‘2nd wage hike will jack up payrolls’

The second round of minimum wage hikes in the CNMI in May will result in a double-digit percentage increase in payrolls, according to Saipan Chamber of Commerce president James T. Arenovski.

The president of Delta Management Corp. reiterated his opposition to the tiered wage hike mandated by H.R. 2066 in his “From the President” section of the Chamber newsletter for the month of April, saying that the CNMI has a unique and fairly closed economy “and it is at a breaking point.”

He said there is little money coming in for businesses to allow for wages of the islands’ lowest-paid workers to rise from $3.55 to $4.05 an hour starting May 26, 2008.

Arenovski said businesses maybe forced to take the following measures in order to survive the next round of minimum wage hikes:

– Further employee work hour reductions: Moving from 40-hour to a 34- or 36-hour per pay period saves money. Paying one employee overtime if managed properly can be cheaper than hiring two full-time employees and finding the hours to keep both happy;

– Reduction in workforce: Every person who is laid off has no money to pay for basic requirements and, if he has benefits, they would be gone too;

– Increased prices for good and services: Businesses usually increase prices when the cost of operation increases; and

– Close the business down: Many businesses have done their best to remain open and provide a level of service and quality expected by customers. Once a business gets to a point where it no longer has the customers or revenue to meet the rising costs of doing business and remain profitable, it may close down.

The last and most radical measure Arenovski suggested would have a disastrous ripple effect on the local economy.

“Closing a business means all staff are out of work and vendors get paid late or don’t get paid and the government loses tax revenue,” he said.

The Chamber president also said that, besides the rise in minimum wage, businesses in the CNMI are also battered by the high cost of electricity, gasoline, shipping, and imported raw materials.

“They all negatively affect the cost of doing business, prices, and a company’s ability to remain open,” said Arenovski.

“As I have said many times before, ‘who can argue that making money is not better… making more is indeed better.’ But will the majority benefit? Will it get worse before it gets better?” he asked.

That 50-cent increase last July 24, which hiked the CNMI minimum wage of $3.05 an hour to $3.55 an hour, kicked off the nine-step increase of 50 cents every year that will eventually raise the CNMI minimum wage to the federal level of $7.25 an hour.

H.R. 2066 also includes a provision requiring the U.S. Labor secretary to conduct a study to assess the impact of the wage increases and to project the impact of any further wage increase on living standards and employment rates in the CNMI and American Samoa. The study must be done two years and two months after the bill becomes law.

The swift passage of the minimum wage hike bill came about because it was attached to the Iraq war spending bill as a rider.

Before July 2007, the last time the CNMI’s minimum wage was increased was 11 years ago.

Business representatives and the CNMI government are currently lobbying Congress to pass a law suspending the next round of minimum wage hikes.