The buzz saw

The federalization buzz saw is warming up, and this time there’s probably no escape. In just a few weeks, we’ll probably be contemplating the specter of the Commonwealth’s minimum wage being pushed up to an eventual $7.25 an hour, an increase of 137 percent.

Well, so much for goofing off during my Thanksgiving vacation. And so much for writing a fun piece for today. This topic can’t wait.

Based on having about 36,000 alien workers, assuming that all are minimum wage (they aren’t, actually, but I’m not up for splitting hairs today), the mandated increase based on the standard 2,080 hour workweek comes to an aggregate $314 million per year in wage hikes.

I’m not including any other costs that may balloon with that; I’m just looking at the raw wage itself.

To put this $314 million in context, consider that the size of the entire Commonwealth economy is roughly $525 million right now. We are, then, looking at a mandated wage increase that is 60 percent of the entire economy.

Yikes! I’ve never seen a market being distorted to that degree. The immediate question is how many jobs will be lost as a direct result. What we really need to know is what is called the “price elasticity of demand for labor,” a fancy term for jibing the relationship between the cost of labor and how much of that labor is consequently employed in any given industry.

I don’t have those elasticity numbers for Saipan. Nobody does. It wouldn’t be worthwhile to calculate them.

But we all know that the garment industry has a very high elasticity in this regard, because (a) it is labor intensive, (b) is highly competitive, and (c) is largely a commodity business. I think it’s safe to say that the entire industry (roughly 10,000 jobs) will be wiped out by any substantial increase in the cost of labor.

But that’s not the end of the story, only the beginning. All other businesses will pare back on jobs (or hours of labor purchased) as a result of mandated wage hikes. True, they probably have lower labor price elasticities than the garment industry does, but they’ll cut jobs nonetheless.

So, do you want to pick a number? 25,000 lost jobs total? Or 30,000? Or maybe 18,000? I don’t know. Any of those numbers are possible.

To put things in context, there were just shy of 38,000 total private sector jobs in the CNMI, as tallied by the census in 2000.

So, we’re probably looking at more than half the Commonwealth’s jobs being lost if the minimum wage balloons to the soon-to-be-proposed $7.25 an hour.

Mind you, I’m just contemplating the direct, or “static,” results of a wage hike here. The ultimate results will be amplified, as the downward economic spiral reduces the size of the economy, which will induce further jobs cuts; that’s the long-term “dynamic” realm.

And we are merely contemplating the wage angle of the federalization buzz saw. The immigration angle, which will probably cut itself into the picture after the wage issue does, might simply send all 36,000 or so aliens back home.

This issue has been a chronic, almost tortuous repetition of the Boy Who Cried Wolf gig for a decade now, but this time around there will probably be no reprieve. I can’t ignore it, even on vacation.

The Commonwealth had better brace itself. This is going to be dramatic.

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“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” —Winston Churchill