Part of the Mariana Islands Archipelago, the CNMI is a chain of 14 islands in the western Pacific Ocean—just north of Guam and about 3,200 miles west of Hawaii (see fig. 1). The CNMI had a total population of 53,890, according to preliminary results of the CNMI’s 2016 Household, Income, and Expenditures survey. Almost 90 percent of the population (48,200) resided on the island of Saipan, with an additional 6 percent (3,056) on the island of Tinian and 5 percent (2,635) on the island of Rota. The United States took control of the Northern Mariana Islands from Japan during the latter part of World War II. After the war, the U.S. Congress approved a trusteeship agreement making the United States responsible to the United Nations for the administration of the islands. In 1976, the District of the Mariana Islands entered into the 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. However, 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 certain federal minimum wage provisions and immigration laws, with certain limited exceptions. 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. Section 902 of the Covenant provides that the U.S. and CNMI governments will designate special representatives to meet and consider in good faith issues that affect their relationship and to make a report and recommendations. These intermittent discussions between the United States and the CNMI are commonly referred as 902 Consultations. Several U.S. government programs operate in the CNMI, including programs administered by DHS, DOI, and DOL. DHS has three primary components—U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), and U.S. Citizenship and Immigration Services (USCIS)—that enforce federal immigration laws and maintain border control in the CNMI. CBP inspects travelers at the Saipan and Rota airports and seaports to determine whether to admit them into the CNMI. ICE enforces federal immigration laws in the CNMI, for example, by identifying, apprehending, detaining, and removing criminal foreign nationals and other foreign nationals that threaten the security of the CNMI and the United States. USCIS processes foreign nationals’ applications for immigration benefits, that is, the ability to live, and in some cases work, in the CNMI permanently or temporarily. DOI’s Office of Insular Affairs coordinates federal policies and provides technical and financial assistance to the CNMI. The Covenant requires DOI to consult regularly with the CNMI on all matters affecting the relationship between the U.S. government and the islands. In May 2016, President Obama designated the Assistant Secretary for Insular Affairs as the Special Representative for the United States for the 902 Consultations, a process initiated at the request of the Governor of the CNMI to discuss and make recommendations to Congress on immigration and labor matters affecting the growth potential of the CNMI economy, among other topics. The 902 Consultations resulted in a report to the President in January 2017, which we refer to as the 902 Report. DOL requires employers to fully test the labor market for U.S. workers to ensure that U.S. workers are not adversely affected by the hiring of nonimmigrant and immigrant workers, except where not required by law. DOL also provides grants to the CNMI government supporting Adult, Dislocated Worker, and Youth programs, which include job search assistance, career counseling, and job training. From 1999 through 2015, DOL provided such grants under the Workforce Investment Act of 1998 (WIA) and the Workforce Innovation and Opportunity Act of 2014 (WIOA). In 2007, the minimum wage provisions of the Fair Labor Standards Act of 1938 were applied to the CNMI, requiring the minimum wage in the CNMI to rise incrementally to the federal level in a series of scheduled increases. In July 2007, the CNMI minimum wage increased from $3.05 to $3.55 per hour and then increased by $0.50 annually thereafter. A 2010 law delayed the scheduled minimum wage increase for 1 year, providing for no increase in 2011. On September 30, 2012, the scheduled annual increase raised the CNMI minimum wage to $5.55 per hour. In September 2013, additional legislation canceled the scheduled 2013 and 2015 annual increases. Under current law, the next minimum wage increase will occur on September 30, 2017, and the CNMI will reach the current U.S. minimum wage on September 30, 2018 (see table 1). If the original 2007 law increasing the minimum wage had not been subsequently amended, the minimum wage in the CNMI would have reached the U.S. minimum wage in May 2015. In 2008, the Consolidated Natural Resources Act of 2008 amended the U.S.–CNMI Covenant to apply federal immigration law to the CNMI, following a transition period. Among other things, the act includes several provisions affecting foreign workers during the transition period. To provide for an orderly transition from the CNMI immigration system to the U.S. federal immigration system under the immigration laws of the United States, on September 7, 2011, DHS established, and currently administers, the CW permit program. Under this program, foreign workers are able to obtain, through their employers, nonimmigrant CW-1 status that allows them to work in the CNMI. Dependents of CW-1 nonimmigrants (spouses and minor children) are eligible for dependent of a CNMI-Only transitional worker (CW-2) status, which derives from and depends on the CW-1 worker’s status. In accordance with the Consolidated Natural Resources Act of 2008, DHS, through USCIS, has annually reduced the number of CW-1 permits, and is required to do so until the number reaches zero by the end of a transition period. Since 2011, DHS has annually determined the numerical limitation, terms, and conditions of the CW-1 permits (see table 2). The act was amended in December 2014 to extend the transition period until December 31, 2019, and eliminate the Secretary of Labor’s authority to provide for future extensions of the CW program. In April 2010, DOI recommended that Congress consider new legislation permitting guest workers who have lawfully resided in the CNMI for a minimum of 5 years—which DOI estimated at 15,816 individuals—to apply for long-term resident status under the Immigration and Nationality Act. DOI recommended that Congress consider new legislation allowing these workers to apply for one of the following: (1) U.S. citizenship; (2) permanent resident status leading to U.S. citizenship (per the normal provisions of the Immigration and Nationality Act relating to naturalization), with the 5-year minimum residence spent anywhere in the United States or its territories; or (3) permanent resident status leading to U.S. citizenship, with the 5-year minimum residence spent in the CNMI. Additionally, DOI noted that under U.S. immigration law, special status is provided to individuals who are citizens of the freely associated states (Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau). Following this model, DOI suggested that new legislation could grant foreign workers a nonimmigrant status, like that negotiated for citizens of the freely associated states, and could allow them to live and work either in the United States and its territories or in the CNMI only. In 2013, the U.S. Senate passed legislation that would have, among other things, established a CNMI-only permanent resident status for aliens who resided in the CNMI as guest workers under CNMI immigration law for at least 5 years before May 8, 2008, and are presently residents under CW-1 status. However, this bill never became 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. Consequently, from 1980 to 2000, the CNMI population grew rapidly, but the U.S. citizen share of the population fell to less than half of the CNMI population. Since 2000, the percentage of the CNMI’s population not made up of U.S. citizens or nationals has decreased, from about 56 percent to about 43 percent as of the 2010 decennial census (see fig. 2). Although the garment industry was able to flourish in the CNMI by exporting products to other parts of the United States largely unconstrained by import quotas and duties, several developments in international trade caused the industry to decline dramatically. In January 2005, in accordance with a World Trade Organization 10-year phase-out 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 $677 million in 2005 and to close to zero in 2010. After a decade of decline, by 2009, almost all of the garment factories had closed, and the CNMI was in its sixth year of a contracting economy and shrinking GDP. As figure 3 shows, a large part of the GDP decline from 2002 to 2009 reflected the declining garment industry, which dominated the CNMI’s manufacturing sector. Since 1990, the CNMI’s tourism market has experienced considerable fluctuation, as shown by the total annual number of visitor arrivals (see fig. 4). Total visitor arrivals to the CNMI dropped from a peak of 726,690 in fiscal year 1997 to a low of 338,106 in 2011, a 53 percent decline. Since 2011, however, visitor arrivals have increased by 48 percent, reaching 501,489 in fiscal year 2016. Data from the Marianas Visitors Authority show that the downward trend in Japanese arrivals from 2013 to 2016 was offset by the growth in arrivals from China and South Korea. While eligible Japanese and South Korean visitors enter the CNMI under the U.S. visa waiver program, Chinese visitors are not eligible and are permitted to be temporarily present in the CNMI under DHS’s discretionary parole authority, according to DHS officials. DHS exercises parole authority to allow, on a case-by-case basis, eligible nationals of China to enter the CNMI temporarily as tourists when there is significant public benefit, according to DHS data. From fiscal years 2011 to 2016 the percentage of travelers that arrived at the Saipan airport and were granted discretionary parole increased from about 20 percent to about 50 percent of the total travelers allowed to enter, according to our analysis of CBP data. According to CNMI tax data, overall employment in the CNMI increased by about 8 percent from 2013 through 2015. Foreign workers remain the majority of employed workers in the CNMI. From 2007 to 2015, inflation adjusted average earnings for those who maintained employment in the CNMI also rose by 18 percent. We estimate that approximately 62 percent (15,818 of 25,657) of the CNMI’s wage workers in 2014, assuming they maintained employment, would have been directly affected by the federally mandated 2016 wage increase, which raised CNMI’s minimum wage from $6.05 to $6.55 per hour. Following consecutive annual decreases in the number of employed workers from 2005 to 2013, as garment factory employment numbers fell to zero, CNMI employment started recovering after 2013, according to CNMI tax data. Figure 5 shows the number of employed workers and the number of foreign and domestic workers in the CNMI from 2001 to 2015 based on CNMI tax data. As the figure shows, the number of employed workers increased from the lowest point in 2013 by approximately 8 percent by 2015 (from 23,344 to 25,307). However, the number employed in 2015 (25,307) was still approximately 31 percent less than the number employed in 2007 (36,524). Although the number and percentage of foreign workers have fallen since 2001, foreign workers are still the majority of the CNMI workforce. Of the 25,307 workers in the CNMI in 2015, slightly over half (12,784) were foreign workers, according to CNMI tax data. The number of foreign workers fell from a peak of over 38,500 in 2002 (roughly 76 percent of the employed workers) and was under 13,000 in 2015. In contrast, since 2002, the number of domestic workers has fluctuated year to year, ranging from about 10,500 to about 13,500, but increased by 17 percent from 2013 to 2015. Foreign workers make up a large percentage of certain CNMI industries and occupations. Among industries and occupations with the largest number of CNMI workers, construction and accommodation or food services—or hospitality—had the highest percentage of foreign workers, with 80 percent or more non-U.S. workers, according to data from the CNMI’s 2014 Prevailing Wage Study. In contrast, the public administration industry has the lowest percentage of foreign workers, with about 22 percent. See appendix III for more details. Inflation adjusted average earnings for those in the CNMI who maintained employment rose by 18 percent from 2007 to 2015. The increase is attributable to a large increase in earnings from 2012 to 2013, when inflation adjusted average earnings increased from $14,476 to $16,221. Using 2015 prices, the inflation adjusted minimum wage rose by 54 percent from its lowest point in 2006 ($3.93) to its highest point in 2015 ($6.05). (See fig. 6.) According to our analysis of the CNMI’s Department of Commerce data, a majority of CNMI workers made the minimum wage in 2016. On September 30, 2016, the CNMI’s minimum wage increased from $6.05 to $6.55 per hour. We estimate that approximately 62 percent (15,818 of 25,657) of the CNMI’s wage workers in 2014, assuming they maintained employment, would have been directly affected by the federally mandated 2016 wage increase. Since 72 percent of the total foreign workers made less than or equal to $6.55 per hour in 2014, they were more likely to have been directly affected by the 2016 wage increase than domestic workers, with only 41 percent making less than or equal to $6.55. As the minimum wage continues to increase in the CNMI, a growing percentage of wage workers will be directly affected. By the time the minimum wage reaches $7.25 in 2018, approximately 68 percent of CNMI’s wage workers will be directly affected (see table 3). Our analysis also shows that roughly 80 percent of all jobs in the hospitality and construction industries were directly affected by the 2016 increase in the minimum wage. By 2018, approximately 85 percent of all jobs in these two industries will be directly affected by the scheduled minimum wage increase to $7.25. See appendix IV for more details. Some employers we contacted reported that the scheduled increase in the CNMI minimum wage from $6.55 per hour to $7.25 per hour in October 2018 would have little or no impact because they already pay equal or higher wages or offer other benefits. One employer reported that increasing the minimum wage would be good for the economy. Another employer stated that a higher minimum wage would attract more domestic workers to work in the CNMI who would otherwise take jobs in Guam or the U.S. mainland, where wages are higher. Other employers we interviewed expressed concerns about minimum wage hikes because of possible decreases in profits that could require them to downsize. One employer estimated that its costs would increase by almost $1 million annually the next time the minimum wage increases. Another employer told us that when the minimum wage increases, all wage workers—including those making higher wages—receive pay increases, causing profits to further decline. The Hotel Association of the Northern Mariana Islands also expressed concern about the CNMI bill to raise the minimum wage so soon after the September 2016 federally mandated increase, stating that the increase would be difficult to absorb, particularly for small businesses. In 2016, the CNMI legislature considered but did not adopt a bill to raise the local minimum wage to the federal minimum wage of $7.25 per hour 2 years earlier than would occur under the federal schedule of increases. To help attract a U.S. workforce and provide more income for families in the CNMI, the CNMI Governor and leading civic business organizations supported the bill, according to the 902 Report. The results of an October 2016 membership survey conducted by the Saipan Chamber of Commerce revealed that only 13 out of 36 Saipan businesses responding to the survey did not support this bill. We analyzed the economic impact of removing all foreign workers with CW-1 permits (or CW-1 workers) from the CNMI’s economy using the most recent GDP information available from calendar year 2015. We determined that the CNMI’s 2015 GDP would decline by 26 to 62 percent with no CW-1 workers, depending on the assumptions made. Demand for CW-1 workers in the CNMI exceeded the available number of CW-1 permits in 2016, while planned hotels, casinos, and other infrastructure projects estimate needing thousands of new employees. The existing CW-1 permits for foreign workers and the local supply of U.S. workers are insufficient to meet this estimated future demand. CNMI employers face multiple challenges in recruiting and retaining U.S. workers, according to several CNMI employers that participated in our discussion groups and semistructured interviews. If all CW-1 workers, or 45 percent of the total workers in 2015, were removed from the CNMI’s labor market, we project a 26 to 62 percent reduction in the CNMI’s 2015 GDP, depending on the assumptions made. To estimate the possible effect of a reduction in the number of workers with CW-1 permits in the CNMI to zero—through the scheduled end of the CW program in 2019—we employed an economic method that enabled us to simulate the effect of a reduction under a number of different assumptions. Available data suggest that predictions based on our model are consistent with the experience of the CNMI during and after the departure of the garment industry, from 2002 through 2015, which also saw a large drop in the number of foreign workers. Predicting the economic effect of a reduction of CW-1 workers is more challenging than predicting the effect of a reduction of domestic workers in general because of several sources of uncertainty, including that (1) the two groups’ economic effects may vary (i.e., they may serve in different types of jobs) and (2) the numbers of domestic workers who enter the CNMI labor market may vary. From 2013 to 2015, the number of domestic workers in the CNMI increased by almost 20 percent. Given these and other uncertainties, we simulated the effects of a reduction in the number of CW-1 workers that allowed us to vary assumptions based on economic literature as well as available data on the CNMI economy. In some simulations, for example, we assumed that domestic and CW-1 workers were perfect substitutes—meaning that domestic workers could easily replace foreign workers in production. In other simulations, we assumed that domestic and CW-1 workers were complements, implying that domestic workers would become less productive as the number of CW-1 workers fell. Our analysis assumed that 45 percent of the workforce was made up of CW-1 workers, based on a combination of CNMI tax data and the CNMI’s 2014 Prevailing Wage Study data. The CNMI’s actual 2015 GDP—the most recent year for which GDP data were available—was $922 million. To understand the economic impact of ending the CW program, we analyzed how removing all CW-1 workers would have changed the CNMI’s actual 2015 GDP. Our economic model and the results of 10,000 simulations show that had there been no CW-1 workers in 2015, there is a 25 percent likelihood that the CNMI’s 2015 GDP would have ranged from $583 million to $680 million, which is 26 to 37 percent lower than the actual value; 50 percent likelihood that it would have ranged from $462 million to $583 million, which is 37 to 50 percent lower than the actual value; and 25 percent likelihood that it would have ranged from $353 million to $462 million, which is 50 to 62 percent lower than the actual value (see fig. 7). Across the full range of probable outcomes, the elimination of the CW program would result in a 26 to 62 percent decline in the CNMI’s 2015 GDP, a relatively large negative effect on the economy. In a separate retrospective economic analysis, using past CNMI GDP and employment data, from 2002 to 2015, we estimated that a 10 percent decline in the number of workers during this period was associated with an 8.3 percent decline in the size of the economy, on average. Applying this factor to an analysis of the CNMI’s current economic situation suggests that a reduction in the number of foreign workers with CW-1 permits to zero—which would be equivalent to reducing the number of total workers by 45 percent, all else unchanged—would lead to a 37 percent contraction in the size of the CNMI economy as measured by GDP. This finding is within the range presented in the simulation model above. The CNMI government stated in the 902 Report that ending the CW program in 2019 would cripple the CNMI economy and dramatically derail economic development. Employers we contacted generally expect the planned termination of the CW program in 2019 to have negative effects. In all four facilitated discussion groups and five of the seven semistructured interviews, employers reported that the planned termination of the CW permit program would have negative effects. A participant in one discussion group reported that he expects his gross business sales to decline by 30 percent. The owner of the only airline that transports passengers to and from Saipan, Tinian, and Rota told us that 12 of his employees will be affected by the 2017 CW-1 cap next summer. Without them, he did not think he would be able to remain in business. Some employers told us that they already have been negatively affected when they were unable to renew CW-1 worker permits. In all four facilitated discussion groups and six of seven semistructured interviews, at least one employer reported that reaching the CW-1 cap in fiscal years 2016 and 2017 had negative effects. For example, in one discussion group, a small business employer reported having lost its only videographer because he was unable to obtain a CW-1 permit, resulting in lost sales. A large employer reported that it would not be able to open at full capacity after learning that 40 workers in one of its units would be affected by the CW-1 cap for fiscal year 2017. The employer also reported having spent more than $30,000 to purchase flight tickets home for 18 CW-1 workers when their permits expired, as well as $20,000 to apply for H-1B visas for some employees. A large employer with which we met individually reported that the biggest hardship it faced was at its restaurants. The employer had to close one of its restaurants for 2 months because of the departure of CW-1 workers unable to renew their permits. A participant in our discussion group with Tinian employers reported that several farms had closed on the island because of the lack of CW-1 workers, requiring costly food imports. In addition, the employer reported that Tinian lost its only boat captain in July 2016 because of the cap on the number of CW-1 permits. As a result, all cargo to the island must arrive by plane. The owner of a construction company told us that six of his CW-1 workers were affected by the fiscal year 2017 cap, which will likely cause his business to pay penalties for not completing scheduled projects. He has already downsized his staff from 40 to 6 CW-1 workers. The CNMI economy currently is experiencing growing demand for workers, particularly among occupations in construction and hospitality. Since fiscal year 2013, demand for CW-1 permits has doubled, and in fiscal year 2016, demand exceeded the numerical limit (or cap) on approved CW-1 permits set by DHS. The number of approved CW-1 permits grew from 6,325 in fiscal year 2013 to 13,299 in fiscal year 2016. In 2016, when the cap was set at 12,999, DHS received enough petitions by May 6, 2016, to approve 13,299 CW-1 permits, reaching the cap 5 months prior to the end of the fiscal year. On October 14, 2016, 2 weeks into fiscal year 2017, DHS announced that it had received enough petitions to reach the CW-1 cap and would not accept requests for new fiscal year 2017 permits during the remaining 11 months. In interviews, some employers reported being surprised to learn that the cap had been reached when they sought renewals for existing CW-1 workers. See table 4 for the numerical limit of CW-1 permits and number of permits approved by fiscal year. Based on DHS data on approved CW-1 permits, by country of birth, occupation, and business, from fiscal years 2014 through 2016, the number of permits approved for Chinese nationals increased, the number of permits approved for construction workers increased, and a large number of CW-1 permits were approved for three new businesses. Chinese nationals. In 2016, DHS approved 4,844 CW-1 permits for Chinese workers, increasing from 1,230 in 2015 and 854 in 2014. This represents a change in the source countries of CW-1 workers, with the percentage of workers from the Philippines declining from 65 to 53 percent during this period, while the share from China rose from 9 to 36 percent (see table 5). Construction workers. In 2016, DHS approved 3,443 CW-1 permits for construction workers, increasing from 1,105 in 2015 and 194 in 2014 (see table 6). New businesses. In 2016, DHS approved 3,426 CW-1 permits for three construction businesses, representing 26 percent of all approved permits. Two of these businesses had not previously applied for CW-1 permits. The third business was new in 2015 and was granted only 62 CW-1 permits that year. A key factor in the additional demand for labor in 2016 was the construction of a new casino in Saipan. In August 2014, the CNMI government entered into a casino license agreement with a business to build a phased development project within 8 years with a minimum of 2,004 guest rooms and areas for gaming, food, beverage, retail, and entertainment, among other things. The total investment cost of the project was estimated at $3.14 billion (2014 dollars). The agreement required that construction of the initial gaming facility be completed no later than 36 months from the date of the license, or by August 2017. However, in April 2017, the business requested amendments to the license agreement, including an extension of the construction completion and operation start date for the initial gaming facility to August 31, 2018, which was agreed to by the CNMI government. The amendment to the license agreement notes that the business justified these amendments in part based on constraints contained in federal immigration laws in relation to the employment of qualified workers needed to build the facility. See figure 8 for photos showing the initial gaming facility’s development site in Saipan both before and during construction. The firms contracted to build the new casino under construction in Saipan have primarily employed Chinese workers. According to the CNMI government, while CNMI law and regulations require businesses operating in the CNMI to attempt to employ at least 30 percent U.S. workers, the casino operator and construction firms received an exemption from this requirement from the CNMI Department of Labor. The Consolidated Natural Resources Act of 2008 allows CNMI employers to petition for H-2 visas and bring temporary workers, such as construction workers, to the CNMI without counting against the numerical restriction for such visas. However, China is not listed as an eligible country for H-2 visas. Amid the uncertainty of the future availability of foreign labor, the CNMI government has granted zoning permits to planned projects that will require thousands of additional workers. Twenty-two new development projects, including six new hotels or casinos in Saipan and two new hotels or casinos in Tinian, are planned for construction or renovation by 2019. Beyond the construction demand created by these projects, the CNMI’s Bureau of Environmental and Coastal Quality estimates that at least 8,124 employees will be needed to operate the new hotels and casinos. According to data provided by the Environmental Bureau, most of this planned labor demand is for development on the island of Tinian, where two businesses plan to build casino resorts, with an estimated labor demand of 6,359 workers for operations—more than twice the island’s population in 2016. According to the U.S. Department of the Treasury, the existing casino and hotel on Tinian closed in 2015 after having been fined $75 million by the department for violations of the Bank Secrecy Act of 1970. One of the two Tinian developments offers overseas immigration services, including assistance with obtaining employment or investment-based immigration to the United States. We observed a billboard advertisement in Tinian with Chinese writing indicating that by investing in a new development in Tinian, an investor’s family members would all get American green cards. This resort development, whose plans estimate a labor force of 859, has undertaken site preparation, while the other larger resort project, whose plans estimate a labor force of 5,500, had not initiated construction as of December 2016. Currently, the CNMI government does not have a planning agency or process to ensure that planned projects are aligned with the CNMI’s available labor force, according to CNMI officials. In January 2017, a bill was introduced in the CNMI Senate to establish an Office of Planning and Development within the Office of the Governor. The current number of unemployed domestic workers is insufficient to replace the existing CW-1 workers or to fill all the nonconstruction jobs that planned development projects are expected to create once their business operations commence. In 2016, 9,856 of the 13,299 CW-1 permits approved by DHS were allocated to workers engaged in nonconstruction-related occupations. When the CW program ends in 2019, available data show that the unemployed domestic workforce, estimated at 2,386 in 2016, will be well below the number of workers needed to replace currently employed CW-1 workers in nonconstruction-related occupations. In addition, the unemployed workforce would fall far short of the demand for additional workers in nonconstruction related occupations needed to support the ongoing operations of planned development projects—currently estimated at 8,124 workers by 2019. Narrowing this gap would require CNMI employers to recruit domestic residents present in the CNMI but not currently in the labor force. Key sources of additional labor force entrants to replace current CW-1 workers or fill new positions are as follows: High school or college graduates. In 2016, CNMI high schools graduated 678 students and the Northern Marianas College graduated 204 students. In addition, a smaller number of students leave high school or the college without a diploma and join the labor force. Domestic residents not in the CNMI labor force. According to the CNMI’s 2016 Health Survey, there are 9,272 U.S. citizens and permanent residents over the age of 16 who are not currently in the labor force. In addition to students, this group consists largely of homemakers, retired workers, seasonal workers in an off-season, the institutionalized, and those doing unpaid family work, according to the census. Overall, the survey found that labor force participation was lower for the population born in the CNMI (57 percent) compared with the overall population (69 percent). Other U.S.-eligible workers. Workers could be recruited from U.S. states, U.S. territories, and the freely associated states (Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau). For example, in 2003, 1,909 freely associated state workers were employed in the CNMI as compared with 677 of these workers in 2015, according to CNMI tax data. Moreover, many citizens from the freely associated states migrate to the United States each year, including to nearby Guam. Guam and Hawaii, the closest U.S. areas to the CNMI, both have higher local minimum wages than the CNMI, currently at $8.25 and $9.25 per hour, respectively, according to DOL. Employers in the CNMI are required to attempt to recruit and hire U.S. workers. The CNMI government has a goal that all employers hire at least 30 percent U.S. workers, and employers are generally required to post all job openings to the CNMI Department of Labor’s website. However, the CNMI government can and has granted exemptions to this requirement. From May 8, 2015, to May 27, 2016, seven businesses were granted exemptions, according to data provided by the CNMI Department of Labor. In addition, all employers that apply for CW-1 permits must attest that no qualified U.S. worker is available for the job opening. At least one employer in all four facilitated employer discussion groups and six of seven employers in semistructured interviews reported on efforts to recruit U.S. workers. One employer told us that by collaborating closely with the local trade institute it had significantly reduced its reliance on foreign workers. Another employer attributed its successful recruitment efforts to an apprenticeship program offered by the CNMI’s Public School System. One employer explained how it had successfully developed a flexible work scheduling approach that allowed it to use part-time high school and college students to staff its facilities so that it had very few CW-1 workers. Several business owners told us that they made efforts to recruit workers from the U.S. mainland, Puerto Rico, or the freely associated states (Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau). To identify potential staff, one employer told us that she had entered into a contract with a labor recruiter in Micronesia. However, other CNMI employers reported that they face the following challenges in recruiting and retaining U.S. citizens, among others: Unsatisfactory results of job postings. One employer told us that advertisements posted on the CNMI’s Department of Labor’s website yielded hundreds of unqualified applicants to which the employer must respond individually. An employer looking for workers with a specific license was sent dozens of résumés of applicants lacking such a license. Some of the forwarded résumés had not been updated in 10 years. Another employer continued to receive the résumés of employees who had previously been fired. High costs of recruitment. One employer that recruited nine workers from the U.S. mainland told us that relocation costs were very expensive. Representatives from one company spent more than $1 million to recruit and relocate 120 U.S. workers to Saipan, but half of them left after a typhoon in 2015, according to the 902 Report. Another large employer told us that costs of relocation to Saipan are extremely expensive and cannot be circumvented, particularly for middle management positions. High turnover. The geographical distance and remoteness of the CNMI from Hawaii and the U.S. mainland make it difficult to retain U.S. workers. One employer told us that the U.S. workers successfully recruited from California did not stay with the employer for 3 months because of the long distance from home, among other factors. The four local workers that another employer hired to replace one CW-1 worker did not maintain employment for more than 2 weeks each. Meanwhile, all of the local hires recruited through an apprenticeship program left within 2 years to take higher paying jobs with the CNMI government, according to another employer. A hotel employer told us the turnover rate among workers recruited locally is high because employers in Guam, Hawaii, and other off-island locations offer higher wages. The federal and CNMI governments support programs seeking to address the CNMI’s labor force challenges. These programs include the following: job training funded by employers’ CW-1 vocational education fees that DHS transfers to the CNMI government, CNMI scholarship programs funded by the CNMI government and local license fees for gaming machines, employment and training assistance funded by DOL, and technical assistance funded by DOI. In recent years, on average, DHS transferred about $1.8 million per year in CW-1 vocational education fees and DOL provided about $1.3 million per year to the CNMI for employment and training programs. Although scholarship entities in the CNMI provide an average of $1.5 million in financial assistance per year to recipients to attend institutions of higher education or vocational training, according to these entities, from 60 to 90 percent of these recipients default on the terms of their scholarship agreements. In addition, the recently completed 902 Consultations between the U.S. and CNMI governments resulted in several recommendations for congressional and executive actions that seek to alleviate immigration and labor force challenges faced by the CNMI. DHS collects the $150 vocational education fee assessed for each foreign worker on a CW-1 petition and typically transfers the fees to the CNMI government each month. To support vocational education curricula and program development, in fiscal years 2012 through 2016, DHS transferred to the CNMI Treasury about $9.1 million in CW-1 fees (see fig. 9). In fiscal years 2012 through 2016, the CNMI government allocated about $5.8 million of the $9.1 million in CW-1 vocational education fees to three educational institutions (see fig. 10). At present, the CW-1 fees support job training programs at Northern Marianas College and Northern Marianas Trades Institute and in recent years also funded job training provided by CNMI’s Public School System. All three institutions reported using a majority of the CW-1 fees to pay the salaries and benefits of faculty and staff members involved in job training programs. The CNMI legislature generally appropriates the CW-1 funding before it is allocated to recipient entities, according to the CNMI. Of the $9.1 million that DHS transferred to the CNMI during fiscal years 2012 to 2016, about $3.3 million remained available for programing in fiscal year 2017. Northern Marianas College. In fiscal years 2013 through 2016, the college, the CNMI’s only U.S.-accredited institution of higher learning, received $2.1 million in CW-1 funding and prepared annual reports describing how the funds were used to train the CNMI workforce for occupations in which foreign workers currently outnumber U.S. workers. According to the annual report for fiscal year 2016, the college used its CW-1 funding to provide vocational courses and services in business, nursing, community development, and information technology. The college reported using its CW-1 funding to support 457 students in the fall of 2015, 434 such students in the spring of 2016, and 228 students in the summer of 2016. In fiscal year 2016, 66 students graduated from the business and nursing programs and 33 of them found employment upon graduation, according to the college’s annual report. The college reported that CW-1 funding also supported training and services for 891 participants of community- based learning programs offered by the college’s Community Development Institute (programs such as continuing education, language training, and customized workforce training for public and private sector organizations). In addition, the college reported using CW-1 funding to conduct an information technology boot camp to prepare local workers for information technology and data management positions. Two boot camp sessions were conducted, training about 45 participants. Northern Marianas Trades Institute. In fiscal years 2014 through 2016, the institute—a private, nonprofit facility for vocational education established in 2008—received $1.7 million in CW-1 funding. The institute specializes in training youths and adults in construction, hospitality, and culinary trades. Training programs range from 4 months to 2 years, and students can earn certificates upon completion of a full course of study. The institute also helps students obtain internships and employment by establishing partnerships with private sector companies. For example, in 2014 the institute established an apprenticeship program with a large hotel in Saipan to enable its students to gain experience working in a restaurant kitchen and to improve their cooking skills. In return, the hotel provides instructors to the institute for its new culinary training facility, according to the human resources manager of the hotel. The institute’s senior officers told us that in fiscal year 2016, 300 students were enrolled in the institute’s fall, spring, and summer sessions, and as of November 2016, 132 of these students had found employment after completing their training. CNMI’s Public School System. In fiscal years 2012 through 2015, the Public School System—which consists of 20 public schools, including 5 high schools that graduated 662 students in the 2014– 2015 school year—received $2 million in CW-1 funds for its cooperative education program designed to prepare high school students for the CNMI’s job market. The program consisted of training taking place both on and off campus. Students completed résumés and applications and completed other professional development activities on campus and gained work experience as trainees in private sector organizations off campus. By the end of the 2014–2015 school year, 452 students were enrolled in the cooperative education program, according to the federal programs officer for the Public School System. According to the Public School System’s federal programs officer, in 2016 the Public School System’s cooperative education program was supported not by CW-1 vocational education fees but by a technical assistance grant provided by DOI. We facilitated group discussions with current and former students of the CW-1-funded programs at each of the three institutions. Several participants told us that the training had helped them find jobs. Participants also identified specific benefits of the training they received, such as increased familiarity with occupations they intended to enter, learning communication skills tailored for specific work environments, and maintaining and improving skills in a chosen career path. Job training supported by the CW-1 vocational education fees is generally available on Saipan and to a limited extent on Tinian and Rota. Northern Marianas College reported providing vocational activities on Tinian and Rota in fiscal years 2013, 2014, and 2015, but not in 2016. The college reported using CW-1 funding to help support 88 students on Tinian and 46 students on Rota in fiscal year 2015. Training offered by Northern Marianas Trades Institute is available only on Saipan. However, the employers we interviewed in the CNMI told us that the benefits of the job training programs supported by the CW-1 vocational education fees were limited to Saipan and that programs run by Northern Marianas College and Northern Marianas Trades Institute were unavailable on Tinian and Rota. For example, in our facilitated discussion with employers in Rota, none of the employers had experience with job training programs supported by CW-1 funding and some did not know about the Public School System’s cooperative education program. One employer in Rota told us that to obtain job training at Northern Marianas College, Rota residents must fly to Saipan and pay for their own travel and housing expenses in addition to tuition. Similarly, a Tinian employer told us that the vocational education fees he pays for CW-1 permits do not benefit Tinian, since training programs supported by the fees are only offered on Saipan. Performance or financial reporting of CW-1 fees has not always been available. We reported in September 2012 that according to DHS officials, the CW-1 fees transferred by DHS to the CNMI Treasury were not subject to DHS grant terms or conditions, such as performance or financial reporting requirements, and that the Consolidated Natural Resources Act of 2008, which authorized the CW-1 vocational education fee, did not direct DHS to impose any such requirements on the funds. In March 2016, the CNMI Department of Labor signed a memorandum of agreement with the two current recipients of the CW-1 funding, Northern Marianas College and Northern Marianas Trades Institute. As part of the memorandum, the CNMI’s Department of Labor, through its Secretary, was made responsible for the approval, use, and distribution of funds for job training programs provided by the college and the institute. The memorandum required each institution to submit an annual audit report to the CNMI Department of Labor for each fiscal year it receives CW-1 funding. The college has submitted an annual report about its use of CW- 1 funding each year since fiscal year 2013, when it first obtained such funding. Northern Marianas Trades Institute submitted its first report about the use of CW-1 funding in fiscal year 2016 in March 2017. The CNMI government and municipalities offer eligible residents the opportunity to apply for scholarship funds to help pay for higher education or vocational training offered either in the CNMI or elsewhere. Scholarship recipients can obtain financial assistance from either the CNMI Scholarship Office or the Saipan Higher Education Financial Assistance Office. Data provided to us by those offices show that approximately $3.1 million in financial assistance was provided to recipients in the CNMI to attend institutions of higher education and vocational training in 2016 (see fig. 11). CNMI Scholarship Office. In fiscal years 2014 through 2016, this office provided about $3.5 million to about 655 scholarship recipients each year to enroll in higher education or vocational training programs in priority fields such as science, technology, engineering, math, construction, hospitality, and nursing. Scholarship recipients must sign memorandums of agreement that require them to return to the CNMI within 3 months of graduating from or dropping out of the institution or program for which they are receiving financial assistance. After returning to the CNMI, the students must also provide services by working in the CNMI for a period equal to the period for which they received financial assistance. Data from the CNMI Scholarship Office show that in fiscal years 2014 through 2016 at least 58 percent of the recipients of scholarships from the CNMI Scholarship Office obtained education or training outside the CNMI. Approximately 4,440 of 7,400 of the office’s current and previous CNMI scholarship recipients, or 60 percent of all recipients since the inception of the program, have defaulted on the terms of their scholarship agreements, according to the scholarship administrator. Saipan Higher Education Financial Assistance Scholarship Office. In fiscal years 2014 through 2016, this office provided about $5.2 million in financial assistance to about 1,000 scholarship recipients each year, supported entirely by Saipan’s municipal local license fees for casino poker and other gaming machines. Scholarship recipients must obtain education or training on Saipan or off-island in priority fields of study, such as accounting, nursing, teaching, and hospitality, among others. Recipients must also return to the island within 3 months of graduation or nonenrollment and take jobs in the CNMI’s private or public sector. In fiscal years 2014 through 2016, data provided by the office show that around 40 percent of all scholarship recipients each year obtained education or training off-island. The office’s Administrator estimated that approximately 90 percent of the 2,759 students who have received financial aid scholarships since the program began have defaulted on the terms of their scholarship agreements, requiring debt repayment. In 2015, the office increased collections of outstanding debt by 55 percent over what it collected in 2014, according to the office’s 2015 annual report. From July 2012 through June 2016, DOL provided about $5.3 million in grants under the Workforce Investment Act of 1998 (WIA) and the Workforce Innovation and Opportunity Act of 2014 (WIOA) to the CNMI Department of Labor’s Workforce Investment Agency (see table 7). That agency carried out WIA programs in the CNMI and now administers programs under WIOA. DOL’s Employment and Training Administration conducts federal oversight of these programs. The CNMI developed a state plan outlining a 4-year workforce development strategy under WIOA and submitted its first plan by April 1, 2016. The plan and the WIOA performance measures took effect in July 2016. According to its state plan, the CNMI Department of Labor has formed a task force to assess approaches for using workforce programs to prepare CNMI residents for jobs that will be available because of ongoing reductions in the number of foreign workers and the eventual expiration of the CW program. Providers of DOL-funded worker training include Northern Marianas College, Northern Marianas Trades Institute, CNMI government agencies, and private businesses. Examples of training provided by these entities include courses toward certification as a phlebotomy technician, a nursing assistant, and a medical billing and coding specialist. Under the terms and conditions of DOL grants, the CNMI’s Workforce Investment Agency submitted quarterly and annual performance reports to DOL. The quarterly performance reports contained information on the number of program participants; the characteristics and demographics of these participants; and the services provided under the Adult, Dislocated Worker, and Youth programs, including job search assistance, career counseling, and occupational skills training. These programs were implemented on a program year basis, which for program year 2015 began on July 1, 2015, and ended on June 30, 2016. See app. IX for program year 2015 performance measures and negotiated and actual levels of performance reported by the CNMI Department of Labor. Table 7 presents annual data, as reported by the CNMI’s Workforce Investment Agency to DOL, on the number of individuals who received services under the Adult, Dislocated Worker, and Youth programs in each of the last 4 program years. It also presents funding data as reported by DOL. In September 2016, DOI approved a $200,000 grant to create a team of labor certification technicians and a statistician at the CNMI Department of Labor to help collect, compile, and analyze data on the CW program, according to DOI. Through the grant, DOI’s Office of Insular Affairs Technical Assistance Program, seeks to enable the CNMI to obtain information on job categories currently held by CW-1 workers and monitor losses and gains in particular job fields. Recognizing that the CNMI is in transition and working to build a stronger U.S.-citizen workforce, the grant is also meant to help the CNMI develop a strategic plan to provide real- time data on the most in-demand job fields and other information needed by decision makers for allocating training and workforce development resources. Under the grant’s terms, the CNMI government is expected deliver all required elements by the end of fiscal year 2018. On October 2, 2015, and again on January 4, 2016, the prior and current CNMI Governors sent letters to President Obama requesting that he initiate consultations under section 902 of the Covenant to consider two issues affecting the relationship of the CNMI with the federal government. The first issue involved immigration and labor matters affecting the growth potential of the CNMI economy, and the second issue concerned proposed and ongoing military activities in the CNMI. In May 2016, President Obama designated the DOI Assistant Secretary for Insular Areas as the Special Representative for the United States for 902 Consultations. The CNMI Governor was designated the Special Representative for the CNMI. In December 2016, after 8 months of official consultations, informal discussions, and site visits to locations in the CNMI, the Special Representatives transmitted a report to the President that included six recommendations on immigration and labor matters. These recommendations included proposals for legislative amendments, regulatory changes, or DHS actions. On January 17, 2017, the report was submitted to Congress, marking the first known time a 902 Report has been submitted to Congress since the U.S.–CNMI Covenant was fully implemented in 1986, according to DOI. The report’s recommendations were as follows: 1. Extending the CW program beyond 2019 and other amendments, such as raising the CW-1 cap and restoring the executive branch’s authority to extend the CW program. According to the report, Public Law 113-235 repealed the U.S. Secretary of Labor’s authority to extend the transition period beyond 2019. The report states that the CNMI seeks to extend the transition period by 10 years from December 31, 2019, to December 31, 2029; to allow the Secretary of Labor to grant a 5-year extension past this date; and to increase the numerical limit of CW-1 visas from 12,998 to 18,000 per fiscal year. The Special Representatives support an extension of the transition period, restoring extension authority, and raising the CW-1 cap. 2. Providing permanent status for long-term guest workers. The Special Representatives support congressional action to make long-term guest workers and their families with significant equities in the CNMI eligible for lawful permanent resident status with a path to citizenship. According to the report, it is the CNMI’s position that long-term guest workers, through their continued presence and contributions to the CNMI, are intertwined with the economic development and growth of the commonwealth. However, these individuals have no path to lawful permanent residence, according to the report. The report states that the CNMI would like to recognize their important contributions to a place many consider home, in some cases for more than 20 years, by offering them a path to lawful permanent residence. 3. Soliciting input on suggested regulatory changes to the CW program. According to the report, the CNMI’s position is that DHS’s “first-come, first-served” application system for CW-1 permits has resulted in the displacement of current and long-time CW-1 workers by new workers. In addition, long-time guest workers who have built families, homes, and lives in the CNMI are unprotected and are not given priority within the overall numerical allocation of CW-1 permits. The CNMI’s position is that its Department of Labor should have a role in determining what employers should be deemed eligible to sponsor foreign labor workers under the CW program. For these reasons, the CNMI suggested several regulatory changes that DHS could implement, such as prioritizing renewals of CW-1 permits over new CW-1 applications, establishing a separate numerical allocation for long-term CW-1 workers, and partnering with the CNMI on the distribution and allocation of available permits. The Special Representatives recommend that DHS publish a Request for Information to solicit input from a variety of parties on various regulatory changes, including those proposed by the CNMI. 4. Considering immigration policies to address regional labor shortages. According to the report, the CNMI believes that many of the newer CW-1 applications are for Chinese construction workers, and a CW system with a disproportionate allocation of permits for construction workers could hamper the development of its service sector. For this reason, according to the report, the CNMI calls for making Chinese nationals eligible for H-2B visas for work performed in the CNMI. In addition, because of the special needs of the region, the CNMI calls for amending U.S. immigration laws to create additional Guam or CNMI-Only nonimmigrant visa categories for which current law does not provide. Finally, because of its geographic distance from Hawaii and the U.S. continent, and its location in the Asia-Pacific region, the CNMI calls for new legislation to expand the current Guam and CNMI- Only Visa Waiver Program, which allows eligible visitors from designated countries to travel to the CNMI for business or pleasure for up to 45 days without standard federal visa documentation. The Special Representatives support Congress’s consideration of extending and expanding existing immigration policies or developing new policies to address systemic regional workforce challenges currently being experienced in both Guam and the CNMI. 5. Extending eligibility to the CNMI for additional federal workforce development programs. According to the report, unlike the CNMI, several U.S. states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, and the U.S. Virgin Islands are eligible to receive grants to provide for the employment services authorized under the Wagner-Peyser Act. Extending this program to the CNMI (and American Samoa) would ensure that all the territories are treated equally, according to the CNMI. The Special Representatives recommend that DOI’s Office of Insular Affairs work cooperatively with DOL to extend the Wagner-Peyser Act to the CNMI. 6. Establishing a cooperative working relationship between DHS and the CNMI. According to the report, in recent years, the CNMI Department of Labor has filed Freedom of Information Act requests to obtain information regarding the approved CW-1 permit holders and would like an easier DHS process for obtaining data from USCIS on the CW program. According to the CNMI’s Secretary of Labor, the CNMI Department of Labor has a very good working relationship with DHS but could benefit from more coordination on data inquiries. The Special Representatives recommend that DHS and the CNMI work cooperatively to exchange information and continue existing efforts to educate employers about applying for alternative nonimmigrant visas in place of the CW-1 visa when appropriate. The U.S. Secretary of Homeland Security has the discretion under current law to implement the two recommendations directed at DHS, according to DHS’s Acting Deputy Chief Counsel. However, he noted that implementing the other recommendations could require enacting new legislation. DOI’s Office of Insular Affairs will, as appropriate, consult with DHS and Congress regarding implementation of the 902 Report recommendations, according to the Acting Assistant Secretary. Table 8 lists the Special Representatives’ six recommendations and summarizes proposed next steps toward implementing them that could be taken. On January 30, 2017, the House of Representatives passed The Northern Mariana Islands Economic Expansion Act (H.R. 339), which relates to recommendation 1. The bill, which has been referred to the Senate Committee on Energy and Natural Resources, was introduced by Congressman Sablan of the CNMI on January 5, 2017. The bill would amend Public Law 94-241 to increase the number of CW-1 permits to 15,000 in 2017 and, among other things, would exclude certain construction occupations from eligibility for new CW-1 permits and increase the CW-1 vocational education fee from $150 to $200. On April 27, 2017, the Senate Energy and Natural Resources Committee held a hearing to discuss this bill. We provided a draft of this report for review and comment to DOC, DHS, DOI, and DOL as well as to the CNMI government. We received technical comments from DOC, DHS, and DOL, which we incorporated as appropriate. We also received written comments from the CNMI Governor. In his letter the Governor stated that the report provides crucial data on the CNMI’s progress toward expanding the domestic workforce in line with the mandates of Public Law 110-229. He further stated that the report contains key implications for federal and Commonwealth policy makers to consider. The Governors letter is reprinted in appendix X. We are sending copies of this report to the appropriate congressional committees, the Governor of the CNMI, the Secretary of Commerce, the Secretary of Homeland Security, the Secretary of the Interior, the Secretary of Labor, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact David Gootnick at (202) 512-3149 or gootnickd@gao.gov or Oliver Richard at (202) 512-8424 or richardo@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix XI. Our objectives were to examine (1) changes in the Commonwealth of the Northern Mariana Islands’ (CNMI) labor market since the federally mandated minimum wage increases began, (2) the potential economic impact of reducing the number of foreign workers to zero, and (3) federal and CNMI efforts to address labor force challenges. For all three objectives, we obtained and analyzed agency data and documents and interviewed officials at the U.S. Departments of Commerce (DOC), Homeland Security (DHS), the Interior (DOI), and Labor (DOL) in Washington, D.C.; San Francisco, California; and Honolulu, Hawaii. In November and December 2016, we conducted fieldwork in Saipan, Tinian, and Rota, CNMI, where we interviewed the CNMI Governor, the Mayors of Tinian and Rota, and the CNMI Secretaries of Commerce, Finance, and Labor. We also conducted discussion groups and semistructured interviews with selected employers, CW-1 workers, U.S. workers currently employed by CNMI businesses, and students or graduates of the CNMI’s job training programs. We worked with organizations in the CNMI whose officials we had interviewed prior to our arrival in order to schedule the discussion group sessions, recruit session participants, and obtain space for holding the sessions. For example, we asked the Saipan Chamber of Commerce, Tinian Chamber of Commerce, and the Rota Department of Commerce to help us schedule discussion groups with representatives of various local businesses. Similarly, we asked the Hotel Association of the Northern Mariana Islands to help us schedule semistructured interviews with selected hotel executives. For background, we described the CNMI’s geography, its history, and its political relationship with the United States by reviewing U.S. and CNMI laws, DHS regulations and documents, previous GAO reports, the U.S. Census Bureau’s decennial census for the CNMI, and estimates of the CNMI’s gross domestic product (GDP) published by DOC’s Bureau of Economic Analysis. All GDP levels were adjusted for inflation to 2015 dollars. We also analyzed visitor arrival data gathered by the Marianas Visitor Authority from customs declarations forms for fiscal years 1990 through 2016, which we deemed sufficiently reliable for our purposes. We also obtained and analyzed DHS’s U.S. Customs and Border Protection (CBP) data on airport admissions at the Saipan and Rota airports from 2010 through 2016 to understand the number of travelers granted parole. Despite delays in CBP’s processing of the CNMI’s airport admissions data and CBP officers’ gradual adherence to new operational guidance, we determined that CBP data were reliable for our purposes by interviewing CBP data analysts and obtaining answers to our data reliability questions. Finally, we analyzed 2003–2015 data provided by the Hotel Association of the Northern Mariana Islands on hotel occupancy and room rates and adjusted those rates to 2015 prices based on inflation. To evaluate changes in the CNMI’s labor market since the federally mandated minimum wage increases began, we (1) analyzed overall employment data for all domestic and foreign workers in the CNMI, (2) estimated inflation adjusted average earnings, (3) determined the industries and occupations with the highest numbers of CNMI workers affected by the current and scheduled minimum wage increases, and (4) obtained employers’ and employees’ opinions about the minimum wage increases. To analyze overall employment in the CNMI, we relied on tax data provided by the CNMI’s Department of Finance for calendar years 2001 to 2015 for citizens and noncitizens. We defined citizens as domestic workers, or anyone that did not require a visa for employment in the CNMI, including citizens of the United States, the CNMI, and the freely associated states (Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau). All noncitizens or nondomestic workers were classified as foreign workers. We used the same data source for three prior GAO reviews of minimum wage changes in the CNMI. We also interviewed CNMI officials who prepared the tax data to understand how the data were prepared and any limitations. We reviewed the data to determine consistency, identified fluctuations, and consulted with CNMI officials to determine possible explanations for fluctuations. We determined that the data were sufficiently reliable for our purposes. Undocumented foreign workers were excluded from the scope of our review. To estimate inflation adjusted average earnings, we also relied on CNMI tax data from 2003 through 2015, with counts of the number of individuals in different ranges of earnings. To calculate mean wages in the CNMI, we divided the total sum of earnings by the number of workers with non-zero wages per calendar year from 2003 through 2015. All dollar values were adjusted to 2015 prices based on the CNMI’s Consumer Price Index (CPI). Because the U.S. Bureau of Labor Statistics collects CPI data on the 50 U.S. states but not the CNMI, we relied on other sources of data to compare changes in earnings or wage rates to changes in prices. We obtained historical data on the CPI from the CNMI’s Department of Commerce. To produce an annual CPI series, we analyzed quarterly CPI data from the first quarter of 2003 to the fourth quarter of 2014 and averaged the four quarters in each year. To obtain the CPI for 2015, which was not available from the CNMI’s Department of Commerce, we followed a methodology used by DOC’s Bureau of Economic Analysis that applied Guam’s inflation rate to the CNMI. We also interviewed CNMI officials responsible for producing the quarterly CPI estimates to understand how the data were prepared and any limitations to the data and concluded that the CPI data were sufficiently reliable for the purposes of our review. To determine the industries and occupations with the highest numbers and percentages of CNMI foreign and domestic workers affected by the current and scheduled minimum wage increases, we analyzed the results of the CNMI’s 2014 Prevailing Wage Study; assumed all 2014 workers maintained employment; and projected the numbers and percentages of workers directly affected by the scheduled 2016, 2017, and 2018 wage increases. We restricted our analysis to scheduled minimum wage increases, not those that could happen under possible future legislation. We then determined the industries and occupations with the largest numbers of workers directly affected by current and scheduled wage increases by counting the number of hourly wage workers in 2014 who earned less than or equal to the level of 2016, 2017, and 2018 minimum wage by industry and occupation. We determined the data contained in the CNMI’s 2014 Prevailing Wage Study to be sufficiently reliable for the purposes of our review by interviewing CNMI officials who gathered and analyzed the original data and obtaining answers to our data reliability questions. To obtain local employers’ opinions about the minimum wage increase, we reviewed results of a survey conducted in 2016 by the Saipan Chamber of Commerce, gathered survey results, and interviewed board members of the Saipan Chamber of Commerce. We also facilitated four discussion groups and conducted seven semistructured interviews with representatives of 42 employers operating on Saipan, Tinian, and Rota in the CNMI. Discussion groups were held with representatives of selected businesses in Saipan, Tinian, and Rota, with groups ranging in size from 4 to 16 participants. Semistructured interviews were held with selected larger employers in Saipan. During discussion groups and semistructured interviews, we asked the same two questions about (1) the effect of and business response to the federal minimum wage increase to $6.55 in October 2016 and (2) the possible future effect of and business response to the federal minimum wage increase to $7.25 scheduled to occur in October 2018. We selected a nonprobability sample of employers for participation in our discussion groups and semistructured interviews. Therefore, views reported by participants in these groups may not be representative of those of all CNMI employers and for that reason are not generalizable. To evaluate the potential economic impact of reducing the number of foreign workers in the CNMI to zero and replacing them with domestic workers, we (1) developed an economic model that simulates how the CNMI’s GDP would change if the number of CNMI-Only transitional worker (CW-1) permits were reduced to zero, (2) evaluated the local supply and demand for labor, and (3) obtained local employers’ and employees’ opinions about the past and scheduled reduction in foreign workers. To develop an economic model that simulates how the CNMI’s GDP would change if the number of CW-1 permits were reduced to zero, we adapted an economic model that we used in a prior GAO report. The model relied on assumptions regarding the substitutability similarity of the domestic and foreign workforces. In this report, we also relied on reports produced by the Bureau of Economic Analysis on GDP in the CNMI from 2011 to 2015. We presented the change in GDP based from its 2015 value. We examined the possible range of effects from a reduction in foreign workers by calculating the effect on GDP under a range of assumptions. Specifically, we simulated the effect on GDP varying the assumptions regarding the ability of CNMI domestic workers to substitute for foreign workers and the effect of a reduction in labor (see app VI).To check this analysis, we developed a separate analysis that examined the relationship between GDP and the number of workers in the CNMI from 2002 to 2015. We found that the two factors were indeed related but that relationships differed by industry (see app V). To evaluate the local supply and demand for labor in the CNMI, we compared the annual number of CW-1 permits approved by DHS’s U.S. Citizens and Immigration Services (USCIS) to the annual numerical limit (or cap) of CW-1 permits set by USCIS from 2011 to 2016. Numbers of approved CW-1 permits are the number of beneficiaries approved for each fiscal year cap, provided by DHS’s Office of Performance and Quality, Performance Analysis and External Reporting Branch, based on Form I-129CW petitions for CNMI-Only nonimmigrant transitional workers, as of November 18, 2016. We analyzed the number of approved CW-1 permits by fiscal year (2012 through 2016), month, country of birth, occupation, and tax identification. We determined DHS/USCIS data to be sufficiently reliable for our purposes. We also analyzed the gap between the local supply and demand for labor in the CNMI by comparing the number of approved CW-1 workers to the potential number people seeking employment in 2016, based on a CNMI Behavioral Health Survey and the number of high school and college graduates in 2016, as provided by the CNMI’s Public School System. Additionally, we reviewed expected labor requirements outlined by the CNMI’s Bureau of Environmental and Coastal Quality as of December 20, 2016. To obtain local employers and employees’ opinions about the past and scheduled reductions in foreign workers, we conducted discussion groups and semistructured interviews with 42 CNMI employers and 70 workers. In the four discussion groups and seven semistructured interviews with employers, we asked the same two questions regarding reductions in foreign workers: 1. How did reaching the numerical cap of CW-1 permits in May for fiscal year 2016 and October for 2017 affect your business and how did you respond? 2. How do you think your business will be affected and will respond by the end of the CW permit program, scheduled for December 31, 2019? As indicated above, the discussion groups with selected employers ranged in size from 4 to 16 participants. We also conducted eight discussion groups with selected workers in Saipan. We conducted separate discussions with four groups of 41 workers who held CW-1 visas and four groups of 29 workers who were citizens or permanent residents of the United States or the freely associated states. Discussion groups with workers who held CW-1 visas ranged in size from 8 to 16 participants, while discussion groups with workers who were citizens or permanent residents of the U.S. mainland or territories ranged in size from 5 to 10 participants. In all discussion groups with workers, we asked the same two questions regarding reductions in CW-1 workers: 1. How did reaching the numerical cap of CW-1 permits in May for fiscal year 2016 and October for 2017 affect your job? 2. How do you think the end of the CW permit program, scheduled for December 31, 2019, will affect your job in the future? Participants in all employer and employee discussion groups were selected using a nonprobability sampling approach. Therefore, the views or experiences reported by individuals in these groups may not be generalizable. To evaluate federal and CNMI government efforts to address labor force challenges, we (1) collected information about the CNMI’s three job training programs supported by CW-1 vocational education fees, (2) assessed the results of the CNMI’s two scholarship programs, (3) examined employment programs offered by the CNMI’s Department of Labor, (4) reviewed a grant agreement between DOI and the CNMI government, and (5) summarized the results of the 902 consultative process (902 Consultations) that resulted in a report to Congress with several recommendations. To collect information about the CNMI’s three job training programs, we analyzed financial records showing CW-1 vocational education fees that DHS transferred to the CNMI government in fiscal years 2012 through 2016. We also reviewed the CNMI government’s financial records that showed allocations of CW-1 vocational education fees to three education entities in the CNMI: Northern Marianas College, Northern Marianas Trades Institute, and the CNMI’s Public School System. We interviewed administrators of these three entities and held discussions with groups of current or former participants of their job training programs. A total of 38 people participated in our three discussion groups, with groups ranging in size from 10 to 16 participants. Participants were asked, among other things, about the goals of the job training programs and their expectations regarding the impact of the programs on them. Participants in these groups represented nonprobability samples, and therefore, the views and experiences they reported may not be generalizable to all participants in CNMI job training programs. Last, we reviewed a previous GAO report, an independent audit of the Northern Marianas College for the period 2014 through 2015,and an independent audit of the CNMI’s Public School System in 2015, the most recent reports available. To assess the results of the CNMI’s two scholarship programs, we interviewed officials, gathered documentation, and analyzed data provided by the CNMI’s Scholarship Office and the Saipan Higher Education Financial Assistance Program, the two organizations that provide funding to students to attend higher education and job training programs. The Saipan Higher Education Financial Assistance Program is supported by the Municipality of Saipan, Office of the Mayor. We did not collect similar information about the scholarship programs offered by the municipalities of Rota or Tinian. To examine the employment programs offered by the CNMI’s Department of Labor under the Workforce Investment Act of 1998 (WIA) and the Workforce Innovation and Opportunity Act (WIOA), we interviewed the CNMI’s Secretary of Labor and case officers working at the CNMI’s Workforce Investment Agency and officials from DOL’s Employment and Training Administration. We also analyzed the CNMI’s WIA performance data for program years 2012 through 2015. We limited our scope to those program years because reporting requirements changed in program year 2016, which began on July 1, 2016, as a result of the enactment of WIOA. We also reviewed several GAO reports about WIA and WIOA and the CNMI’s 2016 WIOA state plan. To review federal grants agreement between the U.S. and CNMI governments, we interviewed officials and reviewed documents provided by DOI and the CNMI Department of Labor. To understand the results of the Consultations we reviewed section 902 of the U.S.–CNMI Covenant, and the report published as a result of the process. We also interviewed CNMI government and DOI and DHS officials who participated in the process. Data from the Marianas Visitors Authority show that the downward trend in the number of Japanese visitors to the Commonwealth of the Northern Mariana Islands (CNMI) from 2013 through 2016 was offset by the growth in visitors from China and South Korea. From fiscal years 2013 through 2016, the number of visitors from Japan dropped by 58 percent from 148,423 to 62,120 visitors. Meanwhile, the number of Chinese visitors rose by 83 percent (112,570 to 206,538), and the number of South Korean visitors rose by 48 percent (135,458 to 200,875), as shown in figure 12. According to the U.S. Department of Homeland Security (DHS), Chinese visitors are paroled into the CNMI under the department’s discretionary parole authority, while eligible South Korean and Japanese visitors enter the CNMI under the U.S. Visa Waiver Program. With the increases in total annual visitor arrivals, hotel occupancy in the CNMI has also risen in recent years. Data from the Hotel Association of the Northern Mariana Islands, which in 2016 represented 12 CNMI hotels, show that from 2011 through 2015, hotel occupancy rates for its member hotels increased from 64 to 87 percent; at the same time, the yearly average inflation adjusted room rate increased by 35 percent from $98 to $133 per night (see fig. 13). Table 9 shows the percentage of foreign workers and workers in the Commonwealth of the Northern Mariana Islands (CNMI) in 2014 with CNMI-Only transitional worker (CW-1) permits, by industry. Workers with approved CW-1 permits are a subset of foreign workers. According to the CNMI’s 2014 Prevailing Wage Study, which is based on a survey of employers, about 90 percent of foreign workers had CW-1 permits. The table is sorted with the highest percentage of foreign workers first. As the table shows, (1) agriculture, forestry, fishing, and hunting; (2) other services (except public administration); (3) construction; and (4) accommodation and food services industries employed 80 percent or more of non-U.S. citizens, or foreign workers. The public administration industry—where citizenship is sometimes a requirement—has the lowest percentage of non-U.S. citizens, with about 22 percent. Table 10 shows the numbers and percentages of foreign workers and workers with CW-1 permits by occupation in 2014. The table is sorted by the percentage of foreign workers in each occupation, from highest to lowest. As the table shows, production occupations, personal care and service occupations, and building and constructions occupations had percentages of foreign workers, almost 90 percent. On the other hand, only about 40 percent of protective service occupations were made up of foreign workers. As the minimum wage increases continue, they will affect a growing percentage of hourly workers in the Commonwealth of the Northern Mariana Islands. Table 11 shows the numbers and percentages of workers directly affected by the most recent and future scheduled minimum wage increases across different industries. Directly affected workers are CNMI’s wage workers in 2014, assuming they maintained employment, that would have been directly affected by the federally mandated 2016–2018 wage increases. The table is sorted by industries with the highest numbers of workers directly affected by the most recent minimum wage increase first. As the table shows, the tourism related industries, such as retail trade and accommodation and food services, are likely to be more directly affected by the most recent and future scheduled minimum wage increases. More than 6,000 (or approximately 77 percent) of workers in these two industries have been directly affected by the most recent minimum wage increase. The minimum wage increases are also likely to have a large impact on the construction industry; these increases have directly affected 79 percent of its workers. Public administration and educational services are less likely to be directly affected by the current and future minimum wage increases, with 9 and 14 percent of those industries’ workers directly affected, respectively. Similar to industries, certain occupations are also likely to be directly affected more by minimum wage increases than others. Table 12 shows the numbers and percentages of workers directly affected by the most recent and future scheduled minimum wage increases across different occupations. The table is sorted by occupations with the highest numbers of workers directly affected by the most recent minimum wage increase first. As the table shows, sales and related occupations and food preparation and serving related occupations are most likely to be directly affected by the most recent and future scheduled minimum wage increases. More than 4,000 workers (or approximately 85 percent) of workers in these two occupations are likely directly affected by the most recent minimum wage increase. Building and grounds cleaning and maintenance occupations, production occupations, and construction and extraction occupations also are likely to experience relatively large impacts from the most recent and future scheduled minimum wage increases. To simulate the effect of a reduction in the number of foreign workers on the Commonwealth of the Northern Mariana Islands (CNMI) economy, we followed a similar approach as in an earlier GAO report that also analyzed the economic effect of a reduction of foreign workers in the CNMI. Specifically, to model the CNMI economy, we employed a standard production function, the Cobb-Douglas, that we modified to allow for both foreign and domestic workers. Y = AK(&FW-p +(1-&)RW-p)-(1-)/p In this model, Y is output, K is capital, A is a constant, FW is the foreign workforce, and RW is the resident workforce. The parameters that control both the substitutability and the factor shares of resident and foreign labor are and & In addition, the elasticity of output with respect to “total workforce” is given by (1-). We chose this function because it allowed us to vary assumptions about the degree to which both foreign and domestic labor act as substitutes for each other. In this model, the less often the foreign workers are close substitutes for domestic workers, the greater the effect of any restriction on foreign workers—because domestic workers are less able to step into the roles occupied by foreign workers. Allowing the substitutability to be less than perfect is consistent with a recent paper suggesting that even when the education level and experience level of immigrant and nonimmigrant workers are identical, they may not be perfect substitutes. According to information from the CNMI’s Department of Commerce, foreign and domestic workers have similar levels of education. For example, about 20 percent of each group had a college education or greater in 2014. However, there are stark differences between the two groups in pay. The average wage for a CNMI-Only transitional worker (CW-1) visa holder in 2014 was $7.54, about 69 percent of the average wage of domestic workers, at $10.94. We chose parameters for the model by examining research in this area and available data. For example, we simulated the effect of greater or less “substitutability.” However, because of the extent of uncertainty, we purposely allowed the parameters to have large ranges. We assumed that capital and technology remained constant. See table 13 for the parameters and inputs used in our analysis. Determining the number of CW-1 workers required that we combine different data sets, which introduced a potential source of error. As a check on our results, we also ran simulations with different estimates of the CW-1 workers. We found that making different assumptions about the number of CW-1 workers affected our estimates but did not affect the overall message. We ran a simulation in which the number of CW-1 workers was assumed to be 9,715, based on the number of CW-1 permits approved by the U.S. Citizenship and Immigration Services in fiscal year 2015. We found that making this change caused the range of gross domestic product (GDP) reduction to change, from 26 to 62 percent under the assumption of 11,370 CW-1 workers to 22 to 45 percent under the assumption of 9,715 CW-1 workers. We addressed the possibility that the percentage of visa holders with CW-1 permits, which we based on the CNMI prevailing wage study, might be too low. Specifically, we ran a simulation in which we assumed that the 641 workers from the freely associated states (Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau) in the prevailing wage study were incorrectly coded as non-CW-1 visa holders, instead of not requiring a visa at all. This possibility was noted in the methodology section of the prevailing wage study. Making this change increased the number of CW-1 workers to 11,816. This led to a range of simulation results of 28 percent to 68 percent GDP reduction. We used the limited data available to produce an estimate of the relationship between gross domestic product (GDP) in the Commonwealth of the Northern Mariana Islands (CNMI) and the number of workers in the CNMI workforce. We relied on data from two sources. For the number of workers, we used data from the CNMI tax system. For information on the size of the economy (GDP), we used the most recent data available from the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA). BEA has reported data on GDP in CNMI from 2002 to 2015. From 2002 to 2015, the CNMI’s inflation adjusted GDP fell from $1.47 billion to $814 million, according to BEA, a decline of 45 percent. The decline in GDP reflects the departure of the garment industry. Over this same period, CNMI tax data show that the number of total workers fell from 50,436 to 25,307—a decline of about 50 percent—accounted for almost entirely by the reduction of foreign workers. Because of the lack of other relevant data, our analysis has important limitations. First, it attributes all of the change in GDP to changes in labor and assumes that nothing else in the CNMI changed over this period. It is possible, however, that capital in the island also diminished as labor left, since machinery may have been removed from the island and vacant factories may have been depreciated. Second, the change in GDP also could be attributed to the changes in the global economy, as well as other factors, which are not accounted for in the statistical model. Given these limitations, we employed a simple linear regression model, where the dependent variables were the natural log of GDP (presented in fig. 14) against the natural log of the number of workers (presented in table 12) and a constant. We used the natural log because that allowed us to interpret the coefficients as an elasticity. We estimated a coefficient of 0.83 that implies that for every 10 percent decrease in the number of workers, there is a decline in GDP of about 8 percent, on average, with the elasticity interpretation. We also ran a version of this regression with a linear time trend. Including a linear time trend yielded a similar estimated relationship between GDP and the number of workers. Figure 14 shows the relationship between these two variables as a scatter plot. In a separate analysis, however, we found that the relationship between GDP and the number of workers differed by industry, which further indicates the degree of uncertainty, and shows that the experience of the garment industry may not be generalizable. We determined this relationship was inconsistent across different industries using data on GDP from BEA by comparing GDP with the number of workers in each industry. However, because of a data limitation, we measured the number of workers not by the number of unique Social Security numbers but by the number of W-2 wage and tax statement forms filed by CNMI employers. A single person can have W-2 forms at multiple employers if he or she holds multiple positions. In addition, GDP by industry is available through 2014 rather than 2015. Because of the inconsistency between industries and the limitations described above, we applied a simulation method to project the effect of reducing the number of CNMI- Only transitional worker permits in the following appendix. Although the majority of foreign workers approved by the U.S. Department of Homeland Security (DHS) in the Commonwealth of the Northern Mariana Islands (CNMI) have CNMI-Only transitional worker (CW-1) permits, DHS also approves other types of permits for foreign workers in the CNMI (see table 14). The Commonwealth of the Northern Mariana Islands (CNMI) Bureau of Environmental and Coastal Quality compiles data from permit applications submitted by developers or their consultants to the CNMI government. These data sets include impacts on infrastructure and workforce needs, among other topics, and are typically incorporated in their Environmental Impact Assessments. The bureau only gathers projected workforce needs for developments—such as resorts or housing developments—that have submitted permit applications to the CNMI government or have made their proposed plans public. These proposed developments are in various stages of planning, permitting, construction, or operation. Table 15 includes all proposed CNMI projects to begin construction from 2015 to 2019 that have the potential to directly and significantly affect the CNMI’s coastal resources and therefore require zoning permits. Eight of the 22 projects—indicated by the table’s shaded rows—are for hotels, resorts, or casinos that together account for 97 percent (7,846) of the estimated total 8,124 employees needed for operation. For program years 2012 through 2015, the Workforce Investment Act (WIA) required grant recipients (1) to use performance measures that gauged outcomes for program participants in the areas of employment, employment retention, and earnings and (2) to negotiate performance levels for each performance measure with the U.S. Department of Labor (DOL). As shown in table 16, the Commonwealth of the Northern Mariana Islands (CNMI) met the negotiated performance levels for two of the nine performance measures in program year 2015. While DOL officials told us that recipients of WIA and Workforce Innovation and Opportunity Act (WIOA) grants are generally required to meet negotiated performance levels in order to receive their full funding allocations, officials said that they do not apply financial sanctions to the CNMI and other outlying areas. DOL officials noted that the CNMI did not always submit its quarterly and annual performance data on time. They also stated that the CNMI did not use DOL’s electronic performance reporting system, in part because of limitations in the CNMI’s physical infrastructure. DOL officials said that they have had concerns about the reliability of the performance data submitted by the CNMI, which they have addressed by offering technical assistance sessions at annual regional meetings and through e-mails and conference calls with CNMI Department of Labor officials. In addition, the DOL grant manager visited the CNMI in March 2015 to provide technical assistance on a variety of grant management and performance topics. In addition to the contacts named above, Emil Friberg (Assistant Director), Julia Ann Roberts (Analyst-in-Charge), Sada Aksartova, David Blanding, Benjamin Bolitzer, and Moon Parks made key contributions to this report. Caitlin Croake, David Dayton, Neil Doherty, Mary Moutsos, and Alexander Welsh provided technical assistance. American Samoa: Alternatives for Raising Minimum Wages to Keep Pace with the Cost of Living and Reach the Federal Level. GAO-17-83. Washington, D.C.: December 2, 2016. American Samoa and the Commonwealth of the Northern Mariana Islands: Economic Indicators Since Minimum Wage Increases Began. GAO-14-381. Washington, D.C.: March 31, 2014. Commonwealth of the Northern Mariana Islands: Additional DHS Actions Needed on Foreign Worker Permit Program. GAO-12-975. Washington, D.C.: September 27, 2012. Compacts of Free Association: Improvements Needed to Assess and Address Growing Migration. GAO-12-64. Washington, D.C.: November 14, 2011. Commonwealth of the Northern Mariana Islands: Status of Transition to Federal Immigration Law. GAO-11-805T. Washington, D.C.: July 14, 2011. American Samoa and Commonwealth of the Northern Mariana Islands: Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began. GAO-11-427. Washington, D.C.: June 23, 2011. Commonwealth of the Northern Mariana Islands: DHS Should Conclude Negotiations and Finalize Regulations to Implement Federal Immigration Law. GAO-10-553. Washington, D.C.: May 7, 2010. American Samoa and Commonwealth of the Northern Mariana Islands: Wages, Employment, Employer Actions, Earnings, and Worker Views Since Minimum Wage Increases Began. GAO-10-333. Washington, D.C.: April 8, 2010. Commonwealth of the Northern Mariana Islands: Managing Potential Economic Impact of Applying U.S. Immigration Law Requires Coordinated Federal Decisions and Additional Data. GAO-08-791. Washington, D.C.: August 4, 2008.

Summary: A 2007 law required the minimum wage in the CNMI to rise incrementally to the federal level in a series of scheduled increases. GAO has been periodically required to report on the economic impact of the minimum wage increases in the territory. A 2008 law established federal control of CNMI immigration. It required the U.S. Department of Homeland Security (DHS) to create a transitional work permit program for foreign workers in the CNMI and to decrease the number of permits issued annually, and presently requires that DHS reduce them to zero by December 31, 2019. To implement this aspect of the law, in 2011, DHS created a CW-1 permit program for foreign workers. In addition to the above statutory provisions, GAO was asked to review the implementation of federal immigration laws in the CNMI. Accordingly, this report examines (1) changes in the CNMI's labor market since the start of the federally mandated minimum wage increases, (2) the potential economic impact of reducing the number of foreign workers to zero, and (3) federal and CNMI efforts to address labor force challenges. GAO reviewed U.S. laws and regulations; analyzed government data; and conducted fieldwork in Saipan, Tinian, and Rota, CNMI. During fieldwork, GAO conducted semistructured interviews and discussion groups with businesses, CW-1 workers, U.S. workers, and current and former job training participants. The Commonwealth of the Northern Mariana Islands' (CNMI) labor market has begun to grow after years of decline, while continuing to rely on foreign workers. By 2015, the number of employed CNMI workers was about 8 percent higher than in 2013, and inflation-adjusted average earnings had risen by 18 percent from 2007 levels. By 2016, about 62 percent of CNMI workers were directly affected by CNMI's minimum wage hike to $6.55 per hour. In 2015, foreign workers, who totaled 12,784, made up more than half of the CNMI workforce and filled 80 percent of all hospitality and construction jobs, according to GAO's analysis of CNMI tax data. If all workers with CNMI-Only transitional worker (CW-1) permits, or 45 percent of total workers in 2015, were removed from the CNMI's labor market, GAO projects a 26 to 62 percent reduction in CNMI's 2015 gross domestic product (GDP)—the most recent GDP available. Demand for foreign workers in the CNMI exceeded the available number of CW-1 permits in 2016—many approved for workers from China and workers in construction occupations. The construction of a new casino in Saipan is a key factor in this demand (see photos taken both before and during construction in 2016). Meanwhile, by 2019, plans for additional hotels, casinos, and other projects estimate needing thousands of new employees. When the CW-1 permit program ends in 2019, available data show that the unemployed domestic workforce, estimated at 2,386 in 2016, will be well below the CNMI's demand for labor. To meet this demand, CNMI employers may need to recruit U.S.-eligible workers from the U.S. states, U.S. territories, and the freely associated states (the Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau). Federal and CNMI efforts to address labor force challenges include (1) job training programs offered by Northern Marianas College, Northern Marianas Trades Institute, and the CNMI's Public School System; (2) employment assistance funded by the U.S. Department of Labor and implemented by the CNMI's Department of Labor; and (3) technical assistance provided by the U.S. Department of the Interior. In 2016, a U.S.–CNMI consultative process resulted in a report to Congress with six recommendations, including one to raise the cap on CW-1 foreign worker permits and extend the permit program beyond 2019. GAO is not making recommendations.