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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I wonder if anyone has ever thought about the thousands of jobs lost when executives are paid astronomical sums.

Posted by g a nanji | Report as abusive

Please stop allowing this woman to submit articles. Consistently short sighted and self serving.

I really hope the day comes when the educated middle and lower classed effectively coordinate a boycott of all large corporate products and services. Then tell me how giving these hard working individuals a raise would not benefit the economy.

How is it that in my lifetime my basic cable and phone bills have never gone down? Progress huh? Particularly as we move away from expensive outdated wired infrastructures.

“In a diverse economy, if a company takes advantage of its workers, they leave for higher ground and the company changes its ways or goes away. It is quite simple.” …..tell that to the folk in Michigan…you think they only make cars there apparently.

Posted by Colin | Report as abusive

Yes you socialist brainiacs, the minimum wage is the same in Samoa as Georgia, but perhaps you should read more carefully that the Samoans are unskilled, as opposed to the Georgia workers being skilled in a high tech processing plant — therefore having greater PRODUCTIVITY for the same wage, a concept which evades big government, bureaucrats, big unions, and most minimum wage advocates. The point missed by the minimum wage brain-trust is that they are HARMING the most vulnerable members of society in their self-righteous crusade to raise wages above free market value by causing unemployment. Further, the cost of that unemployment is now an additional cost to government, paid with more taxes. Good grief!

Posted by JJ Bright | Report as abusive

RE prior comment on a New Jersey – Pennsylvania study. It has long been DISCREDITED as laughable pseudo-science due to NJ big labor which indexed their wages against the increase in minimum. This had NOTHING to do with the well being of the minimum wage earner and everything to do with the stranglehold labor has on NJ. It wasnt the min wage guys driving the fast food business – it was the indexed, big union, high wage guys. What a farce.

Posted by A.B. Smyth | Report as abusive

Yes, the rest of the world is not our personal valet, and neither is the USA the welfare State to the world.

Outsourcing jobs have put too many people out of work here, and government sticking their noses in everyone’s business sure isn’t helping either.

One doesn’t need every new gadget that comes out, especially if it has cost a US citizen their job, by having them made in another country.

With government policies, greed, & envy running rampant now, we will end up losing more jobs, and soon we will be just another 3rd world country….something the UN wouldn’t mind seeing anyway.

Posted by bobc | Report as abusive

Ms. Diana Furchtgott-Roth is absolutely right…. Lets let businesses set the wage for the workers… Perhaps Ms. Diana Furchtgott-Roth would even write about how wonderful it would be to perhaps make the workers pay the company for the privilege of having a job….(insert sarcasm here)

Posted by Edgy | Report as abusive

It goes without saying that a higher minimum wage causes jobs to move elsewhere and increases unemployment. Whats the answer to that, lower the minimum wage to the point of near slavery in order to better approach 100% employment? Burn social justice on the pyre of ecconomic might in the hope that the less skilled poor are ‘dragged along’ by the bigger ecconomic wave built on their backs?

If any nation decided to do that, for long enough, they would end up with a distribution of wealth so dangerously lopsided it risked creating widespread social unrest. People would begin to feel a minifest need to protect themselves from other citizens and the prisons would begin to overflow in attempt to maintain social order and cohesion.

Posted by John | Report as abusive

What the conservative business is afraid of is wage lead inflation. Which causes the cost of goods to follow cost of production. Not saying how it impacts the economy other than the obvious. The producer makes more money when he can raise his price ahead of his cost. The issue of this article is ridiculous to compare an economy based on the availability of cheap labor to our economy. What are you thinking ?????

Posted by riddel | Report as abusive

1): It must be a slow news day at Reuters to publish Diane’s story. They obviously needed ‘filler.’

2): Easy resolve for the laid-off American-Samoan workers:
Organize an ESOP, raise stock capital then with assistance from the SBA start their own business enterprise. Let the employee-owners elect their own Board of Directors.
Set-up the business model as minority owned and geographically disadvantaged when bidding on Federal government contracts.

Posted by dusty | Report as abusive

Alan Krueger’s experiment doesn’t mean much compared to the far bigger experiment that we are doing now. Right now, our minimum wage makes our labor costs far higher than many other countries, like China and Korea. As a result, our products can’t compete with theirs on the world market. If we raise it higher, we will be even less competitive. This is ruining our future economy.

I currently work for minimum wage. If minimum wage is increased, I’ll get a raise, but I would prefer that it doesn’t happen. Increasing wages increases the cost of EVERYTHING. In the end, it doesn’t increase the buying power of low pay workers unless they buy things from even lower pay(foreign) workers.

Posted by Dwane Anderson | Report as abusive

The truth is that Somoa has been fished out.

Posted by Sinbad | Report as abusive

Mrs. Furchtgott should apply her reasoning to herself first: Let’s consider age, maintenance cost and expectations vs. output, shall we, and see the end result. Unwillingness to recognize other factors makes the author a liability to the company she writes this column for because all that is provided is erroneous information.

I don’t think the minimum wage change alone is what made Chicken of the Sea decide to close down their facilities in the American Samoa. Surely there are other figures at play here. Not being very familiar with the company or the industry I still felt something was wrong about Furchtgott’s column so I decided to scratch the surface a little.
My initial reaction was one of puzzlement at this column: How can a cannery in Georgia – in the East Coast of the USA, far from the areas of bountiful tuna harvesting – be more cost-effective than the local canneries in the Samoa, Pacific Ocean? Prior to canning, tuna is a short term, perishable good, so the time elapsing from harvest and transportation to the East Coast canning facilities is very important to consider… unless the company is thinking of not canning tuna from the Pacific at all, relying instead on the smaller stock supply of the Atlantic. This didn’t make sense right there…I was confused.
What left me even more confused is that last year, according to the link I am providing from http://www.house.gov, Chicken of the Sea, Starkist and Bumble Bee were together in their support of a bill by Congressman Faleomavaega (native A. Samoan) to support the U.S. tuna fishing fleet. How does moving to Georgia in the Atlantic/Gulf of Mexico support the American tuna fishing fleet of the Pacific? I understand the transportation issues may be a more relevant determining factor in why the Chicken of the Sea factory is closing, but somehow don’t explain it fully, and the fact that this company has been shutting down canneries in the United States for years now and that it has been bought by a Thai company in December of 2000 seems too important to dismiss. Blaming the current salary level of Samoan workers isn’t a valid reason at all in my perspective because no matter how low Furchtgott thinks the wages in A. Samoa have to be to keep the business there, the Thai and South American’s will simply be lower and that is it. Domestically speaking, Samoans have had it rough for many decades, forced to put up with lower than national average wages and that hasn’t made Samoan economy any more competitive and attractive to other types of businesses – and that includes ship building. What I am seeing is that, bit by bit, canneries want to shut down production in the US altogether from harvesting to canning, and sticking only with the lowest unavoidable cost of import and distribution. A huge primary industry such as this shouldn’t be allowed to be outsourced but that is what is happening and has been happening for 3 decades. It’s absolute rubbish that the increase of the minimum wage for the Samoan population is the cause of it. I hope the links below will be enlightening enough to those who, like me, are not aware of the other dealings going on about this.
I will leave you with this direct quote from Congressman Faleomavaega in his letter to Governor Togiola, dated 5/07/2009:
“While I am seeking a $20 million emergency set aside in the supplemental appropriations bill, and while I will also ask to increase operations and CIP funding for ASG, I am not sure how successful federal efforts might be, especially given our tuna canneries were recently provided with a $33 million federal income tax break at a time when the United States is faced with an unprecedented financial crisis. Prior to this extension, each cannery received over $5 million per year in federal tax breaks for almost 20 years, which equates to well over $200 million, not to mention the tax breaks they got for the 20 or so years preceding this.”
Sources: http://www.house.gov/apps/list/press/as0 0_faleomavaega/enitotogiolaresamoapackin gclosure.html
http://www.house.gov/list/press/as00_fal eomavaega/3canneriesallsupporteni.html
http://articles.latimes.com/2001/aug/02/ business/fi-29727
http://www.dol.gov/esa/whd/AS/sec3.htm

Posted by Van Dan | Report as abusive

Yes, go after executive salaries! Let’s say we have one of those capitalist bloodsucking leeches pulling down $5 million a year. Let’s take his WHOLE salary and divvy it up. Hmmmm, 5 mill divided by 2,000 hours per year equals $2,500 an hour; an outrage! Divided by 2,000+ workers equals ..uh.. $1.25 an hour. OK, OK, it seems we need to go after some more heartless executives. Come on people, the math ain’t that hard! The tuna cannery probably would have shut down in favor of a more automated plant anyway (progress, you see), and the wages just helped move it along a bit sooner.

Posted by Bruce H. Anderson | Report as abusive

Shouldn’t the headline be more like, “Large corporation finds more efficient way of delivering products by building a modern food processing plant, replacing an out of date facility and reducing staff needs by 90%”

In a major victory for productivity and efficiency, Chicken of the Sea built a new, state of the art processing plant in Georgia.
————-
See, it really isn’t about the minimum wage, but the Republicans want to make it that way. How many years has Chicken of the Sea, or rather its parent corporation, Thai Union International, been planning to move to this new facility. I can guarantee you that they didn’t decide to move in sudden reaction to the minimum wage.

It is more likely they made the move to a more modern facility because the company is moving from simply canning tuna to selling its tuna in pouch form, which requires completely re-tooling its facility. We could be happy that the Thailand based corporation decided to build their plant on US soil.

But no, because Republicans have been serving fear, uncertainty, and doubt for many years. Why waste the chance for some pseudo-economist to push a republican agenda by making up some nonsense.

Posted by Lord Astral | Report as abusive

The income of working Americans has been stagnating for many years. Many stupid things have been done in those years to try to make up for that failure of American capitalism. Wives having to work, going too deep into debt. etc. Something has to be done to solve the root problem, income stagnation.

Posted by chris | Report as abusive

“They are not in business to provide jobs or benefits.”

Sure not. They’re in to make a profit. What many people here (the author of the article included) don’t understand, however, is that if everybody acts like business is just about making profit, it’s only a matter of time before we’re all going to be out of business. Every time a company slashes jobs and benefits Wall Street cheers. Nobody seems to care what happens if a lot of jobs and benefits are slashed across the system. We are now witnessing the long-term consequences of this mentality, of the colossal greed and utter, self-defeating stupidity that generates it and keeps it alive.

Posted by Andre | Report as abusive

Nonsense! American companies are used to running from paying workers fair wages, so they run to where ever they can take advantage of poor people. By doing so, poor people live forever in poverty. And then be called “Third World”.

Screw these companies, most of whom evade taxes too. And for this writer Diana, I want her to get paid $4.50 per hour, let me see how she will live. Or let her children get paid $3.18 per hour. If you cannot make enough money per hour to have a hamburger, that is slavery by another name.

Why is it that well-to-do people, always argue that poor people should accept poor wages in order to have jobs? Who is getting cheated here? How many millionaires do we have to create in order to keep so many people in perpetual poverty. I am sure that the CEO of Chicken of the Sea makes more money per year than the sum total of the laid-off workers. So much for “Pursuit of life and liberty and happiness for all”.

America! Where is your moral? Where if your fairness?

Posted by Theo | Report as abusive

RE: Andre
“Ideas such as these are at the root of the crisis that we are all in. They betray a complete inability to see the greater picture, the interconnections that make up the economic system. Or worse, they are the expression of a propaganda machine trying to legitimize an economic model that is extremely destructive, both socially and ecologically.”

Lotta big words there fella. You wanna tell us the point you were tryin’ to make??

Posted by Michael | Report as abusive

Amnesty International has long cited the low wages as the leading cause of poverty around the world for decades now. The IMF and World Bank economists have drawn similar conclusions. The American people who remain employed are by far earning much less than a year or so ago. By your logic the economy should be taking off right now.

It is easy to argue for the different schools of economic thought in an ivory tower and within the confines of academic assumptions as to how an economy functions. This is by definition the hypothetical. Nothing historically approaches the economic catastrophe we now endure accept perhaps the Great Depression. Depressed wages will bring depressed prices. This might be survivable for a largely self sufficient economy. This was the U.S. situation in the 1930s, unfortunately we no longer enjoy that luxury.

I find it refreshing that President Obama invited Joseph Stiglitz and Paul Krugman to dinner at the White House. Perhaps it is time you consider the consul of these Nobel and Pulitzer prize winning authors. Their work is exhaustive as it is replete with hard data and lucid insight as to the dynamics of market economies. There are many others in academia that are coming around too. District Appeals Judge Posner comes to mind as one.

It is time we conduct business in this country by how actions effect people and not concern ourselves with theoretical implications of the aggregate.

Posted by Anubis | Report as abusive

All moot points in the comment section. American Somoan population 3.2 million, jobs at cots, a couple of thousand. Not going to effect AS or Georgia in any significant way, nor wage level interpretations, etc, etc.