‘Congress can’t ignore new GAO data’

Tourism employers will continue to cut regular work hours and freeze hiring as well as start laying off employees by early 2012 as a result of the annual 50-cent increase in the CNMI’s minimum wage, a U.S. Government Accountability Office report released on Thursday says.

By 2016 when the CNMI’s minimum wage is supposed to reach $7.25 an hour, 95 percent of workers in the tourism industry would have been affected.

GAO data are based on responses to questionnaires, discussion groups and interviews in 2010, among other things.

For employers, the minimum wage hikes impose additional costs at a time when multiple factors are making it difficult to operate. Employers and employees also have mixed feelings about the minimum wage increases.

GAO is the investigative arm of the U.S. Congress.

Douglas Brennan, president of the Saipan Chamber of Commerce, said, “The U.S. Congress certainly can’t ignore GAO’s new data now.”

Brennan, in a statement, cited a 2008 GAO report that it seemed likely that the CNMI’s existing economic decline would be made worse and that the CNMI population would continue to decline.

“Then why did the U.S. Congress implement four successive increases in minimum wage rates knowing full well the effects GAO predicted would likely occur?” Brennan asked.

He said this is an example of “when an economy moves from being nearly self-sustaining to that of an essentially dependent state.”

GAO, through a series of reports, has documented the rise and fall of an economy, he added.

“It is not what the GAO report says. It’s actually anti-climactic. It is about what GAO-11-427 demands of the U.S. Congress. Congress mandated GAO to report, and if Congress is responsible, and is not ‘cavalier’ in implementing these increases as sponsors of the bill maintained, then what will they do to address their part in this impact GAO reports?” Brennan said.

GAO is required to report in 2010, 2011, 2013 and biennially thereafter on the impact of the minimum wage increases.

GAO’s latest report, titled “American Samoa and CNMI: Employment, earnings and status of key industries since minimum wage increases began,” updates the 2010 report.

In the CNMI, 12 of 14 employers completed the GAO survey questionnaires but one was confirmed closed so its responses were not counted in the final un-weighted response rate of 92 percent.

In all, CNMI questionnaire respondents provided hourly wage data on a total of 1,576 workers as of June 2010.

Hotel respondents alone represented about 48 percent of workers in the CNMI accommodation industry.

The Chamber, in a statement, said it finds the GAO report essentially accurate in measuring impact the minimum wage increases brought about by U.S. Public Law 110-28 since 2008.

Brennan said the report gives definition to the impact a 67-percent increase in minimum wage rates since 2008 has had on the local economy.

“The corresponding escalated costs of doing business through those minimum wage increases, with increased utility, shipping and oil costs, has affected the number of jobs, consumer pricing, delivery of public services and the standard of living we took for granted not that long ago. GAO illustrates this well,” he said.

The Chamber also notes that although GAO states that “recent economic declines in both areas reflect the closure of one of two tuna canneries in American Samoa and the departure of the garment industry in the CNMI,” it believes there’s an understatement in reporting the very real impact those minimum wage increases played upon the resulting elimination of an entire industry on Saipan.

“While GAO properly notes an effect changes in world trade agreements had upon the industry, the actual impact of those minimum wage increases are ignored when one considers apparel operations remained until into 2009. It was increased wage rates that drove the industry out of Saipan, not WTO changes. The elimination of that industry has had the single largest negative effect on the CNMI economy, the GAO reports, and SCC agrees,” it said.

The Saipan Chamber of Commerce is the largest business organization in the CNMI wth some 150 members.

It also agrees when GAO reports that local economies differ from the U.S. economy in a number of ways, including that the percentage of workers paid the minimum wage is much higher than in the U.S. 50 states.

“SCC says the greatest loss to the local economy has been felt with the exodus of those minimum wage earners departing since the loss of an industry, and the downturn in the CNMI’s only remaining industry, tourism,” it added.

Inflation-adjusted earnings of minimum wage workers who retained their jobs and work hours rose by 25 percent from 2006 to 2009, even as CNMI employment fell by 35 percent mainly because of the demise of the garment industry and tourism decline, the report says.

A copy of the 142-page June 23 report is available on the GAO website at http://www.gao.gov/new.items/d11427.pdf.