Impact of Increased Minimum Wages on the Economies of American Samoa and the Commonwealth of the Northern Mariana Islands

Section 2. American Samoa

American Samoa, the only U.S. territory south of the equator, lies 2,300 miles south of Hawaii and 1,600 miles northeast of New Zealand.  American Samoa consists of seven islands which together make up 76.1 square miles of land (48,767 acres).  The largest island, Tutuila, constitutes 70 percent of total land area and is home to 90 percent of the population.  Pago Pago on Tutuila is the seat of the American Samoa Government and the site of one of the Pacific’s great natural harbors.[2]

The high volcanic islands of American Samoa have rugged interiors mostly covered with rain forests.  Some of the smaller islands exhibit unique geological formations.  The north side of Tutuila and parts of the two outer islands, Tau and Ofu, make up an ecosystem considered so suitable a candidate for preservation that in 1988 the U.S. National Park Service identified it as the newest addition to the U.S. national park system.

Location of the Samoan Islands in the path of the southwest trade winds means frequent rains and a tropical climate.  Year-round temperatures range from 70 to 90 degrees depending on the warmth of the surrounding ocean.  Humidity averages about 80 percent throughout the year and rainfall averages 200 inches, with a December-March heavy rainy season.  Frequent rain results in lush vegetation on most of the islands.

The mountainous terrain and heavy annual rainfall have important implications for agriculture and the domestic food supply.  The soil of the slopes is thin as a result of leaching and can only support jungle vegetation.  The soil in the valleys and on the plains is fertile and suitable for growing tropical fruits and vegetables, but commercial agricultural development has been constrained by the scarce supply of level land for which there are many competing uses. 

The largest area of level land is located on the Tafuna Plain on Tutuila, near the American Samoa International Airport.  This is also the area that is most suitable for the development of housing and industry.  It is likely that further development of industry, including tourism and with it any need to expand the airport to accommodate wide-bodied aircraft, will increase the industrial demand for land around the airport.  Such developments would place commercial agricultural production at a serious disadvantage in terms of return to landowners.

Level land on the island of Tau, a part of which is included in the National Park of American Samoa, is somewhat far from the commercial markets in Pago Pago and is not used for commercial agriculture.  As a result, most agricultural production is for home consumption.  Of the 1,126 farms in American Samoa in 1990, 88 percent produced solely for subsistence.  The most common crop is the taro root, followed by bananas, breadfruit, and coconuts.  Fish are abundant in Samoan waters, but most meat and a number of other foods are imported, as is generally the case in the American-affiliated Pacific Islands.

As a small group in the Samoan Archipelago, the seven islands of American Samoa had no history distinct from that of the western islands of Samoa until the end of the 19th century.  European traders began to call at Samoan ports around 1800, and some began to settle in the islands in the early 1800s.  The first missionaries settled in 1830.  By the late 1800s, internal strife among the chiefs and power struggles among major powers of Germany, Britain and the United States led to a period of instability in Samoa.  In 1899, after the signing of a treaty by the three major powers, Germany annexed western Samoa (now Independent State of Samoa).  The eastern islands (American Samoa) were ceded to the United States the following year.

When the United States acquired American Samoa in 1900, its interest in the eastern end of the Samoan archipelago was mainly military.  Pago Pago harbor, one of the deepest natural harbors in the South Pacific, was seen to be of value in the early part of the century as a coaling station for American ships.  As a result, the territory was placed under the U.S. Navy which controlled access to it and appointed its governor until 1951.  An Executive Order transferred authority over the territory to the Department of the Interior in 1951, paving the way to civilian rule and self-government.

In 1960, a constitution drafted by the American Samoan people and approved by the Department of the Interior established a government resembling that of a U.S. state.  Until 1977, the governor and lieutenant governor were appointed by the Secretary of the Interior.  American Samoan voters elected their first governor and lieutenant governor in November 1977.

American Samoa is an unincorporated and unorganized territory of the United States, so that not all provisions of the U.S. Constitution apply in the territory.  Residents of American Samoa are not U.S. citizens.  Rather, they are U.S. nationals, who can freely enter the United States and work and reside anywhere they choose.  Legislation passed by the U.S. Congress recently subjected American Samoa’s minimum wage rules to national standards, with provisions for a gradual increase in the minimum wage rate until it equals the U.S. minimum at the end of a multi-year period.  But American Samoa retains control over its immigration, and entry to American Samoa by foreigners is not entry into the United States (in contrast to Guam, for example, where U.S. immigration laws apply).  Goods produced in American Samoa may be exported to the United States duty-free, provided minimum standards of local labor content are met.

Demography

The population of American Samoa is estimated to be 68,200 (July 2007).[3]  The population increased by 13,200 between 1997 and 2007 – an increase of 24 percent over the decade.  Population growth has largely been the result of natural increase.  The population is quite young, on average. The median age was 21.3 years according to the 2000 Census, and 38.7 percent of the population was younger than 15 years of age.[4]  Applying this proportion to the 2007 estimated population total suggests a current population of 26,393 under age 15 and 41,807 ages 15 or older.  

Immigrants are a significant factor in the demographics of American Samoa.  According to the 2000 Census, the population age 15 and older (35,079) was comprised of 39.1 percent native born American Samoans and 60.9 percent were individuals born elsewhere.[5]   The majority of non-native American Samoans are migrants from the neighboring islands of the Independent State of Samoa to the west.  Despite the large proportion of immigrants in the total population, American Samoa reported net out-migration of 4,993 during the decade of the 1990s. 

This demographic pattern (net out-migration combined with a large immigrant population) may reflect, in part, the fact that native born American Samoans have the right (as U.S. nationals) to migrate to the U.S.  Thus, the inward migration from the Western Samoa islands and from elsewhere is more than offset by migration of native-born American Samoans to the United States.  The relatively high fertility rates of the remaining native and the immigrant populations offset the net out-migration of native adults and contribute toward positive population growth of more than 2 percent per year.  It is estimated by informed observers that approximately half of native-born American Samoans now live in the United States, primarily in Hawaii and California.[6]

Economic Structure and Conditions

Timely and detailed economic information about American Samoa is scarce.  In recent years, the American Samoa Government (ASG) has attempted to compile economic and labor force statistics, but estimates are generally available 12 months or more after the close of the calendar year.  American Samoa is included in the decennial U.S. Census and in the quinquennial Economic Censuses, conducted in every year ending in “2” and “7.”

One important source of information on the American Samoan economy and the labor market has been the biennial surveys conducted by the U.S. Department of Labor’s Employment Standards Administration (Wage and Hour Division) which have looked at the economy in relation to industry wage rates applicable in American Samoa under the Fair Labor Standards Act (FLSA).[7]  These surveys were conducted in support of the biennial special industry committee process that previously made recommendations to set and adjust industry-specific minimum wages in American Samoa.  Passage of P.L. 110-28 in 2007 replaced the minimum wage industry committee process with a fixed schedule of increases that will bring the minimum wages across all industries into uniformity and conformity with the U.S. minimum wage of $7.25.  Consequently, the biennial labor market surveys will no longer be conducted. 

American Samoa is not included in the annual American Community Survey (ACS) conducted by the U.S. Census, nor is it included in the monthly CPS conducted by the U.S. Census, nor in the Current Employment Statistics program surveys conducted monthly by the U.S. Bureau of Labor Statistics.  No monthly or quarterly economic or labor market surveys are conducted by the American Samoa government.  The lack of an unemployment insurance system in American Samoa further limits the availability of timely information on conditions and changing trends affecting the labor market.

American Samoa is a small developing economy, dependent on two primary externally funded income sources: ASG, which receives significant operational and capital grants from the Federal government ($117 million of $182 million total government revenue in FY 2005[8]), and the two tuna canneries (operated by StarKist, a subsidiary of Del Monte, and by Chicken of the Sea, a subsidiary of Thai Union Frozen Products of Bangkok) on the main island of Tutuila.  Tuna exports in 2006 totaled 20.7 million cases (about 147 thousand tons) valued at $431.5 million.[9]  Taxes and fees paid by the tuna canneries are another significant source of revenue for the government.  These two primary income sources support a third economic sector, a services sector that derives from and complements the first two. 

In 2006, total employment in American Samoa was 17,395, little changed from 17,344 persons in 2005.[10]  The American Samoa government accounted for 5,894 workers, or 33.9 percent of total employment, followed by the two canneries with 4,757 workers, or 27.3 percent, and the rest of the economy with 6,744 workers, or 38.8 percent of total employment. 

Data from the Census 2000 showed the labor force to be 17,627 and the number of employed persons to be 16,718 – implying an unemployment rate of 5.2 percent.  By comparison, the comparable U.S. unemployment rate as derived from the Census 2000 was 5.8 percent in 2000.[11]   Data on the labor force and unemployment rate in American Samoa for more recent years are not available.[12]

American Samoa’s major export is canned tuna.  Other manufacturing and industrial assembly is limited.  A large proportion of the territory’s workforce (in the case of the canneries as much as 90 percent) is from the western islands of the Independent State of Samoa and other neighboring countries.[13]  But while it is true that Samoans from the Independent State of Samoa working in the territory are legally alien workers, they are in fact no different than the American Samoans by culture, by history and by family ties.

The services segment of the economy, aside from government services and canneries, is mostly trade, both wholesale and retail.  The opening a decade ago of the first big box retailer, Cost U Less, brought “wholesale retailing” to American Samoa, and a Hawaii-based operator brought the territory its first movie theatre.

Economic Significance of the American Samoa government (ASG)

The government is American Samoa’s single largest employer.  In 2006, the 5,894 government workers accounted for 33.9 percent of total employment in American Samoa.  ASG is a unitary government with no local or municipal government sublevels.  As such, it is highly centralized and performs all basic government functions.  Aside from the usual government work, ASG also manages power, water and sewer systems through the American Samoa Power Authority (ASPA).

In FY 2005, the government reported revenues of $182.0 million and expenditures of $192.0 million.  U.S. Federal grants and assistance accounted for 64 percent of revenue.  Local revenue collection totaled $63.6 million.  The largest categories of government expenditure were “Health, Welfare, Education and Culture,” at $65.9 million, “General Government,” at $45.6 million, and “Health and Recreation,” at $31.9 million.

In 2006, the government sector minimum wage increased to $2.91 per hour.  The wage survey that year (in preparation for the planned 2007 special industry committee) showed that, among government sector workers covered by the FLSA, less than 1 percent earned at the minimum rate and 10 percent earned at or below $4.05 per hour.[14]  Among government workers covered by the FLSA, 34 percent earned no more than $5.15 per hour and 48 percent earned no more than $6.15 per hour.  The average hourly wage of covered government sector workers in 2006 was $7.49 per hour, and the average annual earnings of government workers were $28,351.

 Table 1 shows that the scheduled minimum wage increases mandated by P.L. 110-28 will bring the minimum wage for covered ASG workers to $7.25 per hour by 2015.  Paying for the increases in government worker minimum wages will present a significant challenge to ASG.  While available data are insufficient to make an exact computation, the fact that 48 percent of covered government workers earned less than or equal to $6.15 per hour prior to the scheduled minimum wage increase suggests that at least half of covered government employees will be affected by the time that the adjustment schedule reaches $7.25 per hour.  Based on the 2006 wage survey, 1,293 covered government employees who previously earned no more than $5.25 per hour will be entitled to hourly increases of $2.00 or more.  Assuming 2,000 hours of work per year for full-time workers, these increases imply at least $5.2 million per year in increased wage costs for ASG.  Wage increases attributed to government employees earning between $5.25 and $7.25 per hour before the first wage increase could result in an additional $2 million or more in annual wage costs when the full increase schedule takes effect.  These increases may force ASG to make difficult choices between reducing government payrolls, reducing available hours of paid work, raising taxes or cutting non-wage expenditures. 

Table 1 shows that the scheduled fifty-cent per year minimum wage increases will bring the  Finance and Insurance industry, the Petroleum Marketing industry, and the three sectors of the Shipping and Transportation industry into conformity with the U.S. minimum wage in 2013. All industries except Garment Manufacturing (which currently has no workers in this category) and the Miscellaneous category will reach parity with the U.S. minimum wage by 2014.

A Large Proportion of Workers Will Be Affected by Minimum Wage Increases

The proportion of total workers who will be affected by the scheduled minimum wage increases is a consideration for assessing the likelihood of negative employment effects either in terms of job elimination or reductions in normal paid hours.  The 2006 wage survey suggested that 10,195 (58.8 percent) of American Samoa’s 17,344 workers were covered by the FLSA and potentially subject to minimum wage provisions.  Overall, covered workers in 2006 had average hourly earnings of $5.26 per hour – almost $2.00 per hour less than the $7.25 per hour minimum wage scheduled to become effective over the next five years.  Raising the average hourly wages by nearly $2.00 per hour for the 10,195 covered workers could result in an increased wage bill of $40 million per year across all American Samoa industry sectors.  Based on the $120 million annual payroll across all American Samoa industries reported by the 2002 Economic Census, this would represent a 33 percent increase in wage costs.[15]  General economic experience suggests that it is not likely that such an increase in wages could be absorbed through increased productivity, reduced profits, or higher prices passed along to consumers. 

Table 2 shows the proportions of covered workers in each industry who earned no more than a specified amount based on the 2006 wage survey.  In each case, the specified cut-off amount is less than $7.25 per hour.  Altogether, 7,856 covered workers (77.8 percent) earned less than $7.25 per hour and so will be entitled to an increase as the minimum wage in American Samoa increases to $7.25 per hour.  In order to sweep within its direct effect a proportion similar to the 77.8 percent of

workers affected by the American Samoa minimum wage increase schedule, the U.S. minimum wage would need to be raised to more than $16.50 per hour.[16]