Pro and con, with no simple solution

The application of the federal minimum wage in the Commonwealth of $5.15 (1) per hour has been the subject of debate and controversy for a number of years.

Many local businesses are troubled about the current deteriorating condition of the economy while others are concerned about the future employment outlook for the youth. I have been struggling with my own conviction regarding the related issues of the area’s existing minimum wage structure; future employment opportunities for the youth and jobs for displaced government workers when, and if, the Commonwealth government ever downsizes and reduces the number of employees on its payroll.

Some will say this is no time to raise the minimum wage—and they may be right, but let’s look at the issue unemotionally. As an economist I try to examine the issues—pro and con—with an open mind because eventually the matter of increasing the minimum wage has to be faced head-on.

There is no simple solution—as over the long-term the issue of economic growth cuts across many government policy issues ranging from minimum wage to providing adequate education opportunities for all citizens; job creation; appropriate investment incentives; adequate and reliable power and water and—if I may be so bold to say so—honesty and integrity in government, all of which are essential in instilling confidence in generating increased risk capital investment in the area.

In terms of purchasing power the current CNMI minimum wage has decreased over the years as inflation has eroded the value of money and reduced purchasing power of the 1996 value of $3.05 minimum wage to around $2.48 in terms of buying power, a loss of about 19 percent.

While I realize that current declining economic conditions in the islands have been difficult for many businesses and are likely to remain so for several years to come, still the time may not be far off when consideration for a wage adjustment may be necessary and any discussion of wage rates must also consider the impact of inflation. Those businesses that have been affected by inflation can usually adjust their pricing to compensate for the rising costs. Minimum wage earners cannot. By the way, who speaks for the minimum wage earners anyway? I have never met him (or her).

Of course, any increase in the minimum wage will have the following effect on the Commonwealth:

* increase payroll expense of many employers forcing some to reduce the number of their employees;

* Increase the employer’s matching Social Security contribution;

* increase their worker’s compensation payments;

* Since the cost of doing business will be passed onto the consumer, an increase in inflation can be anticipated;

For the hotel industry such an increase will no doubt be reflected in increased room rates for guests, thereby acting upon their competitive position. The garment industry has already indicated it cannot sustain any added cost of doing business and a gradual reduction in their operations (over and above the impact of WTO agreement now taking place in the islands) could be expected with a concomitant reduction in nonresident garment workers. This would be reflected in a decline in the CNMI’s treasury receipts as already being witnessed. And the downward spiral continues.

When and if the minimum wage in the Commonwealth is increased one can expect great dissatisfaction on the part of many local businesses for obvious reasons. However, there are those within the private sector that berate the government for its bulging payroll and excessive number of employees—the same group that constantly suggests a reduction in the number of government employees.

If this group wants the size of government reduced they must accept the fact that those displaced must find employment somewhere and that somewhere must be within a private sector that pays a minimum wage that will support at least a basic level of a standard of living and entrance level wages.

Those that oppose an increase in the minimum wage should be told they can’t have it both ways. The CNMI should not have a Third World minimum wage economy when aspiring to a developed standard of living as reflected or assumed by the area’s association with the United States. The time to move on cannot be far off.

If Guam’s private sector can handle the federal minimum wage, then the Commonwealth should be able to come around eventually and the business sector should accept this eventually and plan for it. Today’s youth should be afforded the option of being able to remain on the islands and find gainful employment in the private sector if they choose to do so—and I’m certain their families would want them to remain at home.

In an attempt to mitigate any adverse effects on small family operated “mom and pop” enterprises consideration could be given to exempting any increase in the federal minimum wage from those businesses with a certain “determined” level of “audited” annual gross business earnings, with the specific level of income to be determined by authorities. Perhaps certain exemptions could be granted for, say, a period of five years after which the issue would be re-visited for purposes of providing further extensions where warranted.

Additionally, for this category of “small business” (whatever size may eventually be applied to the definition) such business endeavors should most definitely be reserved for implementation by U.S. citizens. It simply doesn’t make any sense to permit foreign investment in such small business activities, which can easily be undertaken by local people. Note that I stress “foreign investment” in small business enterprises.

Call it discrimination if you wish, however, please tell me why U.S. discrimination laws can be made to apply to a citizen of a foreign country when such an individual is situated outside the CNMI then enters on a tourist visa, only to apply for a business license. I don’t understand how a foreign individual can step foot on U.S. soil as a tourist or otherwise and be afforded the privilege of applying for, and obtaining, a business license. Just how that cat got out of the bag in the Northern Marianas I will never know. I have seen countless mom and pop stores taken over by foreign shopkeepers and in my judgment it’s time to “plug” that loophole. (William H. Stewart)

* * *

Author’s note: As an update on the federal minimum wage, Congress is currently considering raising it by $1.50 from $5.15 to $6.65 per hour in three installments. Congress last enacted legislation in 1996, increasing the minimum wage by 90 cents from 1996-1997.