Thousands lose jobs due to higher federal minimum wage

May 14, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. —

As President Obama considers whether to fulfill his campaign promise to raise the minimum wage from $7.25 to $9.50 per hour by 2011, there’s no better illustration of the consequences of well-intentioned policy-making than recent events in American Samoa, a United States territory in the South Pacific that falls within the purview of Congress.

Chicken of the Sea, the tuna company, announced this month that it will close its canning plant in American Samoa in September. The culprit is 2007 legislation in Washington that gradually increased the islands’ minimum wage until it reaches $7.25 an hour in July 2009, almost double the 2007 levels.

In 2007, the hourly minimum wage in American Samoa for fish canning and processing was $3.76 and the minimum wage for government employees was $3.41. Shipping had the highest minimum wage, at $4.59. Garment manufacturers got the lowest, at $3.18 an hour. A $7.25 wage is a substantial increase for most residents.

Chicken of the Sea will lay off 2,041 employees—12 percent of total employment, almost half of all cannery workers. And the 2,700 workers at StarKist, the other American Samoa tuna canning company and Chicken of the Sea’s rival, are probably concerned that their jobs are the next to go.

American Samoa’s loss is Georgia’s gain. Chicken of the Sea will move to Lyons, Georgia, (2007 population 4,480) employing 200 people in a new $20 million plant on a more capital-intensive production line.

In January 2007 the legislation originally did not include American Samoa, perhaps because Del Monte, at the time the parent company of StarKist, was headquartered in Speaker Nancy Pelosi’s district.

Until then, the Labor Department had set wage rates in American Samoa every two years, following an extensive study on economic conditions on the island. But before final passage, Congress included American Samoa.

Back in 2007 American Samoa Governor Togiola Tulafono worried that increasing the minimum wage “would kill the economy” and Congressional Samoan Delegate Eni F.H. Faleomavaega forecast that it would devastate the local tuna industry.

They knew that industries would go elsewhere if they have to pay $7.25 an hour.

They were right. American Samoa will lose not only the 2,041 jobs at the Chicken of the Sea canning plant, but also secondary jobs from the ripple effect of loss of income—stores and eateries that cater to cannery workers, shops that mend fishing nets, shipyards, and buses that transport workers.

In a telephone conversation this week, Representative Vaito’a Hans A. Langkilde of the Ma’oputasi District #10, representing the villages of Leloaloa, Satala and Atu’u, described the prospective devastation of the community. His district is home to both StarKist and Chicken of the Sea.

Mr. Lankilde told me, “Over the past 50 years the industry provided massive job opportunities for unskilled labor. The 2007 law that increased the minimum wage was the beginning of the end for the tuna industry and the cause of massive job losses for our already fragile economy. The only way to resolve the trend towards total economic disaster is for Congress at its soonest opportunity to reverse its position.”

With the recent laying of fiber-optic cable linking American Samoa to the United States, Samoans could get jobs in call centers. Yet the higher minimum wage could discourage firms.

Raising the minimum wage to $9.50 an hour would drive even more jobs away from American Samoa. In the United States it would have the effect of shifting jobs from low-skill to high-skill workers, raising unemployment among those who are least equipped to handle it.

Rather than having to accept direction from a government thousands of miles away where they have no voting representation, residents of American Samoa should be given the power to decide on their own minimum wage. Congress should leave further minimum wage increases to individual states to choose as they see fit, because wage levels and the cost of living vary substantially between states such as Mississippi and New York.

The closure of the Chicken of the Sea cannery in American Samoa shows us that higher minimum wages cause low-skill workers to lose jobs. What’s true for American Samoa holds equally true for the United States.

169 comments

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Well then Dale,

This seems to be the point of contention. I do not in ANY way advocate a government financial system. Our financial system is simply a market place where people can exchange goods and services for an agreed upon price. Governments only role is supposed to be a regulatory one.

What I suggest is that the federal reserve and treasury be automated so as to fulfill their function of maintaining consistent level/value of money without political or commercial influence. If the system then distributed that money to each citizen equally enterprise and creativity can occur free of centralized control. For example what if everyone had access to easily portable non polluting energy generators to which they could connect their homes. Such a thing would be a great advantage to everyone and serve to save a great deal of money on central energy production.

Money is a resource just like energy. And if every one has it then efficiency and productivity increase.

But the profit motive actually FORCES dishonesty. Suppose you are an honest businessman and I am a dishonest one. And suppose I compete with you using less than honorable practices and gain market share over you.

If profit is the ONLY acceptable motivator then you are faced with two choices. Beat me at my own game and develop practices of your own to take market share from me (along the same dishonest lines), or play by the “rules” and go out of business.

The fact that has never actually been done is not merely semantics. It has never actually been done because the technology to implement such an efficient system simply didn’t exist before now.

But computer technology already handles the processing of money so well that all I’m suggesting is that we take it to the next logical level and remove the human element from the management of this universally needed resource.

“the system then distributed that money to each citizen equally enterprise and creativity can occur free of centralized control.”

Now you are just talking nonsense. If you did that, then who would do all the nasty, dirty, stressful, dangerous, and/or difficult jobs? Why would people subject themselves to anything unpleasant if their income would be the same no matter what? Why would anyone work long hours for no added benefit for themselves? Productivity would plummet to practically nothing.

“what if everyone had access to easily portable non polluting energy generators to which they could connect their homes.”

There you are living in fantasyland again. While we are speculating, what if we all had magic genies in a lamp that would grant all our wishes?

“But the profit motive actually FORCES dishonesty.”

No it doesn’t. Among other benefits, it forces efficiency, quality, hard work, dedication, productivity, and most importantly- innovation.

“Suppose you are an honest businessman and I am a dishonest one. And suppose I compete with you using less than honorable practices and gain market share over you.”

Stopping that is one of the very few roles for which we actually need government- law enforcement, protection of private property (from force and fraud), as well as a court system to resolve disputes. Without government in this role, we would end up like 3rd world countries.

“If profit is the ONLY acceptable motivator then you are faced with two choices. Beat me at my own game and develop practices of your own to take market share from me (along the same dishonest lines), or play by the “rules” and go out of business.”

Are you trying to imply that every company that has been successful has only gotten that way by being dishonest??? None of them got there by being more efficient, providing better quality, and/or being more innovative than their competitors?

Posted by Dale | Report as abusive

Dale, In reply to your post.

“Now you are just talking nonsense. If you did that, then who would do all the nasty, dirty, stressful, dangerous, and/or difficult jobs? Why would people subject themselves to anything unpleasant if their income would be the same no matter what? Why would anyone work long hours for no added benefit for themselves?”

This argument is exactly what I’m talking about. You’re absolutely correct that no one would want to do the crap jobs. And isn’t it nice that our educational system stresses the sciences and mathematics so that we can automate more and more of those jobs?

Your argument also states it clearly. No one would WANT to do these things. So why do we FORCE people to do them now. Do you think that housekeeping and building maintenance workers are rolling in cash? I’m sure they didn’t take those jobs because they felt a spiritual calling to do so.

I stated to you:
“But the profit motive actually FORCES dishonesty.”

And your reply was:
“No it doesn’t. Among other benefits, it forces efficiency, quality, hard work, dedication, productivity, and most importantly- innovation. ”

If the profit motive doesn’t force dishonesty. Then why do we need regulators in a free market?

And what makes you think that productivity, efficiency, dedication, and innovation need to be forced?

Innovation comes by way of inspiration, which cannot be forced. Dedication comes from the knowledge that there is value in your efforts. Efficiency and quality come from the desire for excellence, and productivity comes from enthusiasm.

But your statement is telling in one important way. It illustrates your idea of money as means to control human behavior. It shows your acceptance of such use. As far as I can tell, you regard money as the magic carrot which motivates everyone to the greatest excellence.

But if that were true, then we wouldn’t be in the financial mess we’re in now, now would we?

And you can say that it’s government interference. You can say it’s corporate fraud, you can call it what ever you want. But the one thing you can’t get away from is the fact that money in this society is not used solely as a medium of exchange as intended. It is used to control the poor and the working class.

“Are you trying to imply that every company that has been successful has only gotten that way by being dishonest??? None of them got there by being more efficient, providing better quality, and/or being more innovative than their competitors?”

Is it honest to pay someone to help you make something, and then sell the thing they helped make back to them at two to four times what it cost to make?

If I help you cook a lavish meal and you paid me five dollars, and you then charged me fifty dollars to eat it, is that fair? Or honest? Or just? But this is exactly how our economy works. We pay workers a small amount per hour to do a job and help in the overall production of what we as a society use. But then we sell that stuff to the same people who helped make it at ridiculously increased prices. This is called profit.

If you define innovation as improvements in advertising then yes there is a great deal of innovation going on.

If on the other hand you’re talking about actual productive innovation, then the market place is full of examples in which the better products were squeezed out of the markets by companies with inferior products but superior financing.

Ultimately it doesn’t matter if you like my idea or not. The root cause of every financial problem we have is the result of money being used to control rather than exchange. And as long as the ability to exchange remains in equal, those who have will always seek to exert control over those who don’t. And like you they will always seek to justify their position in terms of merit on the part of the person.

So in your mind money will always be more important to you than your fellow man. And this is where we fundamentally disagree.

“If the profit motive doesn’t force dishonesty. Then why do we need regulators in a free market?”

Profit motive may be the reason that people try to cheat/steal, but it doesn’t FORCE it. There are many other options to make profit, which I posted below, which are also simultaneously beneficial for all of society. We need (limited) government law enforcement/regulators to try to prevent and deter the dishonest attempts.

With the system you are promoting, even with gov’t stopping the dishonest activity, there is still no incentive for anyone to work harder, be more efficient, or try to be innovative, other than perhaps self-motivation. And people who are driven entirely by that are in the minority. This is why that system ultimately fails every single time. What would you do in your system with the lazy people who simply refuse to do any work whatsoever?

“And what makes you think that productivity, efficiency, dedication, and innovation need to be forced?”

Because it makes life better for everyone in society.

“you regard money as the magic carrot which motivates everyone to the greatest excellence.”

That is because empirical evidence proves without a doubt that this is correct.

“But if that were true, then we wouldn’t be in the financial mess we’re in now, now would we?”

How are you getting that absurd conclusion? We are in this mess because of gov’t interference for political gain. What does that have to do with profit motive?

“Innovation comes by way of inspiration, which cannot be forced.”

It certainly can. Have you ever heard the term R&D? Companies spend billions on it, so that they can get an advantage over their competitors. If there were no profit motive, they would have no reason to spend this money.

“is it honest to pay someone to help you make something, and then sell the thing they helped make back to them at two to four times what it cost to make?”

Sure, as long as the person agrees to the deal and knows what he is getting into. If the price of the finished product isn’t fair, then a competing company will undercut the 1st company and put them out of business. If the pay for the work isn’t fair, then a competing company will steal their employees.

“If I help you cook a lavish meal and you paid me five dollars, and you then charged me fifty dollars to eat it, is that fair? Or honest? Or just?”

Sure, as long as I didn’t put a gun to your head and force you to do the work. You are free to say no to doing the work or buying the meal. The key word is freedom.

“we fundamentally disagree.”

You can disagree all you want, but actions speak louder than words. While socialism fails everywhere, free-market capitalism (even with the gov’t interference holding it back) has made the US one of the most prosperous countries in history. This is despite only being around for a little over 200 yrs while many other countries have been around for thousands of yrs.

Posted by Dale | Report as abusive

You said:
“Profit motive may be the reason that people try to cheat/steal, but it doesn’t FORCE it. There are many other options to make profit, which I posted below, which are also simultaneously beneficial for all of society. We need (limited) government law enforcement/regulators to try to prevent and deter the dishonest attempts. “

So first you denied that there was a problem with profit motive. And now you acknowledge that profit does indeed provide incentive for dishonesty.

I said:
“And what makes you think that productivity, efficiency, dedication, and innovation need to be forced?”
And you said:
“Because it makes life better for everyone in society.”

And this is the most telling point of your argument. Are you a businesses owner or a worker? You actually believe that FORCING someone to work (slavery) is good for society. And I bet that someone like you already knows just exactly what IS good for society.

No my friend, money and profit, when put above the human being in value, actually force stagnation and the withering of progress in many areas. Money doesn’t make a good marriage. It doesn’t teach your children the difference between right and wrong. There’s a lot it doesn’t do. And yet we value it so much more than each other.

Look at open source software if you want a really good example. Microsoft tried for YEARS to squeeze Linux out of the market place. Linux is free, there was no profit motive involved in making it. It is constantly developed by volunteers. It is true that there are paid developers out there but that’s because this kind of work takes time and the only way to live here is to have money. If these people didn’t need the money. Linux would already be leaps and bounds beyond Microsoft, Apple, Sun, etc… Linux systems are always under development and the markets can exert no real pressure on this side of IT. There are other examples of open collaboration and cooperation that don’t include the profit motive.

“you regard money as the magic carrot which motivates everyone to the greatest excellence.”
Your response:
“That is because empirical evidence proves without a doubt that this is correct.”
If your statement is correct then why do we still have poor? They get paid to work just like anyone else right? If it has been empirically proven that money drives people to excellence then we should have no more poor.

The Madoffs and Stanfords of the world came about because of greed. Profit was the motivator for their crimes. Where is your empirical evidence of their excellence? Did profit motive make them more “excellent” criminals? And if they were so excellent then how did they get caught?You try to justify “free markets” but there is no such thing. That’s why regulators must be in place. Because “free markets” breed corruption.
The reason you’re wrong about free markets is because you have yet to reveal just how any system that requires a human subclass to function, is in any way good.

A fair day’s pay for a fair day’s work. I here that a lot. But this never happens. If it did, the house keeper would be making much more. So would the janitor. We live in a system where the people who do the important, necessary, and unpleasant tasks in society get the least respect and lowest pay. And yet the rest of society can’t function without them.

You believe human beings should be forced to do what needs to be done. You believe that it’s acceptable to apply control via money. You believe that it is acceptable for a human being to be denied health care, education, a home, or anything that helps make life easier, if they don’t have the money.

You believe that people who don’t value money as you do, do not deserve to live with respect and equal status in this country. And your remarks prove it.

This is why we disagree.

And I almost forgot
“But if that were true, then we wouldn’t be in the financial mess we’re in now, now would we?”
“How are you getting that absurd conclusion? We are in this mess because of gov’t interference for political gain. What does that have to do with profit motive?”

Barney Frank is chairman of the house banking comity. You think he’s not connected with wall street bankers? How about the energy, defense, agriculture, and various other comities? You don’t think these politicians are connected? You don’t think that they pass laws that benefit their own interests first? You don’t think they’re going to help their own stock portfolios first by helping those companies with favorable legislation?

Are you seriously telling me you don’t see a connection? And are you seriously telling me that we are in the financial mess we’re in because of government interference alone? Wall street had NOTHING to do with this mess? I understand that you think I’m naïve. But common man, please don’t insult my intelligence.

“So first you denied that there was a problem with profit motive. And now you acknowledge that profit does indeed provide incentive for dishonesty.”

Of course it can. But it is the illegal acts you should be villifying, not the incentive, because profit motive incentivizes much more good than evil. Would you say that “love” is a bad thing? Well, how about that woman that loved her daughter so much she killed another girl to help her daughter make the chearleading squad? Or how about the fan who loves his fav. sports team so much he pays off the ref? It is the acts that are the problem, not the underlying incentive emotion.

“You actually believe that FORCING someone to work (slavery) is good for society.”

I never said anything of the sort. I believe in FREEDOM. The more the better (as long as someones behavior does not infringe upon someone elses).

“No my friend, money and profit, when put above the human being in value, actually force stagnation and the withering of progress in many areas.”

You could not be more wrong. For 1 good example, google a study called “Rich States, Poor States” and you will see how the states that have the most economic freedom, also have the most prosperity for all its citizens. You can find similar studies on an international level.

“Money doesn’t make a good marriage. It doesn’t teach your children the difference between right and wrong. There’s a lot it doesn’t do.”

And redistributing income won’t help those issues either. These topics have nothing to do with the subject at hand.

“If your statement is correct then why do we still have poor?”

Any able-bodied & able-minded adult in the USA (a.k.a. “the land of opportunity”) that is poor is poor because they choose to be. I have no problem with charity going to poor children, elderly, disabled, etc.. (in fact, I contribute to charities for those causes myself). And the “poor” in this country would usually be considered very wealthy in many countries around the world that don’t have economic freedom.

“A fair day’s pay for a fair day’s work.”

I don’t believe in that nonsense. My belief is “a market-value based day’s pay for whatever job is done that day.” The value of labor for a certain task is worth whatever someone else is willing to pay for it. Nothing more, nothing less. If A wants to pay B to do a certain job and B agrees, it is none of your business or the government’s.

“You believe that it is acceptable for a human being to be denied health care, education, a home, or anything that helps make life easier, if they don’t have the money.”

Please point out where people have a right to any of those things in the constitution? For someone to have a “right” to a home that they haven’t earned, for example, then someone else must be FORCED to give up something they have earned to pay for it. Weren’t you against slavery, you hypocrit?

“You believe that people who don’t value money as you do, do not deserve to live with respect and equal status in this country.”

I don’t believe anything of the sort. Where are you getting this garbage?

“Wall street had NOTHING to do with this mess? ”

They took what they were given, certainly. But the problem was that the government inteference removed key free-market elements that would have prevented them from gaming the system. In a true free market, it wouldn’t have mattered how greedy wall street was. They could not have done what they did without breaking laws, for which they would have risked severe punishment.

And you never answered my earlier question- What would your system do with people who refused to work on ANY job? Personally, I like my job fairly well, and I’m definitely not lazy (I graduated college top of my class with a 4.0 GPA, & I doubt a lazy person could do that). But even I would quit my job and retire to a life of leisure, spending time with family/friends, traveling, etc.. if I won the lottery or something and no longer had any incentive to work. How would that be handled in your la-la fantasy land?

Posted by Dale | Report as abusive

Ms. Pelosi and others were not concerned when unskilled
jobs went from the us to other countries and we are
trying to make all things even.
If 7.25 is basic enough for us then the rest of the
world should be at 7.25 also

IT REALLY SAD HOW PEOPLE BACK IN THE ISLAND LOOSE THERE JOB. NOW DAYS THE ECONOMICS IS REALLY LOW AND BAD.

Posted by MARIANIVE | Report as abusive

Thank you for the post – It is right on point! Most of the people that commented on this have no clue what or where American Samoa is. Someone mentioned a population of 3.2 million? Our population is only 70,000+, and for people’s information, our islands are located in the middle of the South Pacific. The ONLY resource that we have are the oceans as we have mountainous volcanic islands – so there is not enough flat lands for agricultural purposes. The ONLY export that we have is canned tuna – IF you take the canned tunas away, our economy is doomed! We don’t have anything else to export, and being that we are heavily dependent on imported goods – cost of living will skyrocket as we will need to pay higher shipping/ freight rates since the vessels will not have anything to carry back out of American Samoa. Most if not all American Samoans that live on American Samoa NEVER asked for this increasing minimum wage – this is a classic example of colonialism where such mandate will devastate the American Samoa economy and we can’t do anything about it as it is dictated by the federal government!

Posted by TeineSamoa | Report as abusive