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.

China is pulling all the stops to keep the economy growing by at least 8 percent, a pace considered necessary to absorb millions of migrant workers and graduates that hit the job market every year.

Ironically, with all its attention focused on the vigorous “defense of the eight”, Beijing risks losing sight of its ultimate goal — creating enough jobs to preserve social peace — and may end up engineering a jobless recovery.

Not only the rate of growth is important, but also its sources. Expansion led by capital-intensive industries will not be as effective in creating jobs as one driven by more labor-intensive sectors.

Statistics of the past three decades show that with the focus on investment, rise of heavy industries and China’s wish to move up the value chain, more and more economic growth has been needed to create the same number of jobs.

The latest efforts to shield the world’s fourth largest economy from the global financial crisis, including a nearly $600 billion stimulus, also focus on capital-heavy infrastructure projects.

“If your concern is jobs then targeting growth is not the best approach because the link between growth and jobs is not fixed, and different sources of growth have widely different impact on employment,” says Bill Bikales, a senior economist for the United Nations Development Program.

“It is unusual that China starts with a growth target,” He added. “(U.S. President-elect Barack) Obama has spoken several times about how many jobs he wants to create but he does not say how much growth he wants to produce.”

To boost employment and maintain social stability, Beijing should put more emphasis on labor-intensive sectors and move away from capital-intensive heavy industries that have been favored in recent years, several economists say.

Traditionally, China’s development policies have favored capital-intensive industries, such as auto, steel, machinery that are seen as key to modernization and sustained economic growth.

NEGLECTED LIGHT INDUSTRIES

In recent years the authorities have tried to move away from low value-added light industries, even though they have played a big part in the boom of the past three decades and have a potential to create more jobs, especially for unskilled workers.

China reckons it needs to add about 9 million jobs every year — about 3 percent of its urban workforce — for the 8.4 million some villagers moving to the cities every year. However, since early 1990s it has met the goal only when growth exceeded 10 percent. And over the years the link between growth and jobs has weakened.

In the 1980s, each 1 percent increase in gross domestic product led to a 0.3 percent rise in employment. This has dropped to a mere 0.1 percent jobs gain in the following decades, leaving the authorities undoubtedly frustrated that the country’s stellar growth performance has had such a modest impact on jobs.

The stimulus package and other measures aimed to help leading industries may help Beijing hit its growth targets, but may again disappoint leaders on the jobs front.

“Investing in capital-intensive sectors can stimulate growth in the short-term but has limited impact on employment,” said Yang Du, chief of division of labor at the Chinese Academy of Social Science, a top government think tank. “This might lead to a jobless recovery.”

Urban registered jobless rate stood at 4.0 percent at the end of September, which does not count migrant workers. The real unemployment is closer to 9.4 percent, reckons the Chinese Academy of Social Science. The World Bank estimated in its December report that right now, China needed to grow 9.5 percent to keep unemployment steady.

Premier Wen Jiabao has urged state-owned companies to “do everything possible” to refrain from job cuts. He said the auto industry’s current difficulties concern him the most because the industry has a long supply chain.

But as China’s companies are increasingly privatized and more profit-minded, ordering them to refrain from laying off people is unlikely to prove very effective.

The premier is probably betting on a wrong horse with his focus on the carmakers, not only because cars are being sold less briskly but also because growth in such capital-intensive industries is not effective in absorbing migrant labor, a group that the financial storm hit hardest.

Most of China’s migrant workers are employed by small private exporters. Large investment concentrated in a few industrial sectors could make urban-rural income disparity and overall inequality even worse.

World Bank economists Jianwu He and Louis Kuijs suggest China should shift its focus to the services sector from industry, and recommend Beijing to let consumption, instead of investment and exports, to play a bigger role in the economy.

The authors acknowledge, however, that changes cannot be made overnight. Otherwise growth will collapse and employment conditions will still suffer.

“Reducing the importance of investment needs to be a gradual process and needs to go hand in hand with higher efficiency, more reallocation of labor out of agriculture, better allocation of capital, and a redirection of factors and resources towards sectors that require less capital,” they wrote in a report.

– At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund.–

George Magnus is Senior Economic Adviser, UBS Investment Bank, and author of “The Age of Aging: How Demographics Are Changing The Global Economy And Our World”. Any opinions expressed are his own.

The election of Barack Obama as president of the United States has unleashed a welcome torrent of optimism during hard times. Aside from an especially demanding domestic policy agenda, the new president will also have his work cut out to rebuild the authority of and respect for U.S. leadership in the global community.

The G20 meeting in Washington on November 14-15, billed as the forum for rebuilding the world’s financial architecture, could not be happening at a more important time. We should be under no illusion, however, that results will occur in a week, despite the expectations. Anyway, the G20 has the more pressing issue of countering global financial instability and the global recession.

Nevertheless we – or they - need to think big and hope that new thinking from the Obama administration will be channeled precisely in the direction of global monetary reform. Part of the reason for the banking crisis, and its awful aftermath, was the untreated chaos in the global monetary system. Essentially, it was this chaos that contributed to exchange rate misalignment, the existence of unsustainably large external imbalances, and the creation of a debt mountain in advanced nations and excess savings in poorer nations.

If we are to stabilize the global economy in the longer term and be confident that periodic fires can be fought without risk of systemic failure, these issues need to be tackled now, and they can only be done so via a system of rules to which all participants can subscribe.

Although the return to financial stability and sustainable economic growth will dominate the G20 agenda, this forum may also be the appropriate one to review and implement initiatives related to other big and long-lasting changes in the world, such as demographic change and rapid aging.

Rich countries, which are now experiencing the onset of rapid aging, need to secure a high level of economic co-operation in trade, capital and exchange rate arrangements so that they can derive the economic benefits of globalization. These benefits will be important to help generate the income and resource transfer from a working-age population that is growing slowly to a rapidly expanding population of economically inactive over 60s.

In a more protectionist and nationalistic world, by contrast, stagnation beckons along with a rising incidence of poverty and unrest because of poor employment and income prospects.

Developing nations, which won’t experience the material consequences of aging for another 30 years, also need such co-operation. They need to adjust from being export machines to more balanced, sophisticated economies that meet the employment, education and prosperity aspirations of their growing, working-age populations.

If they fail, they could be faced with economic and political instability. In that event, they might well fail to fulfill the leadership role given by their economic potential

We have an opportunity to improve the way globalization works and spread the benefits through strengthened institutions. The G20 meeting, and hopefully the infectious optimism of the Obama administration, can be the start of such a process.

(Pictured above: Brazil’s President Luiz Inacio Lula da Silva (R) and Britain’s Prime Minister Gordon Brown begin a bilateral meeting, in advance of the Summit on Financial Markets and the World Economy, in Washington, November 14, 2008. REUTERS/Mike Theiler)