– 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.
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I lived alone on minimum wage for years back when it was $3.50/hr. Later I and my fiancee lived together, both of us making near minimum wage (~$5.50/hr at the time). We did fine. We had electronics (including early cell phones) and cars and went out to eat regularly. We managed our finances responsibly and when we overspent we did without to make up for it. Those of you who think you CAN’T live on minimum must also believe that you are entitled to spend lavishly or have a right to expensive luxuries. By being responsible we lived in a solidly middle-class apartment and maintained a relatively decent standard of living. For those who believe that “keeping up with the Jones’” is a priority, go learn skills that make you more valuable as an employee or start your own business.
Brian you have misunderstood. I am not suggesting that New Deal policies will work today either. I think it is time to correct some of your factual errors.
Bank failures, soil erosion and depressed crop prices led to food shortages. Have you not heard of the dust bowl? We did not import all that much of anything in the 1920s and 1930s. Tariffs levied by the U.S. government simply caused other nations to do the same. World trade contracted and worsened the situation.
I was not talking about the panic of 1929. I was talking about the Great Depression and banking collapses. Only the economic collapse following Andrew Jackson’s decision to let the Federal Bank of Americas charter expire was worse. 95% of all factories closed. The nation was then far more rural and industry counted for far less of economic output. This occurred at the birth of the industrial age. It is impossible to know with absolute certainty how the world will fair as this current situation unfolds.
The economy did not recover during the thirties based on New Deal policies. Congress approved huge spending programs for the Lend Lease Act in 1939. Truly heavy spending necessitated by the war lead to increased GDP and reduced unemployment.
To say greed existed much more in the 1800s is to suggest human nature has fundamentally changed. It probably has not in 10,000years. Greed is the motivating factor of all free market economies and business activity. Perhaps you should read Stiglitz, Krugman and Posner as well.
Clearly you sound angry and that is why you insult me. That neither makes up for your misinformation or enables you to truly understand the crisis at hand. As in the 1930s environment played a pivotal role along with greed and and a lack of coherent regulation before the crisis. To take such actions afterwords fixes nothing and only protects future generations should recovery occur. The effect war time spending had on economic recovery should be scrutinized. Perhaps similar dynamics can be employed with out having to fight a war.
I’m amazed that so many (via their comments) would choose no income to a minimum wage they don’t like. $3.76 per hour is a lot better than $0.00 per hour.
This article is so obviously slanted. Moving the company to Georgia had absolutely nothing to do with the minimum wage whatsoever! It was simply a business decision that the author of this article is skew so far out of proportion to fit her “ideology”. A new cannery was built for 20 million in Georgia to be closer to consumers and reduce the cost of shipping product across 1000’s of miles. Also, since the cannery is brand new, and I’m guessing built with state of the art equipment, the work force is being reduced from just over 2000 employees to 200, an 1800 difference. Lets do the math for wages 3.50 x 2000 = $7000 an hour in Somoa. 200 x 6.55 = $1310 an hour in Georgia. The moved to an area with a higher minimum wage to save money for the company, as well as saving money for shipping. This whole article is just blowing smoke and I am disgusted with Reuters for allowing such a biased piece into their website. Didn’t an editor do the math? Fact check?
John,
Minimum wage is not susposed to be a wage to live on but to enter the workforce. You are a fool if you think so. In fact, most people on minumim wage stay there only a short time and proceed upward in compensation.
Have you heart? In fact, John, you must not have a heart given you seem to not feel for all those in Samona who will be losing their jobs. Wouldn’t they say that making $3.50 an hour is better than not having a job? I would think so. But you are so busy having a heart. All that does is make YOU feel good. It’s not helping the jobless.
If you really cared, you would support policies that employeed more people and did not take their jobs away.
Rasing the minimum wage hurts worst back and hispanic males, and others on the lower ladder of job skills. Apparently, you care little for those folks. Don’t you want them to have jobs? When working people have NO money because the do not have a job, that really hurts the economy.
Middle class folks start at minimum wage then rise up. I did it when I was 16. Guess what, I am making a bit more now that I am in my 40’s. Funny how that happens.
Really, I want to people to be employed and learn the discipline of working for someone, coming in on time, serving a customer or boss. All these are very valuble lessons. And I know more people will learn that if they are employee. And I know more people will be employeed if the minimum wage is lower. I guess it makes me heartless that I want people to have job.
Really, I don’t care if you think I am heartless because my concern is not me it’s the guy or gal would would be working but is not because a rising minumum wage has caused a company to elimate a position.
You go on feeling good about yourself and be full or care and heart. I am sure that will not help someone get employeed.
I have had minimum wage jobs throughout my life, and it is not easy to live on them. However, it can be done, provided you don’t live the American dream and run up a ton of debt for crap you don’t need.
I don’t plan on being here forever, but I am doing OK on my wage and tips now. If the minimum wage is raised $2 more tho, I will be screwed. Everytime they raise the wage, people who work for tips suffer most because customers don’t realize how little they make, and are tightening their moneybelts when they go out. But tip earners still have to claim tips at least up to minimum wage, whether they earn that money or not, and they get taxed on it.
And it’s true- companies who pay minimum wage, such as McDonald’s or the grocery store or whatever, don’t expect those people to work for them for life. And if they do, they usually promote them to some form of manager with a healthier salary compensation and benefits. It’s ridiculous to pay unskilled workers and high school kids high wages for go-between jobs.
On the other hand, if you are so concerned about how they fare, maybe just being nicer and showing a small amount of respect or friendliness to the individual would be helpful. They still don’t make enough (whether it’s $7.25/hr or $9.05/hr or even $900/hr) to take a customer’s crap just because they are behind the counter.
Try to remember that nobody is their job, and everyone is a fellow sentient being (for the hippy love revelers).
All the talk about raising the minimum wage “to help poor people” is a smoke screen. Many union contracts are written so that their pay rate is a multiple of the minimum wage, so what Democrats aren’t telling you is that every time they increase the minimum wage, they’re giving unions a big pay raise. That’s the real motivation: they’re paying off their supporters. They don’t care if more people are unemployed as a result.
I can tell most of the commenters here telling Diana to live on minimum wage for a while have never actually done it themselves.
I worked 2 part time minimum wage jobs for a year after I finished college (2 years ago). In that time, I lived alone, ate 3 good meals a day, never missed a bill payment, and was even able to save money.
Anyone who says minimum wage isn’t enough to live on hasn’t tried.
Arizona voted in an increase of minimum wage and people are losing jobs and benefits are decreasing because of it. See below:
http://news.prnewswire.com/ViewContent.a spx?ACCT=109&STORY=/www/story/12-30-2008 /0004947720&EDATE=
it gives an example of why a $2.10 increase of minimum wages cause businesses to close and loss of jobs and benefits.
Here is a more recent article on local restaurants. http://www.azcentral.com/news/articles/2 009/04/15/20090415politics-wages0415.htm l?source=nletter-news
A restaurant close to us called On the Border closed a couple of locations and most lost jobs but some were put at other locations if a position was available. They also significantly cut benefits to employees.
http://www.tucsoncitizen.com/ss/fromtope mails/114426.php
John Rogers - “How must it feel to live without a heart?” Are you kidding? You need to look those 2000+ people who just lost their jobs and tell them this is for their own good. That should make their life much easier.
Whose fault is it that a person must rely on an entry level wage? It’s that person’s fault - not society’s.
And you sound like a good Marxist when you mention “revenues are down” when people are paid cash “under the table”. All you need to add is that all wealth belongs to the state, and the government will decide what each person needs.
It’s very sad that most of the uneducated people are allowed to vote and they do so with their emotions instead of actually understanding economic impact. All I hear is “I need more benefits because I’m too incompetent to earn them on my own.” This article is well written and shows what will happen here if we go down this path. Unfortunately there are more of the “uneducated masses” that are controlled by government and are allowed to “vote”. Why don’t you get some economic education and spend some time in a socialist country and then tell me what your opinion is.
Why not make the minimum wage $20 an hour? Why not $50 an hour? Surely that would help the economy much more than $9.50 an hour! Just imagine what $1000 an hour would do!!
How must it feel to live without a heart?
I suggest you try living on minimum wage before opposing any increase in same.
When working people have more money, they spend more money and thus raise the level of the economy.
All you have to do is look at California to see just how costly “cheap labor” really is.
Employers are paying illegals under the table in cash.
As a result revenues are down for that state.
That leads to cuts in basic services and increased taxes for those still playing by the rules. It has taken 30 years of such behavior, however California is now knocking on the door of third world type poverty.
Social unrest is a real possibility.
Don’t forget Diana that the buffer between your ilk and social unrest has always been a solid middle class. Take that away and gues what? No buffer anymore.
You sure you want to go down that path?
I spend nearly 25% of my year overseas on China working on the design and manufacture of products consumed in the US. Why?!? Because labor is cheaper over here, and when the customer is choosing between my product and my competitor’s product on the shelf at the retail store, they don’t look at where the product is manufactured, they simply evaluate the styling and the price (perhaps this is not true for all products, but for the product line and price point at which I develop product, this is a _completely_ true statement).
I’d also like to point out that while the wages in China are roughly 3% of the wages in the US, this is not a “slave” wage. The quality of life that the workers enjoy at $.50/hr here in China is very good. Interestingly enough, in 2008 when China enacted the new Labor Contract Law that set out to improve worker’s wages and other conditions, the results were devastating. In the area in which I work, nearly 9,000 factories shut their doors within the first 10 months of 2008 (http://online.wsj.com/article/SB1232150 43508192065.html). I wonder whether the now unemployed workers feel that these labor laws improved their quality of life?
Everybody who is bashing the author must HONESTLY ask themselves, “would you be willing to pay 20%, 50% or 80% more for all of your consumer goods?” I doubt it, so while in theory everyone would LOVE to make a higher wage, are you also willing to pay more money for all products you consume? It ends up being a zero sum game. In the end, the intelligent producer won’t pay for higher labor, and instead will find innovative ways to produce a lower cost good (move to an area w/more affordable labor) and to take market share from their competitors. We’re seeing it happen in China, where they are losing manufacturing jobs to lower cost producers in other southeastern Asian countries. As we continue to raise our wages in the US, we are forcing our US manufacturers to consider moving operations elsewhere so that they can continue to offer competitively priced products. This issue should not be decided by emotion, but by sound economic and business judgment. “Greed” bears no relevance on this discussion.
American Samoa should be an independent nation.
The reason StarKist is leaving the area is not due to wage increases but the fact that the Communist Chinese fishing fleet has nearly eradicated the tuna schools in the area.
You had to go pretty far afield to get this little morsel.
If you dig how hard enough Diana, I’m sure you can find some “spin” that Medical Care can be hazardous to the people also.
Cherry picking info can debate “pro and con” for ANY ISSUE OR SUBJECT !!
The basic thing that is missed by most or all of the commenters is this one “Is this the best that I can get”
I worked for minimum wage for a long time, but I dont do that job, ot that kind of work anymore I am a Systems administrator now and i do better than the minimim wage. However the process is similar at higher levels of pay I serve in an IT position for the US Govt I perform IT duties that are the same or more so than others in IT, but my Job code is “computer clerk and assistant” not IT specalist if my job were correctly coded then My 3 other colleagues and I would get the Bonus that comes from being in an IT position about 6000 more per year… Now those were the wages and I did sign on the dotted line, but when a position opens where i can actually get credit for my education, training, and experience like most of the people in DOD do I will cast my ballot with my feet and I am so gone. Im not stuck staying there, as the idea is to move to a better position. this is not a one size fits all solution, but it does work for a large percentage of people.
I dont think McDonalds indended to people to work for them for life… with the comming increases in EVERYTHING Busniesses will be in a position to choose between keeping the doors open or closing down shop… If i were one of these So called Greedy men I would Close the doors cash out my busniess and put everyone out of work.
as a side note if some one came to unionize my workers, and if I was paying higher wages and benefits then the competetion I’d close the doors and take my dough and cash out of the system let the government take care of them…
Ms Diana Furchtgott-Roth, take a year away from your cushy six-figure job and live, I mean live with those minimum wages. I bet you couldn’t make it a week. . .
You are right Diana:
You do not care the fact that those minimum wages are not even living wages, and even if those poor workers can have minimum of what they need stil you do not care! how about you trying to live with such small amount?? sure that is not happening, but for others to be in such condition it is ok.
I have read many comments here I am struck by the lack of logic and reason. Many here lack any understanding of business and economics. It is all about emotion and feeling. “Oh, these greedy companies! They don’t want to pay anyone!” A business is not a social service. They are in it for profit because the shareholders demand that a company be profitable in order to justify its investing in that company. A company is there only to increase shareholder value. That is business 101, folks.
Living in American Samoa is not like living in New York or Boston. The people there do fine on $3.50 an hour because the cost of living is low. The author is COMPLETELY RIGHT. American Samoa should have the right to set its own minimum wage because Washington doesn’t know the hell what is going on there. Each state should be able to set its own minimum wage. Say if California wanted to raise theirs to $12 an hour, they should be ready to hear the sucking sounds of jobs going to neighboring. So be it. They would have made their choice. Too bad for the people because the Democrats in that state may be beholden to labor which comprises a minute part of the population.
I lived in eastern Europe. Because of different reasons like high taxes, welfarism, and such, wages in western Europe were high, but so was unemployment and this was before the recession. Many eastern European countries like the Czech Republic and Slovakia had lower wages and lower taxes. They were able to take jobs from western Europe, making matters worse for themselves. The western Europeans only had themselves to blame. A Slovak didn’t really need to make as much as a Frenchman. A Slovak making half that of a Frenchman could live comfortably in Slovakia. This is because the cost of living is lower in Slovakia. This is the same thing that is going on in American Samoa. American Samoa is like Slovakia and western Europe is like New York.
Yes, there is poverty in the world. But there is not the dire poverty of Africa or southern Asia in American Samoa. Because of liberal policies, the Samoans are doomed to the fate of Africans.
Thank you liberalism and empty-headedness. (WHICH ARE ONE AND THE SAME.)