private sector. Based on large employers’ responses to our questionnaire, our analysis shows that from June 2007 to June 2009—the period of the $1.50 total increase in the minimum wage—the median wage for the canning industry rose by $1.46 (44 percent) while the median wage for the rest of the private sector rose by $1.00 (25 percent) (see table 7). For American Samoa public sector workers, the median salary, based on questionnaire responses, remained unchanged in a range between $10,000 and $20,000.

Responses to our questionnaire indicate that the minimum wage increases narrowed the gap between the wages of lower- and higher-paid workers in American Samoa (see fig. 7). Workers earning the 25th percentile of wages—that is, higher than 25 percent of all American Samoa workers employed by questionnaire respondents—experienced a larger increase in wages than workers earning the 75th percentile of wages. Workers earning the 75th percentile of wages experienced no increase in wages. Specifically, the gap between wages of workers at the 25th percentile and workers at the 75th percentile dropped from $3.91 in 2007 to $2.45 in 2009, a decline of 37 percent.

As the minimum wage increases continue, they will affect a growing percentage of workers in American Samoa. Based on large employers’ questionnaire responses about workers’ wages as of June 2009, in the private sector, the minimum wage increases scheduled for 2010 through 2016 would affect the wages of roughly 95 percent of those employers’ workers by 2016 (see fig. 8). Information provided in the large-employer questionnaire also show that in the public sector, the scheduled increases would affect at most about 69 percent of workers by 2016.

However, uncertainty about the future of the American Samoa labor market and economy makes it difficult to project the distribution of wages in American Samoa in 2010 and subsequent years. In particular, the cannery closure in September 2009, the consequent losses of cannery jobs and cannery industry-related jobs, and the loss of cannery demand for supplies and services may impact the labor market, as well as the general economy, in ways that our analysis does not reflect. Moreover, if the remaining cannery were to close, the labor market and the economy would be affected still further.

American Samoa Employment Dropped after Minimum Wage Increases Began

Employment in American Samoa Grew after First Minimum Wage Increase but Dropped after Second Increase and Cannery Closure

Total employment in American Samoa grew from 2006 to 2008, before dropping from 2008 to 2009. As shown in figure 9, according to SSA data, total employment increased by 5.5 percent (from 17,551 to 18,518) from 2006 to 2007 and then slowed to 3 percent (from 18,518 to 19,060) from 2007 to 2008. SSA data for 2009 were not available at the time of our work.

Questionnaire responses from employers representing about 72 percent of the American Samoa workforce indicate that employment among the workers employed by respondents increased by 2 percent from June 2007 to June 2008 (from 10,865 to 11,050) and dropped by about 12 percent from June 2008 to June 2009 (from 11,050 to 9,685).

Moreover, the September 2009 closure of one cannery, which employed more than 2,000 workers, as well as reductions in staff at the other cannery, have very likely led to further decreases in overall employment. Public and private sector officials told us it would be difficult for laid-off workers to find new jobs. Many laid-off workers may leave American Samoa rather than seeking new jobs; 84 percent of the laid off workers from the closed tuna cannery are from independent Samoa, and some may return to their home country. However, some of the laid-off workers may have been temporarily re-employed to assist with reconstruction after the September 2009 tsunami. The federal government has paid approximately $8 million under the Recovery Act and approved roughly $23 million for tsunami relief, both of which have funded the creation of temporary jobs. creation of temporary jobs. Additional temporary jobs are available to assist with the 2010 Census. Additional temporary jobs are available to assist with the 2010 Census.

Public and private sector officials expressed concern that the ripple effect from the closure of one cannery, increasing costs, and future minimum wage increases may force the remaining cannery to close. The closure of one cannery is likely to raise operating costs for the remaining cannery and has ripple effects on other businesses. The remaining cannery will now be responsible for all waste water, waste discharge, and maintenance costs, which the two canneries previously shared. The utility company has announced that it was raising utility rates on remaining customers once one cannery closed. In addition, the closure of one cannery reduced shipping needs and therefore is likely to increase shipping costs of imported goods, including produce and consumer products. Officials expressed concern that closure of the remaining cannery would cause further loss of employment.

Employers who participated in our discussion groups for small employers also discussed the effects that cannery closure would have on their operations. Many said cannery closure would not only affect the employment and income of the cannery workers, but also consumer confidence and spending and government revenues. In addition, many small employers said that as a result of the minimum wage increases, they had to lay off workers; cut benefits, hours, and overtime pay; and increase costs for customers, when possible. Some said that they had raised pay only for minimum wage workers, which had decreased the morale of workers who did not receive raises. Furthermore, some small employers said that they wanted workers to earn as much as possible because the cost of living is continuously increasing. While many opposed the minimum wage increases as scheduled, some said they did not oppose minimum wage increases in general but rather advocated a rational approach for setting the increases.

Public sector officials also expressed concern about increased fiscal strain and difficulties in attracting new businesses to American Samoa. In their view, the minimum wage increases will raise costs to the government as more public sector employees are covered by the increases and will coincide with increased fiscal stress on the American Samoa government.

A report for the American Samoa legislature on the consequences of one cannery’s closure estimated that government revenue would decline by roughly 25 percent in fiscal year 2010 compared to fiscal year 2009 revenues. Officials we interviewed said rising minimum wages add to the challenges the territory faces in attracting new industries, such as call centers, in addition to existing factors. For example, a person from a group interested in opening call centers in American Samoa said that local workers must be prepared to work for wages lower than those in the United States until their skill levels improve, and that the U.S. government’s failure to consider this in imposing the U.S. minimum wage had caused potential investors to shy away from the territory. In July 2009, the American Samoa government reported that it had collected 12,000 signatures to a petition to the President to repeal the minimum wage increases in American Samoa, leaving only the first $.50 increase.

American Samoa Employers Reported Past and Planned Actions to Reduce Costs and Raise Prices, with More Attributing Actions to Minimum Wage Increases Than to Other Factors

Respondents to our large-employer questionnaire reported having taken a number of cost-cutting actions—some of which affect workers’ income or benefits—as well as raising prices since the minimum wage increases began in June 2007. Employers also reported planning to take additional such actions within 18 months of completing our questionnaire, or by the end of 2010. Widely varying percentages of employers—weighted by numbers of employees—attributed these actions largely to the minimum wage increases, and more attributed their actions largely to the wage increases than to other factors. (See app. V for a complete listing of American Samoa employers’ past and planned actions, as well as the percentages that reported them and that attributed them to the minimum wage increases and other factors.)

Employers Reported Actions to Cut Costs and Raise Prices from 2007 to 2009, and Many Attributed Actions to Minimum Wage Increases

Cost-Cutting Actions Affecting Workers’ Income and Benefits in 2007-2009 Closed or relocated. Employers, including one of the canneries, representing 43 percent of workers employed by private sector respondents reported closing temporarily or relocating outside American Samoa (see fig. 10). Of employers that reported closing temporarily, none attributed the action largely to the past minimum wage increases. Of those that reported relocating, employers representing 4 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Laid off hourly workers. Employers representing 24 percent of workers employed by all respondents reported having laid off hourly workers (see fig. 10). Of these, employers representing 68 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Froze hiring. Employers representing 93 percent of workers employed by all respondents reported having implemented a hiring freeze. Of these, employers representing 23 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Decreased benefits. Employers representing 42 percent of workers employed by all respondents reported that they had decreased the level of hourly workers’ benefits. Of these, employers representing 41 percent or workers employed by these respondents attributed the action largely to the past minimum wage increases.

Additional Cost-Cutting Actions in 2007-2009 Implemented labor-saving strategies or technology. Employers representing 29 percent of workers employed by all respondents reported that they had implemented labor-saving strategies or technology. Of these, employers representing 67 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Implemented other cost-saving strategies. Employers representing 94 percent of workers employed by all respondents reported that they had implemented other cost-saving strategies, such as energy-saving technologies. Of these, employers representing 23 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Reduced capacity or services. Employers representing 45 percent of workers employed by all respondents reported that they had reduced their operating capacity or customer services. Of these, employers representing 1 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Raised prices. Employers representing 96 percent of workers employed by all respondents reported that they had raised prices of goods or services. Of these, employers representing 1 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Employers Reported Plans to Close or Relocate and Take Other Actions by the End of December 2010, with Many Citing Minimum Wage Increases

Planned Cost-Cutting Actions Affecting Workers’ Income or Benefits Close or relocate. Employers representing 84 percent of all private sector workers employed by questionnaire respondents—including the cannery that closed in September 2009—reported planning to relocate their business outside American Samoa or close permanently by the end of 2010 (see fig. 10). Of those planning to relocate, employers representing 87 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases. Of those planning to close, employers representing 85 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Lay off hourly workers. Employers representing 46 percent of all workers employed by questionnaire respondents reported planning to lay off hourly workers (see fig. 10). Of these, employers representing 91 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Freeze hiring. Employers representing 31 percent of all workers employed by questionnaire respondents reported planning to freeze hiring. Of these, employers representing 35 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Decrease benefits. Employers representing 25 percent of all workers employed questionnaire respondents reported planning to decrease hourly workers’ benefits. Of these, employers representing 85 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Implement labor-saving strategies. Employers representing 50 percent of all workers employed by questionnaire respondents reported planning to implement labor-saving strategies or technology. Of these, employers representing 88 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Implement other cost-saving strategies. Employers representing 97 percent of all workers employed by questionnaire respondents reported planning to implement other cost-saving strategies, such as energy-saving technologies. Of these, employers representing 28 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Reduce capacity or services. Employers representing 89 percent of all workers employed by questionnaire respondents reported planning to reduce operating capacity or customer services. Of these, employers representing 29 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Raise prices. Employers representing 7 percent of all workers employed by questionnaire respondents reported planning to raise prices of goods and services. Of these, employers representing 8 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Selected planned employer action and attribution to minimum wae increaClose or relocate (private sector)

Lay off hourly workers (public and private sectors)

Fewer Employers Attributed Their Actions to Factors Other Than the Minimum Wage Increases Than Attributed Actions to the Increases

Employers also reported that, in addition to the minimum wage increases, factors such as rising costs of utilities and of transportation and shipping contributed to their decisions and plans to cut costs and raise prices. However, fewer employers attributed their actions, in general, largely to these other factors than attributed specific actions to the minimum wage increases. (See app. V for a complete list of the other reported factors and the percentages of employers reporting these factors.) For example, in contrast to the double-digit percentages of employers citing minimum wage increases for many of the actions above, employers representing 6 percent or less of workers employed by questionnaire respondents attributed actions from June 2007 to June 2009 to each possible contributing factor named in our questionnaire.

Company Officials Said Minimum Wage Increases Played Role in Cannery Closure

By raising the hourly minimum wage for cannery workers in American Samoa from $3.26 in 2006 to $4.76 in May 2009—a total increase of 46 percent—the three minimum wage increases to date have further widened the wage gap between American Samoa and other Pacific regions with tuna canning facilities, such as Thailand, which has a minimum wage level of less than $1 an hour. Cannery company officials we met with stated that minimum wage increases were a significant factor in the closure of one of the two canneries in American Samoa. According to cannery representatives, in addition to minimum wage increases, other factors that contributed to the cannery’s closing include (1) the highly competitive market for tuna products, limiting canneries’ ability to pass on increased labor and operating costs to consumers; (2) an attractive environment for investment in alternative locations; (3) the rising cost of shipping and utility costs—owing to increased fuel costs in recent years; (4) the lessening of the value of tariff protection, owing to global trade liberalization; (5) loss of certain U.S. tax benefits; and (6) high costs associated with environmental regulations.

Officials from the remaining cannery report that its operations in American Samoa are no longer viable at the current $4.76 minimum wage for cannery workers. The company testified to Congress that it had reduced employment by nearly 1,000 workers since May 2008. The company also reported that its costs to operate in American Samoa were $23 million higher than they would be in alternative locations. In addition, officials said trade liberalization made it easier for domestic competitors to outsource labor-intensive work away from American Samoa and into low-wage countries.

The firm that owned the American Samoa cannery that closed adopted a business model aimed at reducing labor costs by moving the labor- intensive part of the operation—cleaning, cutting, and cooking the fish to produce cleaned loins ready to be canned—to low labor-cost locations and exporting cleaned loins to the United States for canning. (See text box and fig. 11 for a comparison of the cost factors of the new business model with those of the model previously used by both firms operating canneries in American Samoa.)

Comparison of Two Tuna Canning Business Models Different business models exist in the tuna canning industry. We compared the two models used by firms that produce for the U.S. market to illustrate how the major cost components differ under each model. Under model A, used by the firm that owns the cannery remaining in American Samoa, a firm conducts loining (cleaning, cutting, and cooking the fish) and canning in American Samoa and exports canned tuna to the U.S. market tariff-free. Under model B, used by the firm that closed its cannery in American Samoa and now operates in the U.S. state of Georgia, the firm sources fish loins from low labor-cost regions outside American Samoa, exports the frozen loins to the United States, pays U.S. tariffs, and cans tuna in the United States. Assuming that the production and employment level are similar to those of the firm that closed its cannery in American Samoa, we found that the annual savings on labor costs ($12 million) under model B will more than offset the increased tariff costs ($320,000) per year. We were not able to quantify other production costs, such as utility costs and shipping costs.

Wage costs. Wage costs are significantly lower under model B than under model A. After May 2009 and before the May 2010 increase, the minimum wage for tuna cannery workers in American Samoa is $4.76 per hour; in contrast, the minimum wage in Thailand is less than $1 per hour. Assuming that a plant employs 2,000 people, under model A, all 2,000 employees would earn a minimum wage of $4.76 per hour, while under model B, 1,700 foreign employees would earn $0.75 per hour for loining and 300 U.S.-based employees would earn $7.25 per hour for canning. We estimate that the firm that closed its cannery in American Samoa can save approximately $12 million in wages in the first year using model B.

Tariff costs. Tariff costs will be higher under model B than under model A. American Samoa exports benefit from tariff-free access to the U.S. market, while the United States imposes tariffs on imported loins. Assuming that a firm imports the same amount of cleaned loin to produce the same amount of canned tuna under model B as under model A, we estimate the additional tariff on cleaned loins from Thailand under model B to be around $320,000 annually.

Other costs. It is not clear which business model has an advantage in terms of shipping cost and prices of fish. According to one cannery official, because tuna is harvested throughout the western Pacific Ocean, and given American Samoa’s location, fishing vessels generally deliver directly to the Samoan canneries. Shipping fish to Thailand for cleaning might be more costly than shipping directly to American Samoa. However, an official from a different cannery said economies of scale and other factors may lead to lower cost for fish in Thailand than in American Samoa and to little or no difference in shipping costs. Additionally, the firm using model B may save on other shipping costs. For example, a high-level firm representative told us that under the new business model, the firm will now avoid the high costs of shipping cans and condiments to American Samoa. The company representative also said that the firm will pay less for utilities in Thailand than in American Samoa. In addition, company representatives said the Thai government offers incentives that provide advantages over American Samoa. (Other costs are not shown in fig. 11).

Estimated wage cost (U.S. dollars)

Tariff cost (U.S. dollars)

Cnnerie locted in AmericSamo hire locnd foreign worker to loin (clen, cook, nd ct) nd cn the fih.

The cnned t from AmericSamo exported to the United Ste nd enefit from triff-free ccess to the U.S. mrket.

The loining opertion—the mot labor-intenive prt of the opertion—move to low labor-cot contrie, such as Thilnd, Trinidd, Fiji, or Mauritius, where the fih loin i frozen.

The frozen fih i exported to the United Ste, where it inned.

Model B result in net cosaving as compred to Model A.

Under Model B, nnual labor cosaving re ignificntly $320,000 The minimum wage for the tuna canning industry in American Samoa was $3.26 in 2006 and $4.76 as of May 25, 2009. The minimum wage is scheduled to increase to $7.25 on September 30, 2014.

Annual wage cost of business model A in 2009: $4.76/hour*2000 hours*2,000 employees=$19 million. Annual wage cost of business model B in 2009: $0.75/ hour*2000 hours*1,700 employees + $7.25/hour*2,000 hours*300 employees=$6.9 million. Our analysis assumes that all cannery workers in American Samoa are paid the minimum wage; however, some workers would likely earn somewhat higher wages.

The tariff on cleaned loins is $11 per metric ton under model B.

American Samoa Median Annual Inflation-Adjusted Earnings Declined, but Estimated Earnings for Minimum Wage Workers Who Remained Employed Increased

Median Inflation-Adjusted Earnings Declined from 2006 to 2008

Although data show that median annual earnings of workers employed in American Samoa rose from 2006 to 2008, inflation eroded these income gains; as a result, median inflation-adjusted annual earnings in American Samoa declined by about 6 percent from 2006 to 2008. According to earnings data from the federal government, median annual earnings rose by about 8 percent to $7,858 from 2006 to 2008. However, average prices increased by about 15 percent over the same period (see table 8).

Although earnings data do not allow for a direct comparison of median and minimum wage annual earnings or for tracking the earnings of workers who lost their jobs, we estimate that inflation-adjusted earnings of a full-time minimum wage worker who retained a job and full hours rose by about 14 percent from 2006 to 2008. We assume, based on minimum wage data, that a minimum wage worker earned $3.26 per hour in 2006 and $4.26 per hour in 2008. Using these assumptions, we estimate that a minimum wage worker who worked 2,000 hours per year in each calendar year earned $6,520 in 2006 and $8,520 in 2008.

While the minimum wage for many workers increased by 31 percent from 2006 to 2008 (from $3.26 to $4.26), local prices increased by a smaller percentage, resulting in a rise in estimated inflation-adjusted earnings for a minimum wage worker who retained full employment and hours. In 2007, average prices rose by about 3.7 percent but earnings rose by 15.3 percent; as a result, inflation-adjusted earnings of a minimum wage worker increased by about 11.2 percent. In 2008, the rise in inflation-adjusted earnings was smaller, owing to higher average prices (see table 9).

According to the American Samoa government, 90 percent of the economy of American Samoa is dependent on foreign and U.S. imports. As a result, the increase in local prices from 2006 to 2008 appears to have been largely due to rising prices of imported goods such as food, utilities, and transportation. The American Samoa Consumer Price Index shows that prices rose by about 14.6 percent from 2006 to 2008. Over the same period, the price of imports such as food rose by more than 22.2 percent; the price of transportation, including the price of new cars and fuel costs, which are primarily imports, rose by 13.5 percent; and the price of housing and utilities such as electricity rose by 18.4 percent. In contrast, the price of education and communication services, mostly a domestic product, increased by only 0.3 percent in 2008.

Available Data for 2006-2008 Do Not Suggest Link Between Changes in Poverty-related Program Participation and Changes in Inflation-Adjusted Earnings

Minimum wage increases disproportionately affect households at the lower end of the income distribution. However, direct measures of American Samoa poverty rates are not available for recent years. Available data for federal need-based assistance in American Samoa in 2006 to 2008 do not suggest that changes in inflation-adjusted earnings led to significant changes in poverty-related program participation.

Data from the U.S. Department of Agriculture’s WIC Nutrition Program show that the program participation trend in American Samoa remained stable for the last 4 years, as shown in table 10. Assuming that there was no change in the percentage of the eligible population actually reached and covered by the program, this suggests that the number of people earning less than 185 percent of the U.S. poverty line in American Samoa did not change much during the period.

American Samoa Workers Said Support for Increases Had Dwindled over Time, Particularly Due to Cannery Closure

Workers Said in Discussion Groups That Their Support for the Increases Has Diminished over Time

Discussion group participants said that their views about the minimum wage increases had grown more negative over time. Participants gave various reasons for their dwindling support of minimum wage increases. For example: Cannery closure. Discussion group participants said that their views related to the minimum wage increases had been negatively affected by the closure of one cannery, which they attributed to the wage increases, as well as uncertainty about the remaining cannery’s future. Participants told us they worried about the large number of unemployed workers and their families and possible additional layoffs at the remaining cannery. One cannery worker said that cannery management had attributed layoffs and benefit cuts to the wage increases.

Job insecurity. Participants said that businesses were laying people off because they could not afford to pay all workers the minimum wage. Participants commented that they would rather have a secure job without the minimum wage increases than lose their jobs because of the increases. Participants also told us that if a person resigns or retires, companies eliminate the position instead of hiring a new person and that store owners are not hiring but are relying on family members for help. Cannery workers also indicated that keeping their jobs was particularly important because there were no alternative employment opportunities.

Loss of benefits. Participants said that they have experienced reduction in benefits. Cannery workers told us that they had lost many benefits, including free night shift transportation, paid holidays, end-of-year bonuses, overtime pay, pensions, and sick leave.

Workers Expressed Obligation to Support Extended Families and Broader Community Negatively Affected by Minimum Wage Increases

Many residents we spoke with told us that they live in large households of extended family members and that when a household member experiences a loss of income, the family experiences an obligation to help. Workers reported that Samoans are also expected to share their resources with unemployed relatives who are not immediate family members. Therefore, residents expressed concern about relatives getting laid off as a result of the minimum wage increases and their responsibility to provide for them.

Workers Said Purchasing Power Shrank because Wages Grew Less Than Prices

Participants stated that their incomes had been stretched owing to increases in the prices of groceries, such as infant formula, as well as increases in the prices of fuel, water and electricity, bus fares, hospital care, and private school tuition. In addition, workers said that minimum wage increases have not kept pace with the cost of living. Workers stated that they still cannot afford things despite the raises because the cost of living has increased more.

Cannery Workers Generally Opposed Future Minimum Wage Increases

Comments by the cannery workers who participated in our discussion groups indicated that although the higher wage was welcomed by some, the past wage increases were unpopular among many cannery workers and most opposed the future minimum wage increases as scheduled. All of the discussion group participants in one cannery strongly opposed future minimum wage increases, and the majority of participants in the second cannery said they wanted minimum wage increases to stop for fear of company closure and job losses.

Non-Cannery-Workers Expressed Various Views on Future Minimum Wage Increases

Among discussion group participants outside the canneries, views on the minimum wage increases varied. Among those who welcomed the wage increases, some participants said that they supported future minimum wage increases because of inevitable growth in the cost of living. One participant said that the minimum wage increase was needed and would have positive effects in the long term and that the economy would have to adjust. Among those who opposed the increases, participants said that the wage increases would have no lasting benefit because inflation would diminish purchasing power. Another participant argued for revisiting the question of whether to continue raising the minimum wage after the wage reached about $5 per hour.

The text box lists some of the comments by discussion group participants.

American Samoa Workers’ Views Based on Discussion Groups Support for the American Samoa minimum wage increases has dwindled over time for several reasons. “I’m worried about the cannery closure, the unemployed thousands, and their families.” “This is the worst nightmare here at the plant… with the worries.” “The cannery next door is closing next month. It is the impact of the minimum wage increase, and we don’t want that to happen here.” “When management has announced layoffs and benefit cuts, they have said it’s because of the wage increases.” “We would rather have little pay than zero pay.” “We just want to make sure jobs are secure. “ “As wages increase there are no jobs.” “There is nothing else to do once we lose jobs.” “Since the minimum wage went into effect, there have been no more benefits or paid holidays.” “Businesses are laying people off because they can’t afford to pay everyone the minimum wage.”

Workers expressed obligation to support extended families and the broader community affected by minimum wage increases. “We have family obligations in American Samoa, including and church obligations… If your family needs help, you help them. My family asks for more money, because more is available. I see relatives hungry and can’t be selfish. We can budget for what we need now and can share with unemployed relatives. I’m worried about relatives getting laid off, getting hungry, and knocking on my door. Who will feed the cannery layoffs? We will. I think about it day and night.” [Others participants nodding] “I have dependents who are sisters and brothers. Since the raise, I’ve been trying hard to support my family. We are expected to respect and support our parents. Like for the funeral yesterday, we are required to contribute a lot of money, such as $100 per person. We will have to ask people at work if they can share money. Right now, if someone at work has a coffee, we all share it.”

Workers said purchasing power has decreased because wages rose less than prices. “Prices have gone up, stretching incomes.” “We still can’t afford things with the raise, because the cost of living is going up more.”

Cannery workers generally oppose future minimum wage increases, although the higher wage is welcomed by some. “They should stop increasing wages. It’s enough—we should stop right now. Everyone wants the minimum wage to stop right now.” “We are begging—we don’t want the $.50.” “I don’t support any more increases in the minimum wage and don’t support petitions to reduce it to the first $.50 increase level. Because going back to the initial increase when cost of living is so high doesn’t make sense, unless there is a system to reduce the cost of living. I support leaving the minimum wage as is, with no increase or decrease.”

Non-cannery-workers expressed varying views about the future minimum wage increases. “It has to happen. The cost of living will go up whether you have the raise or not. I support the minimum wage because of this.” “The person who goes from $4 to $7.25 won’t come out ahead, because everything they purchase will cost more, decreasing buying power.” “With the prospect of losing the canneries, it is not good in the short term. But it is positive in the long term: 10 to 15 years from now. The economy will have to adjust. It will not be in a poverty state. It will be painful, but it has to happen.”

Appendix IV: CNMI Wages, Employment, Employer Actions, Inflation-Adjusted Earnings, and Worker Views

In the CNMI, the first minimum wage increase raised wages for about a third of workers of private sector employers that responded to GAO’s questionnaire. Based on June 2009 wage data from our questionnaire, the future minimum wage increases would affect the wages of 82 percent of those private sector workers by 2015. CNMI government data show that following the 2007 wage increase, employment continued an existing downward trend largely reflecting the garment factory closures. Small employers and other private sector officials expressed mixed views about the future minimum wage increases, and many expressed greater concerns about changes to immigration law. In questionnaire responses, employers reported having taken cost-cutting actions, such as freezing hiring, since the increases began. They also reported planning such actions by the end of 2010. Employers attributed their actions both to the minimum wage increases and to other factors. Based on an analysis of responses from CNMI employers in the hotel industry, we found that raising room rates to cover higher wage costs may cause a 2.6 to 13.7 percent decline in visits to the CNMI. CNMI government tax data show that average annual inflation- adjusted earnings declined by about 6 percent from 2006 to 2008. Although earnings data do not allow for a direct comparison of average and minimum wage annual earnings or for tracking the earnings of workers who lost their jobs, GAO estimated that annual inflation-adjusted earnings for minimum wage full-time workers who retained their jobs and hours rose by about 12 percent. In discussion groups, CNMI workers generally expressed support for the minimum wage increases and cited other factors affecting living standards.

Minimum Wage Increases through 2016 Would Affect Wages of the Majority of CNMI Private Sector Workers Employed in 2009

Wages of Some CNMI Private Sector Workers Were Low Enough to Be Raised by Minimum Wage Increases in 2007-2009

Responses to our questionnaire show that before the first minimum wage increase, in July 2007, about a third (36 percent) of private sector workers employed by the respondents earned wages close enough to the $3.05 minimum to be affected by the increase (see fig. 12).

Tourism industry. About 40 percent (897 of 2,217) of tourism workers earned no more than $.50 over the $3.05 minimum wage.

Other private sector industries. About 30 percent (542 of 1,774) of workers in other private sector industries earned no more than $.50 over the $3.05 minimum wage. Although we were unable to include garment factories in our questionnaire because they had closed before the time of our work, based on past work, we assume that a large percentage of employed garment workers were affected by the minimum wage increases.

In June 2007, the local minimum wage was $3.05. The first minimum wage increase occurred in July 2007.

For the first three minimum wage increases in 2007 through 2009, wage data provided by respondents to our large-employer questionnaire showed the following: About 61 percent of CNMI private sector workers outside the garment industry earned wages low enough—that is, no more than $1.50 over the minimum—in July 2007 to be affected by the three minimum wage increases.

In the public sector in 2007, according to data provided by the CNMI government, only about 2 percent of CNMI government workers earned wages within $1.50 over the minimum—that is, close enough to the minimum to be affected by the first three increases.

Rise in Median Wage Was Slightly Larger for CNMI Tourism Workers

After the first three minimum wage increases, median wages for the tourism industry rose slightly more than for other sectors of the CNMI economy. Our analysis, based on large employers’ responses to our questionnaire, shows that from June 2007 to June 2009—the period of the $1.50 total increase in the minimum wage—the median wage for the tourism sector rose by 19.2 percent compared with 17.6 percent for the rest of the private sector (see table 11). For CNMI public sector workers, the median annual salary, based on questionnaire responses, remained unchanged in a range between $20,000 and $30,000.

The minimum wage increases in 2007 through 2009 somewhat narrowed the gap between the wages of lower- and higher-paid workers employed by questionnaire respondents. As figure 13 shows, based on employer questionnaire responses, the wages of workers at the 25th percentile rose while the wages of workers at the 75th percentile remained constant. Specifically, the gap between wages of workers at the 25th percentile and workers at the 75th percentile dropped from $8.04 in 2007 to $7.32 in 2009, a decline of 9 percent.

As the minimum wage increases continue, they will affect a growing number of workers in the CNMI. Based on large employers’ questionnaire responses about workers’ wages as of June 2009, in the private sector, the increases scheduled for 2010 through 2015 would affect the wages of about 82 percent of those employers’ workers by 2015 (see fig. 14). In the public sector, the scheduled increases would affect at most about 38 percent of workers by 2015.

However, uncertainty about several critical variables not reflected in our analysis makes it difficult to project the distribution of wages in the CNMI following the minimum wage increases in September 2010 and subsequent years.

Impact of U.S. immigration law. Although the application of U.S. immigration law in the CNMI as of November 2009 may affect the size and composition of the CNMI workforce, it is too soon to assess the extent of such impacts.

Changes in CNMI labor market. Changes in the CNMI labor market could affect the wage distribution of workers. For example, the departure of the garment industry may continue to affect other industry sectors, decreasing the number of workers at the lower end of the wage distribution.

CNMI Employment Continued to Drop as Minimum Wage Increased, and Future Increases Could Have Growing Impact on Employment

Total CNMI Employment Continued to Drop as Minimum Wage Rose

During the period following the first minimum wage increase, total employment in the CNMI continued a downward trend that existed before the minimum wage increases went into effect. From 2006 through 2008, total employment fell by about 27 percent, from 48,945 to 35,907, according to CNMI government tax data (see fig. 15). In addition, questionnaire responses from large employers representing about 30 percent of the CNMI workforce indicate that among the represented workers, employment dropped by about 6 percent from June 2008 to June 2009.

Some employment loss coincided with increases in the minimum wage, and the closure of the garment factories, for multiple reasons, likely contributed substantially to employment loss. According to CNMI tax data, much of the decline in employment was due to the reduction in the number of foreign workers, many of whom worked in the garment industry. These data show that in 2006 there were approximately 14,000 tax records for garment industry workers and that by 2008, the number of garment worker tax records was approximately 3,000. According to a CNMI economic study, the phasing out of quotas for garment trade led to the decline of the CNMI industry prior to the minimum wage increases. According to industry officials, the wage increases caused the remaining factories to close more quickly.

Small Employers and Other Private Sector Officials Expressed Mixed Views about Future Increases, While Government Officials Were Concerned about Growing Budget Pressures

Small business owners and managers told us in discussion groups that they wanted workers to have higher incomes and that CNMI employers had not paid workers enough before the minimum wage increases were implemented. However, they expressed concern that local businesses might not be able to afford future cost increases, and they stated that it would be difficult for the economy to sustain wage increases while it was experiencing other difficulties. For example, the owners stated that the garment factory closures have resulted in increased shipping costs, decreased government tax revenues, and decreased demand for goods and services provided by local businesses. Some small business owners said that they could more easily afford to cover the costs of scheduled minimum wage increases if they did not provide room and board, medical insurance, and work permit fees for foreign workers.

Small employers participating in discussion groups also said that the application of U.S. immigration law had increased uncertainty for small businesses and was more important than the minimum wage increases. Participants noted that without a policy regarding foreign workers, it was difficult to plan for the future. Because of the uncertainty regarding U.S. immigration law, participants said that firms preferred not to hire foreign workers, but they needed to train local residents before they would be able to replace foreign workers. In addition, small business owners from other countries expressed anxiety about not knowing whether they will be able to remain in the CNMI under U.S. immigration law.

Similarly, many larger private sector employers we interviewed expressed greater concern about the economic effects of U.S. immigration law on the CNMI economy than about the effects of minimum wage increases. For example, the CNMI’s tourism industry association observed that although the minimum wage increases could lead to greater interest in tourism- related employment among locally-born CNMI residents, application of U.S. immigration law would result in the elimination of some tourism- related jobs in the CNMI. Other private sector officials expressed concern that the scheduled wage increases would make it more difficult to attract new businesses, such as call centers and new tourism businesses, to the CNMI. For example, the CNMI’s dial-tone provider said that although past minimum wage increases in the CNMI had not impeded the company’s ability to offer call-center services in the CNMI, the wage increases had affected the company’s subscriber base by causing other businesses to close. The company also said that future minimum wage increases could prevent the company from competing internationally for call-center services from the CNMI.

In addition, public sector officials said that the CNMI government will be more directly affected by future than past minimum wage increases as budget pressures grow. CNMI government officials whom we interviewed noted that although past minimum wage increases had not substantially increased their agencies’ labor costs, subsequent increases could cover more employees and thus raise costs. Although we found that the minimum wage increases would not substantially affect CNMI government workers until 2014 and 2015, they will likely coincide with an existing high degree of fiscal stress on the CNMI government. For example, the NMI Retirement Fund’s actuarial assessment for fiscal year 2007 reports unfunded pension liabilities of $369 million. In addition, the financial audit conducted of the Fund’s Group Health and Life Insurance Trust Fund for fiscal years 2007 to 2008 indicates a net deficit in the government’s group health and life insurance trust fund of $18.3 million.

CNMI Employers Reported Past and Planned Actions to Reduce Costs and Raise Prices, Attributing Actions Both to Minimum Wage Increases and to Other Factors

Respondents to our CNMI large-employer questionnaire reported having taken a number of cost-cutting actions, some of which directly affect workers’ wages or benefits, and raising prices. However, few—weighted by numbers of employees—attributed these actions largely to the minimum wage increases. Employers also reported planning to take such actions by the end of 2010, and some attributed their plans largely to the minimum wage increases. CNMI employers also attributed their actions largely to other factors. (See app. VI for a complete listing of employers’ past and planned actions, as well as the percentages that reported them and that attributed them to the minimum wage increases and other factors to a small, moderate, or large extent.)

CNMI Employers Reported Cutting Costs and Raising Prices in June 2007- June 2009, but Few Attributed These Actions Largely to Minimum Wage Increases

Cost-Cutting Actions Directly Affecting Wages and Benefits Closed or relocated. Employers representing 2 percent of all private sector workers employed by questionnaire respondents reported closing temporarily or relocating outside the CNMI (see fig. 16). Of these employers, none attributed the decisions to close temporarily or to relocate largely to past minimum wage increases.

Laid off hourly workers. Employers representing 11 percent of all workers employed by questionnaire respondents reported having laid off hourly workers (see fig. 16). Of these, employers representing 2 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Froze hiring. Employers representing 72 percent of all workers employed by questionnaire respondents reported having implemented a hiring freeze. Of these, employers representing 17 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Decreased benefits. Employers representing 17 percent of all workers employed by questionnaire respondents reported that they had decreased the level of hourly workers’ benefits. Of these, employers representing 2 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Additional Cost-Cutting Actions in 2007-2009 Implemented labor-saving strategies or technology. Employers representing 42 percent of all workers employed by questionnaire respondents reported that they had implemented labor-saving strategies or technology. Of these, employers representing 10 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Implemented other cost-saving strategies. Employers representing 44 percent of all workers employed by questionnaire respondents reported that they had implemented other cost-saving strategies, such as energy- saving technologies. Of these, employers representing 20 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Reduced capacity or services. Employers representing 27 percent of all workers employed by questionnaire respondents reported that they had reduced their operating capacity or customer services. Of these, employers representing 8 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

Raised prices. Employers representing 75 percent of all workers employed by questionnaire respondents reported that they had raised prices of goods or services. Of these, employers representing 6 percent of workers employed by these respondents attributed the action largely to the past minimum wage increases.

CNMI Employers Reported Planning to Cut Costs and Raise Prices by December 2010, and Some Attributed These Actions Largely to Minimum Wage Increases

Planned Cost-Cutting Actions Directly Affecting Wages or Benefits Close or relocate. Employers representing 5 percent of all private sector workers employed by questionnaire respondents reported planning to close permanently or to relocate their business outside the CNMI (see fig. 16). Of these, employers representing 3 percent of workers employed by these respondents attributed the decision to close, and employers representing 3 percent attributed the decision to relocate, largely to the minimum wage increases.

Lay off hourly workers. Employers representing 15 percent of all workers employed by questionnaire respondents reported planning to lay off hourly workers (see fig. 16). Of these, employers representing 12 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Freeze hiring. Employers representing 72 percent of all workers employed by questionnaire respondents reported planning to freeze hiring. Of these, employers representing 54 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Decrease benefits. Employers representing 19 percent of all workers employed by questionnaire respondents reported planning to decrease hourly workers’ benefits. Of these, employers representing 11 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Implement labor-saving strategies. Employers representing 22 percent of all workers employed by questionnaire respondents reported planning to implement labor-saving strategies or technology. Of these, employers representing 44 percent of workers employed by these respondents attributed this planned action largely to the minimum wage increases.

Implement other cost-saving strategies. Employers representing 79 percent of all workers employed by questionnaire respondents reported planning to implement other cost-saving strategies (e.g., energy-saving technologies). Of these, employers representing 29 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Reduce capacity or services. Employers representing 22 percent of all workers employed by questionnaire respondents reported planning to reduce operating capacity or customer services. Of these, employers representing 34 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Raise prices. Employers representing 34 percent of all workers employed by questionnaire respondents reported planning to raise prices of goods and services. Of these, employers representing 15 percent of workers employed by these respondents attributed the planned action largely to the minimum wage increases.

Selected planned employer action and attribution to minimum wae increaClose or relocate (private sector)

Lay off hourly workers (public and private sectors)

CNMI Employers Attributed Past Actions Largely to Several Factors Other Than Minimum Wage

CNMI employers reported that, in addition to the minimum wage increases, factors such as changes to U.S. immigration laws and increased transportation and shipping costs contributed to their past actions and plans to cut costs and raise prices. Questionnaire respondents identified factors other than the minimum wage increases that contributed largely to the actions they reported having taken. (See app. VI for a complete list of the other reported factors and the percentages of employers reporting these factors.) For example, employers representing 64 percent of workers employed by respondents cited changes to U.S. immigration laws; employers representing 45 percent of workers cited fewer customers; employers representing 33 percent of workers cited increased transportation or shipping costs; and employers representing 26 percent of workers cited increased cost of materials as contributing to a large extent to their reported actions.

Minimum Wage Increases and CNMI Hotels Like other employers in the CNMI, hotels’ payroll costs will rise as the minimum wage increases. A hotel’s capacity to absorb the higher payroll costs, given its number of workers and wage structure, will depend in part on its ability to raise prices of rooms and services to cover the higher costs. All hotels that responded to our large-employer questionnaire reported having raised prices from June 2007 to June 2009, and hotels representing 75 percent of hotel workers employed by respondents to our questionnaire reported planning to raise prices in the future. We estimate that for the hotels that responded to our questionnaire, the minimum wage increases through 2010 and 2015 will raise average annual payroll costs by approximately $300,000 and $1.3 million, respectively, from their average payroll costs in 2008. As a result, payroll costs as a percentage of total operating costs will increase from approximately 27 percent in 2008 to 38 percent in 2015. Figure 17 shows the estimated average impact of the minimum wage increases on these hotels’ payroll costs in 2010 and 2015, assuming that the number of employees and other operating costs remain at the levels reported by the hotels for 2008.

Whether the hotels can increase their prices to cover the additional wage costs will depend on price elasticity—that is, how visitors respond to the higher prices of visiting the CNMI. To estimate the effect of higher hotel prices on total trip cost, we used data from a 2009 survey by the Hotel Association of the Northern Mariana Islands and estimated that the ratio of workers to hotel rooms sold is approximately 1.18. Using our projection of the percentage of hotel workers who will be affected by the future minimum wage increases, we estimated that the total trip cost per visitor will need to increase by approximately 3.2 percent to cover the minimum wage increases for the hotel workers through 2015 (see table 12). Using the elasticity estimates from the literature, including one used in a study commissioned by the Department of Homeland Security study, we found that raising prices to cover higher costs from the minimum wage increases through 2015 for hotel workers may cause visits to the CNMI to decline by approximately 2.6 percent to 13.7 percent. However, hotels may have different abilities to raise prices. For example, hotels that cater to budget conscious visitors might be less able to raise prices than hotels catering to visitors for whom prices are less important. In addition, the current business environment may make it difficult to increase prices. The CNMI hotel industry group noted recent declines in the tourism sector, reflected in declining room rates from 2008 to 2009, declining occupancy rates from 2005 to 2009, and declining revenues from 2006 to 2009.

CNMI Average Inflation- Adjusted Earnings Dropped as Estimated Earnings of Minimum Wage Workers Who Remained Employed Rose

Average Inflation-Adjusted Earnings Declined in 2006-2008

From 2006 to 2008, average annual inflation-adjusted earnings in the CNMI declined by about 6 percent. In particular, according to CNMI government tax data, average annual earnings rose by about 12 percent to $12,781 in 2008. However, from 2006 to 2008 average prices increased by about 19 percent. Therefore, inflation eroded all income gains over the 2006-2008 period. (See table 13.)

Although earnings data do not allow for a direct comparison of average and minimum wage annual earnings or for tracking the earnings of workers who lost their jobs, we estimate that inflation-adjusted earnings for CNMI minimum wage workers who retained their jobs and full hours rose by about 12 percent from 2006 to 2008. We estimate that annual minimum wage earnings increased by 33 percent from 2006 to 2008 (from $3.05 to $4.05), while Consumer Price Index data show that local prices increased by 19 percent.

To estimate total annual earnings of a minimum wage worker from 2006 to 2008, we assumed that a minimum wage worker earned $3.05 per hour in 2006 and $4.05 per hour in 2008 and that a minimum wage worker worked 2,000 hours per year in each calendar year. As a result, we estimate that total earnings of a minimum wage worker were $6,100 in 2006 and $8,100 in 2008. Because in 2007 average prices rose by about 13.5 percent but earnings rose by 16.4 percent, inflation-adjusted earnings of a minimum wage worker increased by about 2.5 percent. In 2008, the increase in purchasing power was larger (8.9 percent) owing to a similar increase in annual earnings (about 14.1 percent) but a smaller increase of average prices (4.8 percent) (see table 14).

However, for foreign workers whose employers chose to add charges for food and lodging after the minimum wage increases, inflation-adjusted earnings may have increased less or have decreased since 2006. According to the CNMI government, employers providing room and board are permitted to deduct up to $100 for lodging and $100 for food per month from the wages of foreign workers. Employers and workers we spoke with told us that in response to minimum wage increases, some employers started to make these deductions from foreign workers’ paychecks.

Therefore, we estimate that in 2008, foreign workers could earn from $5,700 to $8,100, depending on deductions for food and lodging. As a result, those workers may have experienced a range of changes in their inflation-adjusted earnings from 2006 to 2008, from a 12 percent increase with no change in deductions to a 21.4 percent decrease with the maximum allowable deduction.

Inflation in 2006-2008 Resulted Mainly from Higher Import Prices

According to the CNMI government, most consumer goods in the CNMI are imported. As a result, the increase in local prices from 2006 to 2008 appears to have been largely due to price increases in imported goods such as food and utilities. In particular, the CNMI Consumer Price Index shows that prices rose by about 19 percent from 2006 to 2008. Over the same period, the price of imports such as food increased by about 8 percent and the price of housing and utilities such as electricity increased by 53.5 percent. According to data from the CNMI’s Commonwealth Utilities Corporation, electricity rates increased by 25 percent in 2007 alone. In contrast, the price of education and communication services, mostly a domestic product, has dropped from 2006 to 2008 by 0.5 percent.

Data Available for 2006-2008 Do Not Suggest Link between Changes in Poverty-Related Program Participation and Changes in Inflation-Adjusted Earnings

Minimum wage increases generally disproportionately affect households at the lower end of the income distribution. However, direct measures of the CNMI poverty rate are not available for recent years. Available data for federal need-based assistance in the CNMI in 2006 to 2008 do not suggest that changes in inflation-adjusted earnings, resulting from the wage increases, led to changes in poverty-related program participation.

Our analysis of CNMI Nutrition Assistance Program data shows that from 2006 to 2009, there was no significant observable trend in the number of program beneficiaries (local residents and U.S.-born children of nonlocal residents) (see table 15). The relatively constant number of program beneficiaries suggests that the low-income population remained about constant.

CNMI Workers Generally Expressed Support for Minimum Wage Increases and Cited Other Factors Affecting Living Standards

Discussion Group Participants Generally Supported Higher Wages for Workers

Salaried and hourly workers we spoke with generally expressed support for the minimum wage increases. For example, the majority of WIC recipients we spoke with in Saipan and Tinian favored future minimum wage increases. Hotel human resources staff also stated that the minimum wage increases were long overdue. Local workers in the discussion groups expressed their desire to earn higher wages to cope with increasing costs. However, some workers also said they were uncertain whether increases in labor costs due to the minimum wage increases had been responsible for price increases.

Workers Said Closure of Garment Factories and Events Affecting Tourist Arrivals Had Lowered Living Standards for Residents

Discussion group participants said that the closure of the garment factories and external factors affecting tourist arrivals had negatively affected living standards for CNMI residents. Workers stated that the closure of the garment factories had a ripple effect in the economy. Statements by discussion group participants indicated that they were less concerned about the minimum wage increases than about other factors beyond their control that affect living standards. For example, as human resource managers from the hotel industry observed, the week before we convened the group, hundreds of reservations were cancelled as a result of the global alarm over the H1N1 virus. Other participants mentioned the effects on the CNMI of the SARS virus and the recent financial crises in the Korean and Japanese markets. Hotel employees noted that hours worked depend on occupancy rates and any factors that negatively affect tourist arrivals decrease earnings.

Local Workers Stated That Minimum Wage Increases Had Helped Improve Their Living Standards, but They Need Additional Training to Replace Foreign Workers

Discussion group participants also told us the minimum wage increases had benefited some local workers. For example, hotel human resources staff said that local workers were learning how to plan rather than live from paycheck to paycheck, as their income earned became more significant. The hotel staff told us that as the workers’ spending power had increased, they had become more careful in budgeting their expenses. Other local workers also indicated that the higher wages had helped their families better cover their living expenses. However, discussion group participants said local workers needed additional training to replace foreign workers. Workers participating in discussion groups expressed concern that it is difficult for locals to find jobs because many local workers lack skills needed for minimum wage jobs previously held by foreign workers.

Workers Indicated That Minimum Wage Increases Had Not Improved Living Standards of Foreign Workers

Workers we talked with stated that the minimum wage increases had generally not directly improved the living standards of foreign workers. According to workers participating in our discussion groups, benefits had decreased as income increased; for example, some foreign workers reported that since the first minimum wage increase, their employers had begun requiring them to pay up to $200 per month for housing and food. Further, many foreign workers lost their jobs as a result of the demise of the garment industry, and many of these workers have left the CNMI. Ex- garment workers still living in Saipan told us that they were drawing on their savings, relying on help for their U.S.-born children from the Nutrition Assistance Program, and looking for work.

Foreign Workers Expressed Concern about Immigration Changes and Requirements

Discussion group participants in Saipan and Tinian said that the application of U.S. immigration law had increased uncertainty about the employment of foreign workers. Foreign workers expressed anxiety over not knowing whether they will be able to remain in the CNMI under U.S. immigration law. Moreover, laid-off foreign workers said that employers had begun asking job applicants whether they were U.S. citizens because employers did not know how long they would be able to retain foreign workers under U.S. immigration law.

The text box lists some comments by CNMI discussion group participants.

CNMI Workers’ Views Based on Discussion Groups Some discussion group participants supported higher wages for workers. “There is no price control, minimum wage is up and prices are up. Prices have been going up regardless of the minimum wage. Without the minimum wage increases we would have been worse off.” “Minimum wage is way overdue. We can’t deny raises. People come in and want a job and it is hard to deny them that.”

Workers said closure of garment factories and decreased tourist arrivals had lowered living standards for all residents. “This week hundreds of nights cancelled due to the H1N1. Occupancy rates were sad.” “If Japan goes into recession, so does the CNMI.” “I was a manager in the factory for 9 years…December of 2008 the factory closed. This was the last factory that closed. Now the factory’s wall is torn and the place is deserted. I am on a student visa now, using up my savings.”

Local workers stated that minimum wage increases had helped improve their living standards, but they need additional training to replace foreign workers. “The minimum wage has had some good impact due to the increased spending power. People are trying to make their pay check last longer.” “Now local people are more careful what they can afford.

Before they used to live paycheck to paycheck, the paycheck would be spent by the end of the weekend. It is re-education of the population.” “Before, the wages were so insignificant, people just went out and spent it. Now they are learning how to plan.” “Coming from someone has a home here, is a local resident, it’s definitely more positive. The wages are good for my family.” “It is hard to find a job, need to have degrees, finished college, employers want experience.”

Workers indicated that minimum wage increases have not improved the living standards of foreign workers. “Income has increased but benefits have decreased [for foreign workers]…the employer gets more back.” “—low minimum wage, benefits for contract workers. Now, higher minimum wage, lower benefits…we lose more.” “Reductions for staff housing, before it was free. Same for food. Deduction is $100 for housing and same for food.”

Foreign workers expressed concern about immigration changes and requirements. “I think economy very low because of immigration problem…Some people who have been here long time can’t stay.” “I am using an extension, after an extension. Federalization is the issue for me.” “I have a family, company is source of bread and butter. If I need to leave, big impact on life… I don’t have idea if I can stay.”

Appendix V: American Samoa Employers’ Reported Actions and Contribution of Minimum Wage Increases and Other Factors, Based on GAO Large- Employer Questionnaire Responses

Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, none of whom are covered by our questionnaire. Data also do not include employers that did not respond to our questionnaire. Although questionnaire responses covered about 72 percent of the American Samoa workforce, they may not be representative of all American Samoa workers and employers. In addition, the tuna canneries and local government employed a large percentage of workers employed by all questionnaire respondents, as in the actual American Samoa workforce; as a result, these employers’ responses significantly affected our reported questionnaire data. a. Increased utility costs b. Increased costs of materials e. Decreased number of customers f. Changes to U.S. immigration g. Changes in business taxes or Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, none of whom are covered by our questionnaire. Data also do not include employers that did not respond to our questionnaire. Although questionnaire responses covered about 72 percent of the American Samoa workforce, they may not be representative of all American Samoa workers and employers. In addition, the tuna canneries and local government employed a large percentage of workers employed by all questionnaire respondents, as in the actual American Samoa workforce; as a result, these employers’ responses significantly affected our reported questionnaire data.

Some rows do not add up to 100 percent due to rounding or the category “do not know,” which is not reported here.

Data shown cover large employers—generally, those with at least 50 employees. Questionnaire responses do not include smaller employers; employers that had closed, or employers that did not respond to our questionnaire. Although questionnaire responses covered about 72 percent of the American Samoa workforce, they are not necessarily representative of all American Samoa workers and employers. In addition, the tuna canneries and local government employed a large percentage of workers employed by all questionnaire respondents, as in the actual American Samoa workforce; as a result, these employers’ responses significantly affected our reported questionnaire data.

Employers reported actions that they planned to take within 18 months of our August 2009 questionnaire. a. b. c. d. e. Decreased number of customers f. Changes to U.S. immigration g. Changes in business taxes or Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, none of whom are covered by our questionnaire. Data also do not include employers that did not respond to our questionnaire. Although questionnaire responses covered about 72 percent of the American Samoa workforce, they may not be representative of all American Samoa workers and employers. In addition, the tuna canneries and local government employed a large percentage of workers employed by all questionnaire respondents, as in the actual American Samoa workforce; as a result, these employers’ responses significantly affected our reported questionnaire data.

Some rows do not add up to 100 percent due to rounding or the category “do not know,” which is not reported here.

Employers reported contribution to actions that they planned to take within 18 months of our August 2009 questionnaire.

Appendix VI: CNMI Employers’ Reported Actions and Contribution of Minimum Wage Increases and Other Factors, Based on GAO Large-Employer Questionnaire Responses

Introduce other cost-saving strategies (e.g., energy-saving technologies)

Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, including garment factories, none of whom are covered by our questionnaire. Data also omit employers that did not respond to our questionnaire. Questionnaire responses cover about 29 percent of the CNMI public and private sector workforce. As a result, the data may not be representative of all CNMI workers and employers. In addition, the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined.

Changes to U.S. immigration laws Changes in business taxes or fees Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, including garment factories, none of whom are covered by our questionnaire. Data also omit employers that did not respond to our questionnaire. Questionnaire responses cover about 29 percent of the CNMI public and private sector workforce. As a result, the data may not be representative of all CNMI workers and employers. In addition, the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined.

Some rows do not add up to 100 percent due to rounding or the category “do not know,” which is not reported here.

Data shown cover large employers—generally, those with at least 50 employees. Questionnaire responses do not include smaller employers; employers that have closed, including garment factories; or employers that did not respond to our questionnaire. Questionnaire responses cover about 29 percent of the CNMI public and private sector workforce. As a result, the data may not be representative of all CNMI workers and employers. In addition, the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined.

Employers reported actions that they planned to take within 18 months of our September 2009 questionnaire. a. b. Increased costs of materials d. e. Decreased number of customers f. Changes to U.S. immigration g. Changes in business taxes or Data shown cover large employers—generally, those with at least 50 employees. Data do not include smaller employers and employers that have closed, including garment factories, none of whom are covered by our questionnaire. Data also omit employers that did not respond to our questionnaire. Questionnaire responses cover about 29 percent of the CNMI public and private sector workforce. As a result, the data may not be representative of all CNMI workers and employers. In addition, the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined.

Some rows do not add up to 100 percent due to rounding or the category “do not know,” which is not reported here.

Employers reported actions that they planned to take within 18 months of our September 2009 questionnaire.

Appendix VII: GAO Questionnaire Used in Report

Appendix VII: GAO Questionnaire Used in Report Instructions for Completing the Questionnaire Onscreen Please use your mouse to navigate, clicking on the field or check box you wish to answer.

To select a check box or a button, click on the center of the box.

To change or deselect a check box response, click on the check box and the ‘X’ will disappear.

To answer a question that requires that you write a comment, click on the answer box and begin typing.

The box will expand to accommodate your answer.

NOTE: The reporting unit for this questionnaire is an establishment. An establishment is generally (1) a single physical location where business is conducted or where services or industrial operations are performed or (2) a permanent office, payroll office, or other place where business activities are conducted.

PART I. ESTABLISHMENT INFORMATION These questions cover basic information about this establishment. Responses will be used to classify the establishment based on location, years in operation, ownership structure, and type of business. These questions also ask about this establishment’s competitors and position in the global marketplace. These responses will be used to assess how susceptible this establishment is to global competition in the goods-and-services market. 1. What is the 9-digit Employer Identification Number (EIN) for this establishment?

If you or your employer operates establishment in American Samoa with more than one EIN, please fill out one questionnaire per EIN. (Please enter numerals only) 2. What is this establishment’s name? 3. Since what year has this establishment been in continuous operation?

If this establishment has ever shut down temporarily but later reopened under the same EIN (e.g., seasonal closure or remodel), please count this temporary shutdown as part of the continuous operation. (Please enter in YYYY format) 4. Which category listed below best describes this establishment? (Please check only ONE box)

For-profit business................................................... Continue with QUESTION 5 Not-for-profit organization...................................... Skip to QUESTION 12 Government administrative agency or government-owned enterprise (e.g. public utility or hospital).............................................. Skip to QUESTION 12 Other........................................................................ Please specify: 5. Are the majority of this establishment’s owners U.S. citizens or nationals, U.S. or American Samoan permanent residents, or citizens of the Freely Associated States (FAS)? (Please check only ONE box)

Yes……................................................................... Continue with QUESTION 6 No……. ................................................................... Skip to QUESTION 7 Don’t know ............................................................. Skip to QUESTION 8 Which of the following best describes the majority ownership of this establishment? (Please check only ONE box)

U.S. citizen – CNMI born (Chamorro or Carolinian)………. U.S. citizen – CNMI born (NOT Chamorro or Carolinian) U.S. citizen – not CNMI born......................................... ...……… Chinese citizen................................................................ ...……… Filipino citizen................................................................ ...……… Japanese citizen .............................................................. ...……… Korean citizen................................................................. ...……… Other.... .......................................................................... ………. Don’t know/ unable to determine ................................... ...……… 6. Are the majority of this establishment’s owners of American Samoan heritage? (Please check only ONE box)

Yes……................................................................... Skip to QUESTION 8 No……. ................................................................... Skip to QUESTION 8 Don’t know ............................................................. Skip to QUESTION 8 7. What is the citizenship status of the majority ownership of this establishment? (Please check only ONE box)

Australian citizen .................................................... Chinese citizen ........................................................ Filipino citizen......................................................... Japanese citizen ....................................................... Korean citizen ......................................................... New Zealand citizen ............................................... Other........................................................................ Please specify: Don’t know.............................................................. Please explain: 8. Which one of the following best describes this establishment’s principal kind of business? (Please check only ONE box)

Agriculture, forestry, fishing and hunting ............... Mining, quarrying, and oil and gas extraction......... Utilities ................................................................... Construction ............................................................ Manufacturing ......................................................... Wholesale trade ....................................................... Retail trade .............................................................. Transportation and warehousing ............................. Publishing, broadcasting, and telecommunications ................................... Finance and insurance ............................................. Real estate and rental and leasing............................ Professional, scientific, and technical services ....... Educational services ................................................ Health care/ social assistance .................................. Accommodations (i.e., hotels)................................. Food service ............................................................ Arts, entertainment, and recreation ......................... Repair and maintenance services............................. Other........................................................................ Please specify: 9. Thinking about where your customers primarily reside, approximately what percentage of the goods or services that this establishment provides is sold to (a) local residents of American Samoa, (b) temporary visitors to American Samoa, and (c) consumers who reside outside of American Samoa?

The percentages across the three groups should roughly equal 100 percent. (Please check only ONE box per customer group) a. Local residents of American Samoa: None… ................................................................... Less than 20 percent…… ........................................ 20 to 39 percent……. .............................................. 40 to 59 percent ...................................................... 60 to 79 percent ...................................................... More than 80 percent .............................................. Don’t know ............................................................. b. Temporary visitors to American Samoa, such as tourists or business travelers: None… ................................................................... Less than 20 percent…… ........................................ 20 to 39 percent……. .............................................. 40 to 59 percent ...................................................... 60 to 79 percent ...................................................... More than 80 percent .............................................. Don’t know ............................................................. c. Consumers who reside outside of American Samoa and are not temporary visitors: None… ................................................................... Less than 20 percent…… ........................................ 20 to 39 percent……. .............................................. 40 to 59 percent ...................................................... 60 to 79 percent ...................................................... More than 80 percent .............................................. Don’t know ............................................................. 10. Does this establishment compete for customers with others that provide similar goods or services in the following markets, and if yes, where are the other establishments located in each market listed below?

If this establishment does not compete in the market, please check the box in column 1.

Establishment does compete in this market (Please check all that apply)

Outside the U.S. a. Goods or services sold to local residents of American Samoa.......................................................................... b. Goods or services sold to temporary visitors to American Samoa, such as tourists or business travelers …………………………………………….. c. Goods or services sold to consumers outside of American Samoa…………..………………………. 11. What are this establishment’s competitive advantages, if any, in the markets for which you compete for customers? (Please check ONE box per advantage) a. State-of-the-art technology........................................................................... b. Brand name................................................................................................... c. Skilled workforce…………………………………………………………. d. High-quality goods or services…………………………………………... e. Low production costs (both labor and operating costs)................................ f. Location………………………………………………………………….. g. Access to U.S. markets……………………………………………………. h. Government tax incentives………………………………………………... i. Others (please specify): ________________________________________________________ PART II. EXPENSES AND INCOME These questions ask about this establishment’s labor and capital expenses in order to better understand this establishment’s cost structure and ability to absorb cost increases. 12. The questions in Part II will refer to the 12-month period that includes June 12th in a given year. How does your establishment prefer to provide expense data — for a calendar year (January through December) or for a fiscal year as defined by your establishment?

Calendar year……................................................... Skip to QUESTION 13 Fiscal year……........................................................

12a. What is the first and last month of your establishment’s fiscal year that includes June 12th? (MM) (MM)

The data reported in questions 13 to 15 will be used to determine this establishment’s total costs incurred for its employees. Each question asks you to report a different type of employee cost that most establishments incur— total payroll, FICA contributions, and costs of employee benefits. Specific definitions of each of these three categories are provided below. 13. What was the total U.S. dollar amount of this establishment’s payroll before employee deductions for taxes and benefits for the 12-month period for 2006, 2007, and 2008 identified in question 12?

For each year, only include the following as payroll expenses: 12-month period that includes June 12th If did not incur any expenses, please write in 0.

Wages and salaries, including overtime pay, (Please round to the nearest whole dollar)

Paid holidays, vacation, sick leave, and other paid leave for all employees $ , , . 00 $ , , . 00 14. What was the total U.S. dollar amount of this establishment’s FICA contributions for the 12-month period for 2006, 2007, and 2008 identified in question 12?

If did not incur any expenses, please write in 0. (Please round to the nearest whole dollar) $ , , . 00 $ , , . 00 $ , , . 00 15. What was the total U.S. dollar amount of this establishment’s payments for employee benefits (other than FICA) for the 12-month period for 2006, 2007, and 2008 identified in question 12?

For each year, only include the following as benefits if offered to any employee who earned an annual salary or an hourly wage: 12-month period that includes June 12th If did not incur any expenses, please write in 0. (Please round to the nearest whole dollar)

Housing or food allowances Transportation payments for local or international $ , , . 00 travel Payments for education expenses Workers’ compensation Other benefits not listed above $ , , . 00 16. Excluding payroll, FICA contributions, and employee benefits, what was the total U.S. dollar amount of this establishment’s other operating expenses for the 12-month period for 2006, 2007, and 2008 identified in question 12?

If did not incur any expenses, please write in 0. (Please round to the nearest whole dollar)

Merchandise purchased for resale Equipment that was expensed (rather than $ , , . 00 capitalized)

Depreciation and amortization charges Business taxes and fees Other expenses not listed above, except expenses reported in questions 13 to 15 17. What was the total U.S. dollar amount of this establishment’s capital expenditures for the 12-month period for 2006, 2007, and 2008 identified in question 12?

For each year, only include the following as capital expenditures: 12-month period that includes June 12th If did not incur any expenses, please write in 0.

Value of new construction completed Value of physical improvements made to (Please round to the nearest whole dollar) establishment’s facilities that were completed Equipment that was capitalized (rather than $ , , . 00 $ , , . 00 $ , , . 00 18. What was the approximate total U.S. dollar amount of this establishment’s income (before taxes, if applicable) for the 12-month period for 2006, 2007, and 2008 identified in question 12?

Please do not include the value of sales or other taxes collected directly from customers and paid directly to a federal or local tax agency. (Please check ONE box per year) a. Less than $500,000....................................................................................... b. $500,000 to $749,999 ................................................................................... c. $750,000 to $999,999 ................................................................................... d. $1 million to $2,999,999…………………………………………………. e. $3 million to $4,999,999…………………………………………………. f. $5 million to $6,999,999............................................................................... g. $7 million to $8,999,999…………………………………………………. h. $9 million or higher (please specify to nearest million dollar below): i. Don’t know................................................................................................... j. Not applicable............................................................................................... 19. What percentage increase in operating costs would cause this establishment to close its operation in American Samoa? (Please check only ONE box)

Less than 10 percent…… ........................................ 10 to 19 percent……. .............................................. 20 to 29 percent ...................................................... 30 to 39 percent……. .............................................. 40 to 49 percent ...................................................... More than 50 percent .............................................. Don’t know ............................................................. Not applicable .........................................................

PART III. EMPLOYMENT, WAGES, AND BENEFITS DATA These questions ask for detailed data about employment, wages, and benefits for employees at this establishment for 2007, 2008, and 2009. These data are necessary to establish a historical time series of comparable employment and wage data for large employers in American Samoa.

NOTE: The questions in Part III ask about employees on this establishment’s payroll. When answering, please refer to the following definition of employee: Include the following in your count of employees: Full- and part-time employees, including executives, who earn an hourly wage or annual salary Employees on paid leave during any part of the stated pay period Exclude the following in your count of employees: Employees on the payroll of establishments with a different EIN from this establishment Proprietors, owners, or partners of unincorporated establishments Employees on unpaid leave for the entire stated pay period Unpaid family members Several questions in Part III also ask about employees covered by the Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments. 20. Approximately what percentage of the employees at this establishment is female? (Please check only ONE box)

Less than 20 percent…… ........................................ 20 to 39 percent……. .............................................. 40 to 59 percent ...................................................... 60 to 79 percent ...................................................... More than 80 percent .............................................. Don’t know ............................................................. 21. Are any of the employees on this establishment’s payroll covered by the FLSA? (Please check only ONE box)

Yes……................................................................... No……. ................................................................... Don’t know ............................................................. 22. Are any of the employees on this establishment’s payroll paid an hourly wage instead of an annual salary? (Please check only ONE box)

Yes……................................................................... Continue with QUESTION 23 No……. ................................................................... Skip to QUESTION 32 Don’t know ............................................................. Skip to QUESTION 32 23. The reporting period for questions in Part II was either a calendar or fiscal year. The reporting period for the questions in Part III will now be a pay period. A pay period is a recurring length of time over which employee work time is recorded and paid. What length of time defines a pay period for employees paid an hourly wage at this establishment? (Please check only ONE box) 1 week...................................................................... 2 weeks ................................................................... 1 month ................................................................... Other........................................................................ Please specify: 24. For employees paid an hourly wage, what were the start and end dates of the pay period including June 12th for 2007, 2008, and 2009?

If this establishment was not in operation during the pay period that included June 12th in any year, please check the appropriate box in the last column of the table. (Please enter two numerals per answer box)

End date of pay period that includes June 12, 2007 Day includes June 12, 2007 MonthDay (MM) (DD) (MM) (DD)

End date of pay period that includes June 12, 2008 Day includes June 12, 2008 MonthDay (MM) (DD) (MM) (DD)

End date of pay period that includes June 12, 2009 Day includes June 12, 2009 MonthDay (MM) (DD) (MM) (DD) 25. What was the total number of employees paid an hourly wage on this establishment’s payroll during the pay periods that included June 12th for 2007, 2008, and 2009 who were (a) U.S. citizens, nationals, or permanent residents; (b) American Samoa permanent residents and citizens of the FAS; (c) citizens or permanent residents of nations other than the U.S., American Samoa, or the FAS?

If this establishment was not in operation during the pay period that included June 12th in any year, please enter a “0” in the corresponding box. (Please enter numerals in each box below) (a) U.S. citizens, nationals, or permanent residents (b) American Samoa permanent residents and citizens of the FAS (c) citizens or permanent residents of nations other than the U.S., American Samoa, or the FAS 26. If the number of employees paid an hourly wage at this establishment increased or decreased between 2007 and 2009, can you please describe below some of the factors that contributed to the increase or decrease? 27. The next three tables ask for detailed information about employees who were paid different base hourly wages (before deductions) during the pay period that included June 12th in 2007, 2008, and 2009. Question text and instructions are provided at the top of each column.

Please do not include employees paid an annual salary in these tables. Data for employees paid an annual salary will be reported separately in question 34.

You may also submit the requested data in an Excel spreadsheet or as a computer printout instead of reentering the data into the tables below. a. For each of the questions below, please answer for the pay period that included June 12, 2007: (B) (C) (D) (E) (F) (G)

Base hourly wage rate before deductions (in U.S. dollars)

How many employees earned the base hourly wage listed in (A)?

How many of the employees listed in (B) are covered by the FLSA? (Please enter in $XX.XX format for each hourly wage earned by employees at your establishment)

How many total overtime hours did employees who earned this base hourly wage work during this pay period? (Please enter only numerals) (Please enter only numerals)

How many of the employees listed in (B) are U.S. citizens or nationals, U.S. or American Samoan permanent residents, or citizens of the FAS?

How many total hours (not including overtime hours) did employees who earned this base hourly wage work during this pay period?

What were the total earnings (before taxes and deductions) of employees who earned this wage during this pay period, including overtime, bonuses, and commissions? (Please report hours rounded to the quarter hour and to two decimal places) (Please report hours rounded to the quarter hour and to two decimal places)

Please do not include the value of employee benefits. (Please enter only numerals) (Please round to the nearest whole dollar) $ 1 , 763 . 00 $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 b. For each of the questions below, please answer for the pay period that included June 12, 2008: (B) (C) (D) (E) (F) (G)

Base hourly wage rate before deductions (in U.S. dollars)

How many employees earned the base hourly wage listed in (A)?

How many of the employees listed in (B) are covered by the FLSA? (Please enter in $XX.XX format for each hourly wage earned by employees at your establishment) (Please enter only numerals) (Please enter only numerals)

How many of the employees listed in (B) are U.S. citizens or nationals, U.S. or American Samoan permanent residents, or citizens of the FAS?

How many total hours (not including overtime hours) did employees who earned this base hourly wage work during this pay period?

How many total overtime hours did employees who earned this base hourly wage work during this pay period?

What were the total earnings (before taxes and deductions) of employees who earned this wage during this pay period, including overtime, bonuses, and commissions? (Please report hours rounded to the quarter hour and to two decimal places) (Please report hours rounded to the quarter hour and to two decimal places)

Please do not include the value of employee benefits. (Please enter only numerals) (Please round to the nearest whole dollar) $ 1 , 763 . 00 $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 c. For each of the questions below, please answer for the pay period that included June 12, 2009: (B) (C) (D) (E) (F) (G)

Base hourly wage rate before deductions (in U.S. dollars)

How many employees earned the base hourly wage listed in (A)?

How many of the employees listed in (B) are covered by the FLSA? (Please enter in $XX.XX format for each hourly wage earned by employees at your establishment) (Please enter only numerals) (Please enter only numerals)

How many of the employees listed in (B) are U.S. citizens or nationals, U.S. or American Samoan permanent residents, or citizens of the FAS?

How many total hours (not including overtime hours) did employees who earned this base hourly wage work during this pay period?

How many total overtime hours did employees who earned this base hourly wage work during this pay period?

What were the total earnings (before taxes and deductions) of employees who earned this wage during this pay period, including overtime, bonuses, and commissions? (Please report hours rounded to the quarter hour and to two decimal places) (Please report hours rounded to the quarter hour and to two decimal places)

Please do not include the value of employee benefits. (Please enter only numerals) (Please round to the nearest whole dollar) $ 1 , 763 . 00 $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 $ , .00 28. Did this establishment change any benefits offered to a typical U.S. citizen, national, or permanent resident paid an hourly wage between the pay periods for 2007 and 2009 that included June 12th?

Please do not include American Samoa permanent residents or citizens of the FAS.

Changes in benefits include: Introduction of a new benefit Change in the level of a benefit offered Elimination of a benefit (Please check ONE box per benefit) a. Paid vacation or personal leave (not including sick leave) ............................ b. Paid sick leave ....................................... c. Paid holidays ......................................... d. Health insurance or reimbursement for expenses................................................ e. Disability ............................................... f. Retirement benefits, such as 401(k)s or pensions ................................................ g. Housing allowances............................... h. Food allowances .................................... i. Local transportation allowances ........... j. Transportation to employees’ home countries ............................................... k. Others (Please specify): 29. If any benefit was added, eliminated, or was increased or decreased, can you please describe the changes below? 30. Did this establishment change any benefits offered to a typical non-U.S. citizen, national, or permanent resident paid an hourly wage between the pay periods for 2007 and 2009 that included June 12th?

Changes in benefits include: Introduction of a new benefit Change in the level of a benefit offered Elimination of a benefit (Please check ONE box per benefit) a. Paid vacation or personal leave (not including sick leave) ............................ b. Paid sick leave ....................................... c. Paid holidays ......................................... d. Health insurance or reimbursement for expenses................................................ e. Disability ............................................... f. Retirement benefits, such as 401(k)s or pensions ................................................ g. Housing allowances............................... h. Food allowances .................................... i. Local transportation allowances ........... j. Transportation to employees’ home countries ............................................... k. Others (Please specify): 31. If any benefit was added, eliminated, or was increased or decreased, can you please describe the changes below? 32. Are any of the employees on this establishment’s payroll paid an annual salary instead of an hourly wage? (Please check only ONE box)

Yes……................................................................... Continue with QUESTION 33 No……. ................................................................... Skip to QUESTION 39 Don’t know ............................................................. Skip to QUESTION 39 33. What was the total number of employees paid an annual salary on this establishment’s payroll during the pay periods that included June 12th for 2007, 2008, and 2009 who were (a) U.S. citizens, nationals, or permanent residents; (b) American Samoa permanent residents and citizens of the FAS; (c) citizens or permanent residents of nations other than the U.S., American Samoa, or the FAS?

If this establishment was not in operation during the pay period that included June 12th in any year, please enter a “0” in the corresponding box. (Please enter numerals in each box below) (a) U.S. citizens, nationals, or permanent residents (b) American Samoa permanent residents and citizens of the FAS (c) citizens or permanent residents of nations other than the U.S., American Samoa, or the FAS 34. During the pay period for 2007, 2008, and 2009 that includes June 12th, how many full- and part-time employees on this establishment’s payroll were paid an annual salary in the following ranges, and how many of these employees were covered under the FLSA?

Please do not include employees paid an hourly wage. Data for employees paid an hourly wage were reported separately in question 27.

Full-time employees are those who typically worked 35 or more hours per week; part-time employees are those who typically worked less than 35 hours per week. If this establishment was not in operation during the pay period, please enter a 0 for that year in each box. (Please enter numerals only in each box below)

Annual salary range before deductions for taxes and benefits (in U.S. dollars)

Less than 10,000 10,000 to 19,999 20,000 to 29,999 30,000 to 39,999 40,000 to 49,999 50,000 to 59,999 60,000 to 69,999 70,000 to 79,999 80,000 to 89,999 90,000 to 99,999 100,000 or more 35. Did this establishment change any benefits offered to a typical U.S. citizen, national, or permanent resident paid an annual salary between the pay periods for 2007 and 2009 that included June 12th?

Please do not include American Samoa permanent residents or citizens of the FAS.

Changes in benefits include: Introduction of a new benefit Change in the level of a benefit offered Elimination of a benefit (Please check ONE box per benefit) a. Paid vacation or personal leave (not including sick leave) ............................ b. Paid sick leave ....................................... c. Paid holidays ......................................... d. Health insurance or reimbursement for expenses................................................ e. Disability ............................................... f. Retirement benefits, such as 401(k)s or pensions ................................................ g. Housing allowances............................... h. Food allowances .................................... i. Local transportation allowances ........... j. Transportation to employees’ home countries ............................................... k. Others (Please specify): 36. If any benefit was added, eliminated, or was increased or decreased, can you please describe the changes below? 37. Did this establishment change any benefits offered to a typical non-U.S. citizen, national, or permanent resident paid an annual salary between the pay periods for 2007 and 2009 that included June 12th?

Changes in benefits include: Introduction of a new benefit Change in the level of a benefit offered Elimination of a benefit (Please check ONE box per benefit) a. Paid vacation or personal leave (not including sick leave) ............................ b. Paid sick leave ....................................... c. Paid holidays ......................................... d. Health insurance or reimbursement for expenses................................................ e. Disability ............................................... f. Retirement benefits, such as 401(k)s or pensions ................................................ g. Housing allowances............................... h. Food allowances .................................... i. Local transportation allowances ........... j. Transportation to employees’ home countries ............................................... k. Others (Please specify): 38. If any benefit was added, eliminated, or was increased or decreased, can you please describe the changes below?

If you checked YES for ANY of these actions, continue to questions 40.

If you checked YES for ANY of these actions, continue to question 44.

If you did not check YES for any of these actions, skip to question 46. 44. To what extent do you think the minimum wage increases will contribute to this establishment’s decision to implement each action listed in question 43 for which you checked YES? (Please check ONE box per action) a. Introduce labor-saving strategies or technology.............................. b. Introduce other cost-saving strategies (e.g., energy-saving technologies) .................................................................................. c. Reduce operating capacity or services offered ................................ d. Delay expansion of business…………………………………… e. Relocate business outside of American Samoa ............................... f. Close establishment temporarily ..................................................... g. Lay off salaried employees.............................................................. h. Lay off employees who are paid an hourly wage............................ i. Reduce regular work hours for employees paid an hourly wage..... j. Reduce overtime work hours for employees paid an hourly wage.. k. Decrease level of benefits for salaried employees………………. l. Decrease level of benefits for employees paid an hourly wage… m. Implement a hiring freeze................................................................ n. Raise prices of goods or services .................................................... o. Close establishment permanently .................................................... p. Others (Please specify): _______________________________________________________ 45. To what extent do you think each of the following factors will contribute to this establishment’s decision to implement the actions listed in question 43? (Please check ONE box per cost) a. Increased utility costs ............................... b. Increased costs of materials....................... c. Increased transportation/ shipping costs... e. Decreased number of customers……….. f. Changes to U.S. immigration laws…… g. Changes in business taxes or fees……… f. Others (please specify): ___________________________________ 46. Would you like to provide any other comments regarding the impact the increases in the minimum wage or other factors had or will have on this establishment or its employees? 47. What is the name, title, and contact information of the primary person who completed this questionnaire in case GAO needs to follow up on information provided in this questionnaire? a. Name of person completing the questionnaire: b. Title of person completing the questionnaire: c. E-mail address of person completing the questionnaire: d. Phone number of person completing the questionnaire: e. Fax number of person completing the questionnaire: 48. What is this establishment’s mailing address?

This concludes the questionnaire. Thank you very much for your assistance!

Appendix VIII: Comments from the Department of the Interior

Appendix IX: Comments from the American Samoa Government

The following is GAO’s comment on the American Samoa government’s letter, dated March 10, 2010.

GAO Comment

1. The American Samoa government developed and cited its own estimates of employment loss based on the information included in our report. It stated that after the first three minimum wage increases, total employment fell by 4,287, or by 22 percent, including losses of 2,287 even before the cannery closure. Our report does not include an estimate of the total number of jobs lost during this time period; however, we were able to replicate the American Samoa government’s estimate by applying our finding that employment among large- employer questionnaire respondents decreased 12 percent from June 2008 to June 2009 to our statement that SSA data show 19,060 American Samoa workers in 2008. We did not include this type of estimate because, as noted in the report, although questionnaire responses covered about 72 percent of the American Samoa workforce, they are not necessarily representative of all American Samoa workers and employers. In addition, our questionnaire measured employment by respondents in June of each year, while the SSA data measured the entire year’s employment.

Appendix X: Comments from the Commonwealth of the Northern Mariana Islands Government

The following are GAO’s comments on the CNMI government’s letter, dated March 11, 2010.

GAO Comments

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

2. The CNMI government incorrectly stated that the report does not include findings related to employees in the public sector. Our findings related to public sector employees are included in multiple sections of appendix IV. In addition, the CNMI government stated that our summary-level finding related to wages should note that the questionnaire included greater coverage of public than private sector employees. We disagree. Our report findings on public and private sector employees combined note that the CNMI government accounted for a higher percentage of workers employed by questionnaire respondents than in the actual CNMI workforce, so the government’s responses disproportionately influence our questionnaire results on the public and private sectors combined. However, this limitation is not relevant to findings on public sector workers alone or on private sector workers alone. 3. The CNMI government stated that GAO’s findings related to employer actions understate the negative impact of minimum wage increases on small employers. We note that the employer actions section does not address the actions of small employers because they were not covered by the questionnaire; however, findings related to small employers are included in the preceding report section on employment. 4. The CNMI government comments on the inflation-adjusted earnings findings reflect misunderstanding of the analysis presented. The CNMI government commented that the analysis of changes in earnings should, but does not, account for changes in local prices. In fact, the inflation-adjusted earnings data we present account for changes in local prices, using local Consumer Price Index data from the CNMI Department of Commerce. Accordingly, the findings based on the earnings analyses for both average wage earners and minimum wage earners fully account for CNMI price increases. 5. The CNMI government stated that it questions the findings related to worker views based on our discussion groups. As we note in the report’s objectives, scope, and methodology section, discussion groups are not designed to provide results generalizable to a larger population or to provide quantitative estimates. However, discussion groups are a qualitative research method capable of adding valuable information that may be difficult or impossible to collect through quantitative methods. Given the relevance of the minimum wage increases to workers, we considered it critical to include their views; however, no existing federal data source provided this information. We believe the discussion groups were an appropriate and worthwhile approach for collecting and including the views of workers.

6. The CNMI government stated that we should ask for more time to study the effects of minimum wage increases; however, the law does not permit additional time for this report. The American Recovery and Reinvestment Act of 2009 requires that GAO report annually on the impact of past and future minimum wage increases in American Samoa and the CNMI, and the reports are due between March 15 and April 15 of each year.

Appendix XI: GAO Contacts and Staff Acknowledgments

David Gootnick, (202) 512-3149 or gootnickd@gao.gov.

Tom McCool, (202) 512-2642 or mccoolt@gao.gov.

Staff Acknowledgments

In addition to the contacts named above, Emil Friberg, Assistant Director, Mark Speight, Assistant General Counsel, Marissa Jones, analyst-in-charge, Ashley Alley, Benjamin Bolitzer, Joe Carney, Ming Chen, Gergana Danailova-Trainor, Jill Lacey, Reid Lowe, Luann Moy, Ramzi Nemo, and Vanessa Taylor made key contributions to this report. Technical assistance was provided by Kate Brentzel, Muriel Brown, Giulia Cangiano, Holly Dye, Lawrance Evans, Etana Finkler, Kay Halpern, Dave Hancock, and Michael Kendix.