– 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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The problem with the profit motive is two-fold. First, it forces all companies to be as dishonest as the most dishonest in their area. If your tuna competitor is hiring cheap labor in a foreign country, then you, too, have to hire cheap labor in a foreign country, or they’ll sell their product for less than you and get more sales, and then their stock will go up higher, too, and more people will invest in them because they do better.
Second, it creates a positive feedback loop, where some profit can be used to exploit the government and manipulate legislation to favor certain companies by providing subsidies. Only the largest companies could possibly afford to buy these subsidies, raising the barrier to entry for your average business.
When an Honest Businessman can’t make a living without cheating someone, there must be something terribly wrong. Of course the Honest Businessman would like to pay his employees enough wages for them to buy a house, own a car, put their kids through college. Of course he wants to provide the best health insurance, company picnics, and the like. But he’s small business owner, and he doesn’t get corporate tax cuts and subsidies like his competitors. He can’t afford to offshore his labor costs. And so he is provided with a terrible choice - cheat and prosper, or struggle while maintaining your integrity.
“This author never ceases to amaze me.”
And the ignorance of liberals never ceases to amaze me.
“the real irony is that if you are poor and you want to be rich and you risk it all and make it big … conservatives love you.”
And the liberal dems will hate you, because they just lost a voter. Why do you think they keep promoting policies that actually HURT the poor, such as the subject at hand- minimum wage? They do not want them to rise out of poverty. They want them to keep them poor so they can keep collecting their votes. See this link (esp. the video)- http://tinyurl.com/qml6l8
“More ironically, you asked for the raise so you might feed all those children from pregnancies you couldn’t afford but they made you carry anyway.”
While I am personally not in favor of criminalizing abortion (though I am morally against it), your argument has numerous flaws. 1st, no one “made” any one get pregnant to start with. 2nd, no one “made” anyone keep a child they can’t afford to care for. The waiting list of financially capable couples who can’t conceive & want to adopt is a mile long.
“I don’t think exploitation is a win-win.”
No one is putting a gun to any employee’s head to make them work. They WANT the jobs or they wouldn’t be working there.
“How about an honest days wage for an honest days work?”
That is exactly what they get in a free-market economy, you just don’t want to admit it because it doesn’t fit your ideals. If a group of people were TRULY underpaid, then a competitor could come in and steal them away by paying slightly higher wages & still make a good profit.
“when are you going to write an article about executive compensation”
Companies should be allowed to pay whatever they want in a free-market. If they really pay “too much”, then their competitors will eat their lunch by undercutting their profits and put them out of business. Free-market discipline is ruthlessly efficient.
This author never ceases to amaze me. This mind set has really turned me back into a democrat … which is too bad because for a while there i was all about conservative values of self-reliance and responsibility. However, now that i know democrats aren’t oppose to those values … I kinda just see right-wing rhetoric as ‘if your not rich its your own damn fault’ and ‘God helps those who help themselves’.
So the real irony is that if you are poor and you want to be rich and you risk it all and make it big … conservatives love you. Welcome aboard! But, if you are poor and you just want to be not quite as poor … they hate you because they feel you are gaming the system at their expense. That 50 cent raise came out of their pockets. How dare you want more! If you want it then to pick yourself up by your own boot straps (like all of us did (they think they call came from poverty too)! More ironically, you asked for the raise so you might feed all those children from pregnancies you couldn’t afford but they made you carry anyway.
Well i recant some of my views on her. I actually agree with her in letting states determine minimum wage. Diana, we are in total agreement there. And we also share the common view that Mississippi and New York falling under the same minimum-wage standard is ridiculous.
But thats where are agreements stop? Because unlike you Diana, I don’t think exploitation is a win-win. How about an honest days wage for an honest days work? And that wage can be geo dependent … but it should put shoes on the kids feet no matter where it is. What about an economic system whose goal it is to serve humanity through innovation and incentives rather then serve its few oligarch masters through the creation and protection of astronomical wealth? What if the wealthiest most compensated people where those who created new companies and innovations rather then those who managed money.
What if the premium was on economic value and not on wealth but value?
Last point … Diana … when are you going to write an article about executive compensation? When all these big fortune 500 companies where in there hay-day, 50years ago for many of them, the average CEO compensation was between 20x and 40x that of the average worker. In 2008 (a bad year) according to Forbes the average CEO compensation of the S&P 500 was 10.8 million thats 250x the salary of the average American making (40k per year). I wonder if the maximum-wage also has an adverse economic effect?
And thank you Ray
Ian,
Thank you for your post. This is exactly what I’m talking about. The central problem is that we think that earning your living revolves around money. We live in a society in which PROFIT is the ONLY ACCEPTABLE MOTIVATOR. This is the main issue I’m trying to bring to light.
Profit is the wrong motivator. Money is nothing more than a medium of exchange. However business and resource owners use money as a medium of control. People should not be forced to work for money.
And given the fact that the only value our money really has is the “good faith and credit of the United States Government”, it’s pretty easy to see that our money is actually worthless.
I have been advocating the automation of the US treasury and federal reserve. We have built wonderful tools specifically for the crunching of numbers.
The treasury and federal reserve have the job of producing our currency and then balancing the amount of it flowing in the system in order to maintain its value.
By nature money is supposed to be a limited resource which we used for the exchange of “stuff”. Profit is the act of accumulating this virtual resource. The idea being that the more you accumulate the more freedom you have to get what you want an need.
However, if money is supposed to be a limited resource and businesses are sucking this resource out of our collective system to the tune of billions every day, then how is the system supposed to be sustained? Simple, all of those that have accumulated the lions share of this virtual resource simply uses it as a medium of control. Then human beings stop being human beings and become nothing more than labor.
Profit as a motive is exactly what is wrong with the system. An automated treasury and reserve system that prioritizes all citizens as being equal, can distribute this resource equally while still maintaining the value of the dollar. (Free of political/personal financial concerns)
When all citizens have equal buying power, we are free as individuals to develop our own talents and abilities for the good of our communities and ourselves.
I’m not saying that we need to get rid of money. Only that the profit motive turns money into a means of control that can be exerted on other human beings. This is fine if you have the cash. But it’s unacceptable if you’re the one having to do all the crap work because you “need the money” meanwhile the business owner gets to do what they want. And why? Because they own.
What I am suggesting doesn’t devalue the dollar. All it does in decentralize human control and puts it in the hands of each citizen individually.
Human beings were not mean to live out their lives chasing money. You don’t have to run a business to know that human beings are not commodities. And it’s sad to see that there are people out there who still don’t get it. We have the ability to give every citizen a truly level playing field. With everyone sharing an income from our collective prosperity, YOU DON’T HAVE TO HIRE ME. Because I wouldn’t need your money. And you would have to pay me.
And now that this kind of thing is being talked about the “conditioned workers” and the money lovers try desperately to justify the subjugation of their fellows by saying that that’s just the way the system works. And somehow that statement is supposed to make it all OK.
Excellent post, Mr. Acosta!
Some conservatives should cut to the chase and announce that they prefer doing away with government entirely to revert to the “law of the jungle.” After all, if the most rapacious predators are good enough for nature and we’re a part of nature, then government insults nature. The ultimate libertarian philosophy!
The new cannery could have been built right next to the old one in American Somoa and could have been profitable - even at the mandated minimum wage. $3.5 x 200 = $7000 an hour in wages at the old. The new factory employees 200 so 200 x 7.55 = $1450 an hour, over $5500 in savings an hour. Government is needed to intervene on the peoples behalf, or else Capital(Business) would be allowed to turn the masses into serfs, commoners, and slaves - again! Businessmen are in business to make money, the most amount possible for the least amount paid out- they have to, it is the nature of businesses who are responsible to shareholders, stockholders, and board members. Of course Business is going to argue against any sort of Minimum wage - it cuts into their profits. If Business had more Patriotism, more loyalty to Nation and Citizens we wouldn’t be in this mess now would we? Why do we hold people to country loyalty,but then allow those same people (Who are citizens of America) to act so disloyal to our country and its constitution since the constitution starts with “We the people” not we busninessmen, lawyers, bankers, investors, lobbyists, or politicians. Wheres the loyalty to their fellow Americans?
Benny, I gotta tell you, you’ve obviously never run a business. You see, business don’t exist “to provide a service.” Businesses exist to “to provide a service FOR PROFIT.” It’s not easy to manage a business, and corporations don’t do it for charity. They do it in order to survive. You don’t work for free, do you? No, you work because you feel your time and effort are worth the paycheck that you receive. If you make $30,000 a year, you better bet that your efforts are worth more than $30,000 a year to your employer. If I can’t make a profit by hiring you, I WON’T HIRE YOU. Business leaders understand this, which is why 2,041 Samoans will now be out of a job. If you don’t think you’re getting paid enough, do more to earn more for your company. As you increase the price of labor, you make it more competitive to replace people with machines. The machines cost more upfront, but they don’t go on strike, or lobby for a higher minimum wage. Unfair? To you, maybe, but it’s reality, and it’s what’s fair to the business owner.
And by the way, PEOPLE are not things, but LABOR is. It’s a service you provide to your employer. And, in a free market, you are free to negotiate that price with your employer. Not making enough money? Convince your boss that you’re worth more, or quit. If that new car you want is too expensive, you can try to talk the dealer down, or walk away. He can’t force you to take delivery of the car at any arbitrary price he wants you to pay. Likewise, you can’t force an employer to pay his employees any arbitrary wage you want them to pay. Like the buyer at the car dealership, if the price is too high, they’ll walk away.
I don’t doubt your sincere interest in the welfare of your fellow man, but you must be able to understand second- and third-order effects of well-meant but poorly thought-out policies. Increasing the minimum wage simply drives low-skilled labor into unemployment.
And by the way, if you gave the cannery to the locals and let them keep “all the money” they made there, they’d probably be operating at a loss from day one and would bankrupt the cannery inside a year. If it was EASY to profitably run a business, more people would do it.
So let me get this straight. In Samoa where the cost of living is considerably lower. Companies are exploiting people. While no one in the mainland of the US could live on only 4 bucks under the previously stated minimum wage, (Yes, I know it was less than $4. I rounded cause I can’t remember the exact change.) it doesn’t equate to exploitation. At my current salary of roughly 20 dollars an hour I am able to afford a fairly nice ranch house in the Atlanta metro area. Whereas, when I lived in Southern California that would barely have gotten me an apartment. Was I exploited while working in Southern Cali or is it just a difference in cost of living expenses? The same rule applies here with Samoa. Also if you only make minimum wage and have a family of 4. You are a loser! There is no reason in the world why one person who is the sole bread winner is working for minimum wage. Anyone with half a brain and even the slightest work ethic should be making well more than minimum wage after six months of combined work experiance in their lives. If they can’t then they obviously aren’t worth more than minimum wage. Go ahead, call me a hate monger, corporate puppet, or whatever you wish. You know I am right!
So Alex,
It seems that you are saying, that if person X enters into an agreement to work for person Y, and person Y knowingly offers terms that benefit himself while at the same time exploiting person X, this is acceptable as long as person X doesn’t know there’s a better option. Is this correct?
It also seems that you’re saying that if one person sees another person suffering and attempts to help in some way, then they are wrong. And in the sense that passing blanket laws tend to cause more problems than they solve, I am in agreement with you.
The Samoans are entitled to a higher minimum wage by virtue of their American citizenship. We are by virtue of our constitution, created equal. And the Samoans are no less equal than you, me, or anyone else.
You make the argument that people who want to help the Samoans from here have no right to do so because we are insulting them.
That’s like saying that a woman being raped shouldn’t be saved from her attacker because you would be insulting her. If she can’t fight for herself then she deserves it.
The people of Samoa are being financially raped and all you’ve got to say is pretty much along the lines of “Mind your own business, if they can’t or won’t stand for themselves then who are you to speak up?”
God forbid the Samoans have the same level of financial freedom as any other hard working American group. And if one analyzes the arguments presented, it all goes back to the money.
How about the tuna company doing business in non-profit status? That would certainly solve the problem wouldn’t it? Give the Samoans ownership of the canneries, and allow them to keep the profits from the sales. Would that go over very well? Of course not!!
Business doesn’t want those people to control their own lives. They only want the Samoans to think they do. Paid slaves are still slaves. Only in this century, your masters don’t give you the lash. They simply deny you the cash. And leave you starve or fend for yourself as best you can. The fact that their thousands of miles away is the very reason they’re getting screwed. Out of sight, out of the collective mind.
The problem here is Government interefrence. The relationship between an employer and an employee is a private one that should be free of Gov’t intervention. It doesn’t matter if you feel I’m not making enough money at my job, it’s not up to you to determine how much money I make. It’s not up to you to elect officials to help me with my wages. You see the blighted, disadvantaged, less-fortunate Samoans and think “The Bad Companies are taking advantage of them! Something must be done!” Aren’t you insulting the Samoans by inferring they can’t take care of themselves? I’m sure before the tuna plants were even even built a wage structure that fit the local economy was put in place. If the Samoans accept their minimum wage, who are you to tell them they’re wrong? You sit thousands of miles away, across an ocean, and proclaim that YOU know best what these people need? You actually proclaim your own view of these free people: as backward savages, who, without your enlightened progressive policies to protect them, will be perpetually downtrodden by their own inability to deal with reality. Mr. Langkilde, who actually lives there, declares that the relation established between the people of Samoa and the tuna companies was a mutually beneficial one, until meddlers like yourself feel “something ought to be done.” Now look at the ruin you and those who think like you have brought upon the Samoans.
I’ll close with a quote:
“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine….what A, B and C shall do for X.” But what about C? There was nothing wrong with A and B helping X. What was wrong was the law, and the indenturing of C to the cause. C was the forgotten man, the man who paid, “the man who never is thought of.” “He is the victim of the reformer, social speculator and philanthropist…” - William Graham Sumner as adapted by Amity Shlaes in her book, The Forgotten Man.
Hey Joe, You can call me what ever you want. That doesn’t change the fact that people can’t live on the money they earn. If calling me a “starry eyed socialist” and telling me I lack understanding is the best you’ve got, then it’s easy to see why we have so many homeless in the streets while so many homes go unoccupied
The problem I’ve identified is real. Your response provided nothing in the way of a solution or an explanation that makes the lot of the Samoan people any better.
Our financial system prioritizes money over people. This is a fatal systemic flaw that will ultimately result in massive human suffering (as it already has) and eventual failure.
Posted by Joe3
“It’s OK for ‘you’ to shop for the best deal in order for ‘you’ to keep as much money as you can, but when a business does it………bad capitalists.”
A shopper is not a business owner. When you shop you’re looking to make a purchase.
A business is supposed to provide a “valuable” service or commodity. These things cannot be produced by one individual and so requires the efforts of many. If as a business owner, you require the labor of many others, then by what logic do you consider it OK to rob American workers of their well deserved compensation and equate that to a person shopping for a good deal?
You shop for THINGS. People are not things to bought and sold. So what am I failing to understand that makes this “arrangement” so good?
Should we assume the author writes her columns for minimum wage, and is therefore an expert on the survivability of earning not enough to pay bills while being forced to compete with 3rd worlders who think $100 a month is big money?
Let’s toss in the “common wisdom” that folks in those countries are “frugal”…when you have no electricity, running water and eat rats bought at a local market, you don’t have money to spend. That’s not “frugal”…that’s destitute.
Let’s see somebody who only knows of hardship through 3rd parties try to survive under the conditions they’ve created. I give them odd of about a googleplex to one…against.
In 2005 dollars, the Federal “real” minimum wage was at a high in 1968 and even then, it was 90% of poverty level for a family of four. In 2006, the real value was at the lowest level in 50 years amounting to $10,700 annually - nearly $6,000 less than the federal poverty line for a family of three.
Obviously, it hasn’t been the minimum wage that’s been responsible for the dying U.S. economy and we can reduce it to zero (that’s $0.00 per hour) and still not save the economy of this country. Meanwhile, the wealthy have been increasing their share of the total economy.
There’s a message here and it’s not to reduce or merely maintain the nearly worthless Federal minimum wage as a means of saving this country’s economy. To say otherwise is insane propaganda meant to make the wealth distribution skewed even more to the benefit of the few and the disaster of many.
We might as well open the borders to anyone in the world who wants to come here and work for nothing while Americans starve to death. As a matter of fact, that’s exactly what has been gradually happening except that those foreign workers don’t have to pony up transportation.
This minimum wage issue brings back another issue that really frustrated my ability to understand. When the government gave out the consumer stimulus checks. Big business raised a stink because we weren’t spending the money. Instead most households paid down debt and put money in savings.
Some people made the argument that this would be a bad thing. So the government turned around and GAVE over 700 BILLION DOLLARS to the banks in order to “buy bad assets”, “monetize debt”, and such.
Now correct me if I’m just too dim to figure this one out. But if people were saving their stimulus checks and paying down debt, then doesn’t the increase in savings amount to a capital injection directly from the consumer base which is supposed to be the “back bone of the American economy”?. Doesn’t paying down consumer debt help clean a good amount of total debt off of bank balance sheets?
And no one has ever explained with any REAL CLARITY just how giving the banks all of that money while at the same time allowing all of that consumer debt remain on the books a good idea?
How is it a good idea that you get taxed to bail these wealthy, greedy, incompetents, out, while still holding the American consumer accountable for their debt regardless of the cause?
So as working people we are supposed to support the financial bailout of the wealthiest of the population, while the working/poor are held to account for their debt to the point of being evicted from their homes and having their community roots ripped out?
Is there some kind of trickle down benefit? With bankers and corporate insiders in such high positions of authority, I don’t think it’s “benefits” I feel trickling down.
“..May 16th, 2009 8:50 pm GMT - Posted by Benny Acosta
Jobs don’t get lost because of minimum wage. They are lost when companies try to hold on to their profit margins. That is to say, that rather than pay you more for the work you do, many companies would simply rather not hire you and take their “work” where someone who is desperate enough, will do it. In the Samoas people are loosing their jobs not because of the minimum wage, but because the canneries had become too comfortable with this level of exploitation. If they have to pay the Samoan worker more money, the owners won’t be able to afford as many of the luxuries they’ve become accustom to…”.
Yeah, just like you shop around for a car until you find the seller ‘who is desperate enough’ to sell it to you at the lowest price (profit margin)
Your statement is typical of one lacking in understanding business and economics, which generally equates to a starry eyed socialist.
It’s OK for ‘you’ to shop for the best deal in order for ‘you’ to keep as much money as you can, but when a business does it………bad capitalists.
Socialists are bad enough, but a socialist hypocrite……they’re the worst.
Q: Why does Chicken[sic] Of The Sea lick workers into total submission?
A: Because they can
Jobs don’t get lost because of minimum wage. They are lost when companies try to hold on to their profit margins. That is to say, that rather than pay you more for the work you do, many companies would simply rather not hire you and take their “work” where someone who is desperate enough, will do it. In the Samoas people are loosing their jobs not because of the minimum wage, but because the canneries had become too comfortable with this level of exploitation. If they have to pay the Samoan worker more money, the owners won’t be able to afford as many of the luxuries they’ve become accustom to.
It’s all about the money. Working in a cannery can’t be easy or pleasant. And inflation has gone way past a $3+/hr standard of living. So in truth, these people have lost their jobs because government has said that companies must compensate all Americans at no less than an acceptable minimum level, and the canneries either don’t want to do it, or can’t survive if they do.
So here we see with glaring clarity, a financial arrangement that requires that certain Americans be forced to accept substandard compensation for the sake of profit. Profit mind you, that the factory worker does not directly, let alone equally, share in.
Is the government wrong for mandating a minimum acceptable level of income so that citizens can keep up with inflation?
Do companies have a right to give you less than you deserve in exchange for the best of your ability?
What’s true for American Samoa holds equally true for the United States?
Bah. You say Samoa, I say Somalia. Not to mention Chechnya, Kosovo, Chiapas, Haiti, Guatemala, Indonesia, Tanzania, The Philippines, Bolivia…
It’s not labor unions holding entire countries to ransom, no matter how they may be portrayed in the corporate media. It’s not labor unions absconding with the working man’s pension funds, not that I wouldn’t have put it past some of them in the past.
And it’s not minimum wage that makes any corporation’s products, their excuses for products - and their excuses for the misery their products and business model(s) inflict - so utterly insufferable.
I mean, have any of you ever tasted Chicken[sic] Of The Sea? Anybody here likely to purchase another GM clunker? Anybody liable to shop at Wal*Mart?
Thanks to Ms Furchtgott I know I never will again.
Maybe workers can find other things to do, other countries to work in. Maybe they’ll find justice and maybe they won’t. But they can’t be faulted for looking for it wherever they are.
Judging by her pitiful excuse for an article here, it can’t get much worse for working people than where they are now, in the god-awful peonage system to which she among others evidently subscribes.
So wherever they may go, tell ‘em Ms Furchtgott sent them, to eat cake.
Thanks to the Friedman scheme of economics disasters, once again the shock of looseing the workers grip on a decent wage is frontally attacked. I am sure that chicken of the sea & many others of that ilk, will only be satisfied when the daily wage is reduced to the equivilant of 1 loaf of bread.
wild;)