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The Minimum Wage and Its Employment Impact (how it exacerbates unemployment)
Real Clear Markets ^ | 5/14/2009 | Diana Furchtgott-Roth

Posted on 05/14/2009 6:22:09 AM PDT by SeekAndFind

There’s no better illustration of the unintended consequences of "benevolent" economic policy-making than events in American Samoa, an archipelago in the South Pacific that is a territory of the United States and so falls within the purview of Congress.

Chicken of the Sea, the tuna company, has just announced the closing of its canning plant in American Samoa in September. The chief culprit is 2007 legislation in Washington that gradually increased the islands' minimum wage until it reaches $7.25 an hour, effective July 2009, almost double the 2007 levels.

So, this summer, some of the 68,000 residents of this United States territory will celebrate the higher minimum wage. Their ranks are unlikely to include people who now hold the 2,041 jobs—12 percent of total employment, almost half of all cannery workers—to be lost when the cannery closes. And the 2,700 employees of Star Kist, the other American Samoa tuna canning company, will be hoping that they keep their jobs.

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.

It didn’t have to be this way. In January 2007, when Congress debated the bill that raised the federal minimum wage from $5.15 to $7.25 over a two-year period, the legislation originally did not include American Samoa. Until then, the Labor Department had set wage rates in American Samoa every two years, following an extensive study of economic conditions on the island. But before final passage, Congress included American Samoa.

The result was a big wage boost for residents of American Samoa. In 2007, the hourly minimum wage for fish canning and processing was $3.76. 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.

Back in 2007 there might have been general rejoicing in American Samoa on hearing that many workers would get a raise. But not so. 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.

Fans of minimum wage increases say the hikes have no depressing effect on the economy or on jobs, but American Samoans were smarter. They knew that industries would go elsewhere if they have to pay $7.25 an hour.

And 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 addition, the cost of goods sold on the island will rise, because the ships that exported the cans of tuna came back with products to sell to the American Samoans. Now ships with imports to American Samoa will have to return empty or stop at other destinations.

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 the two major tuna canneries, Starkist and Chicken of the Sea.

According to Mr. Lankilde, “Over the past 50 years the industry provided massive job opportunities for unskilled labor. The increase in 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.

In his campaign, President Obama promised to increase the minimum wage to $9.50 an hour by 2011. This 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. Requiring employers to provide sick leave and paid maternity leave, legislation also under consideration in Congress, would cause additional low-skill workers to lose their jobs.

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. And perhaps Congress should leave further minimum wage increases and employer mandates to individual states, to choose as they see fit.

It takes American Samoa to show us that higher mandated compensation causes workers with low skill levels to lose jobs. What can harm American Samoa can also harm the United States.

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Diana Furchtgott-Roth is a contributing editor of RealClearMarkets and an adjunct fellow at the Manhattan Institute.


TOPICS: Business/Economy; Editorial; Government; News/Current Events
KEYWORDS: minimumwage; unemployment

1 posted on 05/14/2009 6:22:10 AM PDT by SeekAndFind
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To: SeekAndFind

Isn’t Pelosi’s husband involved with Chicken of the Sea in Samoa?


2 posted on 05/14/2009 6:36:16 AM PDT by Joiseydude (Kate Smith - God Bless America http://www.youtube.com/watch?v=pCavKL2zdjM GREAT visual interpretatio)
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To: SeekAndFind

Every time min. wage increases, the value of your savings decreases.


3 posted on 05/14/2009 6:39:25 AM PDT by bgill (The evidence simply does not support the official position of the Obama administration)
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To: SeekAndFind

Don’t confuse Lieberals with facts. It hurts their little brains.


4 posted on 05/14/2009 6:40:37 AM PDT by Don Corleone ("Oil the gun..eat the cannolis. Take it to the Mattress.")
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To: SeekAndFind

A superb post !! I’ve never seen a more clear cut case than this one. Even a liberal should understand it.


5 posted on 05/14/2009 6:49:16 AM PDT by jimt
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To: bgill
Thomas Sowell asks the dreaded "second question":

Applied Economics:
Thinking Beyond Stage One
by Thomas Sowell

6 posted on 05/14/2009 6:59:55 AM PDT by conservatism_IS_compassion (The conceit of journalistic objectivity is profoundly subversive of democratic principle.)
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To: SeekAndFind
Looks like the Samoans don't like being "helped" any more than stateside yachtmakers liked having the government "get even with the evil rich" by taxing yachts so much that Americans couldn't compete with foreign producers.

7 posted on 05/14/2009 7:06:03 AM PDT by conservatism_IS_compassion (The conceit of journalistic objectivity is profoundly subversive of democratic principle.)
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To: conservatism_IS_compassion

Idiots. Actually Pelosi opposed the minimum wage increase in Somoa because of her husbands interest, but when the facts came out..they got stuck with an increase just like the mainland.
It would be better if there were no federal minimum wage, but if there is to be one, equality may be the best solution.


8 posted on 05/14/2009 7:10:00 AM PDT by Oldexpat
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To: SeekAndFind

I’m amazed the author didn’t include Oregon, which now pays $8.40 an hour and has the second highest unemployment rate in America.


9 posted on 05/14/2009 7:15:05 AM PDT by aimhigh
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To: SeekAndFind
It takes American Samoa to show us that higher mandated compensation causes workers with low skill levels to lose jobs.

No, it doesn't, although A.S. is a labor market with some unique features, making for an especially dramatic and obvious example.

10 posted on 05/14/2009 7:23:36 AM PDT by Tax-chick ("Leave the presence of a fool, for there you do not meet words of knowledge."~Pr. 14:7)
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To: SeekAndFind

Obama just put 150,000 oput of work a car dealers. It’s just temporary, though, because if GM got the idea to import more from China how long before the real Chinese do the same? They will have a redy made dealer net in place.


11 posted on 05/14/2009 8:02:09 AM PDT by steve8714 (Iron Chef America - the palest of imitations)
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To: steve8714

Well, tens of thousands of people are now unemployed and a man-made drought is in place in Central California even as we speak because a judge ruled that they have to divert water away from the land and dump it into the ocean because allowing the water to flow where it usually does will endanger two inch fishes ( Minnows ).

See this thread :

http://www.freerepublic.com/focus/f-news/2250404/posts

Good intentions have unintended consequences ( or are the consequences intended ? I’m not sure anymore ).


12 posted on 05/14/2009 8:10:30 AM PDT by SeekAndFind
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To: Joiseydude

Yes, Pelosis husband has a huge interest in the tuna industry, that is why she kept the minimum wage out when the US went up last time...her panties are surely in a wad now.. that, and the hearings going on about her blank mind..


13 posted on 05/14/2009 10:21:02 AM PDT by JoanneSD (illegals represented without taxation.. Americans taxed without representation)
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To: Oldexpat
Idiots. Actually Pelosi opposed the minimum wage increase in Somoa because of her husbands interest, but when the facts came out..they got stuck with an increase just like the mainland.
Yes, you are right. it was a case of a Democrat caught trying to apply sensible economics when she had an interest in the prosperity of Samoa. A "scandal" because Democrat politicians are in cahoots with each other to practice on the credulity of the public, and she wasn't being consistent.
It would be better if there were no federal minimum wage, but if there is to be one, equality may be the best solution.
The only good "minimum" wage - the actual minimum wage is zero if you are unemployed and/or enslaved (e.g., by Obama forcing you to do "community service") - is a repealed "minimum wage."

But if there is to be a "minimum wage," there is something to be said for having it so high that everyone knows it is a disaster. So whenever the Democrats propose an increase in the "minimum wage," the idea is bruited about in conservative circles to go all the way and propose a $100/hour "minimum" - thereby throwing everyone out of work and forcing repeal.

"Minimum wage" legislation is nothing but drafting every worker and prospective worker into a union, and requiring them to go on strike if their wage is below the "minimum." Of course, while they are on that "strike" their wages are zero - but that doesn't come out of any politician's pocket . . .

Raising the "minimum wage" to $100/hr would in that sense produce a "general strike."


14 posted on 05/15/2009 5:50:53 AM PDT by conservatism_IS_compassion (The conceit of journalistic objectivity is profoundly subversive of democratic principle.)
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