GAO-11-427, American Samoa and Commonwealth of the Northern Mariana Islands: Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began


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Minimum Wage Increases Began' which was released on June 23, 2011. 

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United States Government Accountability Office:
GAO: 

Report to Congressional Committees: 

June 2011: 

American Samoa and Commonwealth Of The Northern Mariana Islands: 

Employment, Earnings, and Status of Key Industries Since Minimum Wage 
Increases Began: 

GAO-11-427: 

GAO Highlights: 

Highlights of GAO-11-427, a report to congressional committees. 

Why GAO Did This Study: 

In 2007, the United States enacted a law incrementally raising the 
minimum wages in American Samoa and the Commonwealth of the Northern 
Mariana Islands (CNMI) until they equal the U.S. minimum wage. 
American Samoa’s minimum wage increased by $.50 three times, and the 
CNMI’s four times before legislation delayed the increases, providing 
for no increase in American Samoa in 2010 or 2011 and none in the CNMI 
in 2011. As scheduled, American Samoa’s minimum wage will equal the 
current U.S. minimum wage of $7.25 in 2018, and the CNMI’s will reach 
it in 2016. Recent economic declines in both areas reflect the closure 
of one of two tuna canneries in American Samoa and the departure of 
the garment industry in the CNMI. 

GAO is required to report in 2010, 2011, 2013, and biennially 
thereafter on the impact of the minimum wage increases. This report 
updates GAO’s 2010 report and describes, since the increases began, 
(1) employment and earnings, and (2) the status of key industries. GAO 
reviewed federal and local information; collected data from employers 
through a questionnaire and from employers and workers through 
discussion groups; and conducted interviews during visits to each area. 

GAO shared the report with relevant federal agencies and the 
governments of American Samoa and the CNMI. While generally agreeing 
with the findings, they raised a number of technical concerns that 
have been incorporated as appropriate. 

What GAO Found: 

In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 
percent from 2006 to 2009. Data for 2010 total employment are not 
available. GAO questionnaire responses show that tuna canning 
employment fell 55 percent from 2009 to 2010, reflecting the closure 
of one cannery and layoffs in the remaining cannery. Average inflation-
adjusted earnings fell by 5 percent from 2008 to 2009 and by 11 
percent from 2006 to 2009; however, the hourly wage of minimum wage 
workers who remained employed increased by significantly more than 
inflation. Private sector officials said the minimum wage was one of a 
number of factors making business difficult. In the tuna canning 
industry, future minimum wage increases would affect the wages of 99 
percent of hourly-wage workers employed by the two employers included 
in GAO’s questionnaire. The employers reported taking cost-cutting 
actions from June 2009 to June 2010, including laying off workers and 
freezing hiring. The employers attributed most of these actions 
largely to the minimum wage increases. Cannery officials expressed 
concern in interviews about American Samoa’s dwindling global 
competitive advantage. Available data suggest that relocating tuna 
canning operations to a tariff-free country with lower labor costs 
would significantly reduce operating costs but reduce American Samoa 
jobs; however, maintaining some operations in American Samoa would 
allow continued competition for U.S. government contracts. Some 
workers said they were disappointed by the 2010 minimum wage increase 
delay; however, more workers expressed concern over job security than 
favored a wage increase with potential for layoffs. 

In the CNMI, employment fell 13 percent from 2008 to 2009 and 35 
percent from 2006 to 2009. Average inflation-adjusted earnings rose by 
3 percent from 2008 to 2009 and remained largely unchanged from 2006 
to 2009. Over the same periods, the hourly wage of minimum wage 
workers who remained employed increased by significantly more than 
inflation. In discussion groups, private sector employers said minimum 
wage increases imposed additional costs during a time in which 
multiple factors made it difficult to operate. In the tourism 
industry, scheduled minimum wage increases through 2016 would affect 
95 percent of workers employed by questionnaire respondents. Tourism 
employers reported that they took cost-cutting actions from June 2009 
to June 2010 and planned to take additional actions, including laying 
off workers. Few of these tourism employers attributed past actions 
largely to the minimum wage increases, and one half or less did so for 
each of the planned actions. Available data suggest that hotels 
generally absorbed minimum wage costs rather than raise room rates. 
Hotel payroll will represent an increasing share of total operating 
costs due to the minimum wage increases. In discussion groups, some 
tourism employers expressed concern about the minimum wage increases, 
but others said the increases were needed and manageable and that the 
primary difficulty was the CNMI tourism industry’s decline. Workers 
participating in GAO’s CNMI discussion groups expressed mixed views 
regarding the minimum wage increases and said they would like pay 
increases but were concerned about losing jobs and work hours. 

View [hyperlink, http://www.gao.gov/products/GAO-11-427] or key 
components. For more information, contact David Gootnick at (202) 512-
3149 or gootnickd@gao.gov. 

[End of section] 

Contents: 

Letter: 

American Samoa Employment, Earnings, and Status of Key Industries: 

CNMI Employment, Earnings, and Status of Key Industries: 

Concluding Observations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Background: 

Appendix III: American Samoa: 

Appendix IV: CNMI: 

Appendix V: GAO Questionnaire Used in Report: 

Appendix VI: Comments from the Department of Commerce: 

Appendix VII: Comments from the American Samoa Government: 

Appendix VIII: Comments from the Commonwealth of the Northern Mariana 
Islands Government: 

Appendix IX: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Research Methods and Scope and Limitations: 

Table 2: American Samoa Key Findings: 

Table 3: CNMI Key Findings: 

Table 4: American Samoa Scheduled Minimum Wage Increases for Tuna 
Canning Industry Workers and for Workers Paid the Lowest Minimum Wage: 

Table 5: CNMI Scheduled Minimum Wage Increases: 

Table 6: Median Wages for Hourly-wage Workers in the American Samoa 
Tuna Canning Industry, June 2007 to June 2010: 

Table 7: Distribution and Increased Annual Cost Since June 2010 per 
Hourly-wage Worker in American Samoa Tuna Canning Industry Due to 
Minimum Wage Increases: 

Table 8: Median Wages for Hourly-wage Workers in the CNMI Tourism 
Industry, June 2007 to June 2010: 

Table 9: Distribution and Increased Annual Cost Since June 2010 per 
Hourly-wage CNMI Tourism Worker Due to Minimum Wage Increases: 

Table 10: CNMI Hotel Occupancy and Room Rates, 2006 through 2010: 

Figures: 

Figure 1: Map of American Samoa: 

Figure 2: American Samoa Government Revenues and Expenditures, 
Excluding Component Units, 2005-2009: 

Figure 3: Citizenship Status of American Samoa Population, 1980-2005: 

Figure 4: American Samoa Tuna Exports to the United States, 1997-2010: 

Figure 5: Map of the CNMI: 

Figure 6: CNMI Government Revenues and Expenditures, Excluding 
Component Units, 2005-2009: 

Figure 7: CNMI Textile Exports to the United States, 1997-2010: 

Figure 8: CNMI Visitor Arrivals, 1990-2010: 

Figure 9: Citizenship Status of CNMI Population, 1980-2005: 

Figure 10: American Samoa Employment Based on SSA Data, 2006 through 
2009: 

Figure 11: American Samoa Average Nominal and Inflation-Adjusted 
Earnings Based on SSA Data, 2006 through 2009: 

Figure 12: Changes in Wages of Hourly-wage Workers Employed by 
American Samoa Tuna Canning Questionnaire Respondents: 

Figure 13: Comparison of Estimated Wage and Tariff Costs for Tuna 
Canneries Using Alternate Business Models: 

Figure 14: CNMI Employment Based on CNMI Government Tax Data, 2006 
through 2009: 

Figure 15: CNMI Average Nominal and Inflation-Adjusted Earnings Based 
on CNMI Government Tax Data, 2006 through 2009: 

Figure 16: Changes in Wages of Hourly-wage Workers Employed by CNMI 
Hotel and Other Tourism Questionnaire Respondents: 

Figure 17: Total CNMI Visitor Arrivals and Flight Seats Available, 
Fiscal Years 2005 to 2010: 

Figure 18: Estimated Average Impact of Minimum Wage Increases on CNMI 
Hotels' Payroll Costs in 2010 and 2016, Relative to Average Payroll 
and Other Costs in 2009: 

Abbreviations: 

BEA: Bureau of Economic Analysis: 

CNMI: Commonwealth of the Northern Mariana Islands: 

CPI: Consumer Price Index: 

DHS: U.S. Department of Homeland Security: 

DOC: U.S. Department of Commerce: 

DOI: U.S. Department of the Interior: 

DOL: U.S. Department of Labor: 

FICA: Federal Insurance Contributions Act: 

FLSA: Fair Labor Standards Act of 1938: 

GDP: gross domestic product: 

HIES: Household, Income, and Expenditures Survey: 

SSA: Social Security Administration: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 23, 2011: 

Congressional Committees: 

In 2007, the United States enacted legislation that incrementally 
applies the U.S. minimum wage to the U.S. insular areas of American 
Samoa and the Commonwealth of the Northern Mariana Islands (CNMI). 
[Footnote 1] The legislation raised the federal minimum wage in the 
U.S. 50 states from $5.15 to $7.25 per hour over 3 years and, for the 
first time, also mandated a series of $.50 per hour increases to the 
minimum wages in both American Samoa and CNMI, beginning in July 2007, 
that would bring them to parity with the federal minimum wage. 
[Footnote 2] In 2010, the United States enacted a law delaying the 
scheduled minimum wage increases in both areas, providing for no 
increase in American Samoa in 2010 or 2011, and no increase in the 
CNMI in 2011.[Footnote 3] To date since 2007, the minimum wages in 
American Samoa have increased by $.50 three times, with the minimum 
wage of the lowest paid workers now set at $4.18 and the minimum wage 
of workers in the tuna canning industry set at $4.76. Over the same 
period, the CNMI minimum wage has increased by $.50 four times, to 
$5.05. Under current law, the minimum wage for American Samoa's lowest 
paid workers will reach the federal minimum wage of $7.25 in 2018; in 
the CNMI, this is set to occur in 2016. 

The United States first adopted a federal minimum wage with passage of 
the Fair Labor Standards Act of 1938 (FLSA). The FLSA states that its 
goal is to eliminate labor conditions that hurt workers' health, 
efficiency, and general well-being, noting that this should be 
achieved both as rapidly as feasible and without substantially 
curtailing employment or earning power.[Footnote 4] The 2007 
legislation changed decades of federal law that had allowed both 
American Samoa and the CNMI to apply minimum wage rates significantly 
lower than the minimum wage for the U.S. 50 states. American Samoa's 
minimum wage was set for each of 18 industries by the U.S. Department 
of Labor (DOL) under biennial reviews, and its minimum wages in 2006 
ranged from $2.68 to $4.09. The CNMI had authority to set its own 
minimum wage under its 1976 Covenant with the United States, and its 
minimum wage in 2006 was $3.05. Public and private sector officials 
and workers in both areas have expressed concern about the impact of 
the federal minimum wage increases on the local economies. 

Since our last report in April 2010,[Footnote 5] the economies of both 
American Samoa and the CNMI have continued to face major challenges, 
and economic indicators show decline. Both governments face budget 
shortfalls, with local spending exceeding revenues in most recent 
years, and they have reduced the work hours of government employees 
and taken other steps to reduce the shortfalls. Studies funded by the 
U.S. Department of the Interior (DOI) have projected major additional 
contraction of the two economies.[Footnote 6] American Samoa's private 
sector economy is largely based on the tuna canning industry, and the 
closure of one of its two tuna canneries in September 2009 
significantly affected the labor market and economy. The recent 
purchase of the closed facility by another company may provide 
additional jobs, but operations planned in the short-term are more 
limited than those before the facility closed. Before the first 
minimum wage increase in 2007, about one-third of workers in American 
Samoa were employed by the two canneries, and more than three-quarters 
of cannery employees were foreign workers from neighboring Samoa, an 
independent country. The CNMI's economy has been strongly affected by 
the departure of its garment industry and decline in its tourism 
industry. Until recently, the garment industry was central to the CNMI 
economy and employed close to a third of all workers; however, by 
early 2009, the last garment factory had closed. Both American Samoa 
and the CNMI have tried to develop new industries, including through 
initiatives funded by the U.S. government, but they have had 
difficulty attracting additional investment. The CNMI also faces 
uncertainty due to the application of U.S. immigration law to the 
commonwealth, ending decades of the CNMI's control over its own 
immigration system.[Footnote 7] U.S. law established federal control 
of CNMI immigration on November 28, 2009,[Footnote 8] with provisions 
affecting employers' access to foreign workers.[Footnote 9] In 2005, 
foreign workers represented a majority of the CNMI labor force and 
outnumbered U.S. citizens in most industries. 

The American Recovery and Reinvestment Act of 2009 required that GAO 
report annually on the impact of minimum wage increases in American 
Samoa and the CNMI. In 2010, Congress changed the GAO reporting 
requirement to 2011, 2013, and every 2 years thereafter until the 
minimum wage in the respective territory meets the federal minimum 
wage.[Footnote 10] 

In our April 2010 report,[Footnote 11] we found that before the first 
minimum wage increase in July 2007, 37 percent of all workers and 
about three-quarters of private sector workers employed by American 
Samoa questionnaire respondents earned wages close enough to the 
minimum wage to be directly affected by the first increase.[Footnote 
12] In the CNMI, 18 percent of all workers and about a third of 
private sector workers were directly affected by the first increase. 
For both areas, we found that most private sector workers would be 
directly affected by the increases once the minimum wage reached 
$7.25. In contrast, according to Bureau of Labor Statistics estimates, 
in 2006 approximately 2.2 percent of all hourly workers in the U.S. 
states earned the federal minimum wage of $5.15 or less. Among other 
findings, we also found that employment had very likely declined in 
both areas, largely due to the loss of one of two tuna canneries in 
American Samoa and of the entire garment industry in the CNMI. 

This report updates our 2010 report with an additional year of 
information and describes, since the minimum wage increases began, (1) 
employment and earnings, and (2) the status of key industries. 

In preparing this report, we reviewed and analyzed existing 
information from federal sources and from the American Samoa and CNMI 
local governments. In addition, because key federal sources of data on 
the U.S. labor market do not cover the insular areas, we collected our 
own data in each area. See table 1 for the methods we used and the 
scope and limitations of our work. 

Table 1: Research Methods and Scope and Limitations: 

Sources: Federal agencies;
Methods: 
* The federal sources generally used to generate data on wages, 
occupations, and employment status for the United States, including 
the Current Population Survey and the Current Employment Statistics 
program, do not cover these insular areas,[A] so we identified and 
used other sources of data;
* We obtained 2009 Social Security Administration (SSA) data on the 
earnings and employment of individual taxpayers in American Samoa and 
the CNMI, to update our analysis of data for 2005 to 2008 in the 
previous report;
* We interviewed officials from the U.S. Department of Commerce (DOC), 
DOI, and DOL and from SSA;
* We reviewed relevant reports and data from DOL and other U.S. 
government sources;
* We reviewed U.S. minimum wage laws and other relevant laws and 
regulations;
Scope and limitations: 
* The SSA data cover all types of workers in American Samoa and were 
sufficiently reliable for our purposes, but they exclude CNMI workers 
who are not subject to SSA withholding taxes, such as CNMI government 
employees and some foreign workers.[B] We have chosen not to report 
the CNMI SSA data because of these coverage gaps;
* We did not focus on the extent to which laws were properly enforced 
or implemented, although we considered enforcement, as appropriate. 

Sources: Governments of American Samoa and the CNMI;
Methods: 
* The U.S. Bureau of Labor Statistics collects Consumer Price Index 
data on the U.S. 50 states but not the insular areas. Therefore, we 
relied on other sources of data to compare changes in earnings and 
wage rates to changes in prices;
* We analyzed American Samoa administrative and survey data, including 
Consumer Price Index data;
* We analyzed available CNMI administrative and survey data, including 
Consumer Price Index data for both American Samoa and the CNMI and 
CNMI data on the number and earnings of workers from the CNMI 
Department of Finance's tax returns. The CNMI tax data provide ranges 
of earnings for both public and private sector workers and for both 
citizens and noncitizens in 2009, updating our analysis of data for 
2005 to 2008;
* We analyzed data on federally funded income-based programs 
administered by the insular area governments;
Scope and limitations: The scope of our study does not include workers 
in the underground economy[C]. 

Sources: GAO questionnaires and site visits;
Methods: 
* In American Samoa and the CNMI in 2010, we collected updated data on 
employment, wage structure, past and planned employer actions, and 
related topics covering 2009 and 2010 from employers in key industries 
who had responded to our 2009 questionnaire.[D] We weighted employers' 
responses by the number of workers they employ;
* During visits to American Samoa and the CNMI in October 2010, we 
conducted interviews and discussion groups with government officials, 
employers in a range of industries and sizes, other private sector 
representatives, workers, and community members. We also established e-
mail accounts to obtain comments from the public;
Scope and limitations: 
* Questionnaire responses are limited to the American Samoa tuna 
canning industry and the CNMI tourism industry and are not 
representative of all workers and employers in each industry or each 
area;
* Results of discussion groups are not representative of all workers 
and employers in each industry or area. 

Source: GAO. 

[A] The Office of Insular Affairs of DOI has provided technical 
assistance to American Samoa and the CNMI to help with data 
collection, including funding for the 2005 Household, Income, and 
Expenditures Surveys (HIES) and past surveys. However, this assistance 
has not generated the scope of data collected by federal sources for 
the United States more generally. Although the U.S. Decennial Census 
collects data on employment status in American Samoa and the CNMI, 
Decennial Census data from 2010 were not available for our review. 

[B] The SSA data do not cover CNMI government employees and foreign 
workers from the Philippines and South Korea. 

[C] The underground economy would include any employers that may not 
comply with laws, including tax, minimum wage, immigration, and other 
laws. We did not review compliance with laws as part of this study. 

[D] In 2010, both of the American Samoa employers that received our 
questionnaire provided responses, including the one tuna cannery and a 
closely related business that manufactures and supplies cans. Ninety- 
two percent of CNMI questionnaire recipients (12 of 13, with one 
additional recipient having closed) responded, and respondents 
included hotels and other employers in the tourism sector, such as 
tour operators. In 2009, we collected detailed data from large 
employers--those with at least 50 employees--through a questionnaire 
that covered 2006 to 2009. 

[End of table] 

Our review had certain limitations in addition to those already noted. 
In particular, although our approach yielded information on trends in 
employment, wages, and earnings in both areas, it is difficult to 
distinguish between the effects of minimum wage increases and the 
effects of other factors, including the global recession beginning in 
2009, fluctuations in energy prices, global trade liberalization, and 
the application of U.S. immigration law to the CNMI. We conducted our 
work from September 2010 to June 2011 in accordance with all sections 
of GAO's Quality Assurance Framework that are relevant to our 
objectives. The framework requires that we plan and perform the 
engagement to obtain sufficient and appropriate evidence to meet our 
stated objectives and to discuss any limitations in our work. We 
believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for the findings in this 
product. See appendix I for further details of our methodology, 
appendix II for additional background, and appendix V for our 
questionnaire. 

American Samoa Employment, Earnings, and Status of Key Industries: 

American Samoa Employment Fell Sharply in 2008-2009, and Employment 
and Average Inflation-Adjusted Earnings Were Lower than in 2006: 

* Employment. Social Security Administration (SSA) data show that from 
2008 to 2009, the total number of people employed in American Samoa 
declined 19 percent (from 19,171 to 15,434) and that over the entire 
period from 2006 to 2009, employment declined 14 percent (from 17,852 
to 15,434, with a peak of 19,171 in 2008). Data from 2010 on total 
employment are not yet available. Questionnaire responses from the 
tuna canning industry show that employment of their workers--most of 
whom are foreign workers from independent Samoa--dropped by 55 percent 
from 2009 to 2010, reflecting the September 2009 closure of one 
cannery and layoffs in the remaining cannery.[Footnote 13] In 
addition, we estimated that from 2,000 to 3,000 temporary federal jobs 
funded beginning in June 2009 will end when federal funding is no 
longer available.[Footnote 14] Private sector officials said minimum 
wage was one of a number of factors, including the high cost of goods 
and utilities, making it difficult to do business in American Samoa. 
American Samoa government data show the minimum wage increases would 
raise government payroll costs for its employees by about 1 percent 
(about $9 million) over 7 years, and the American Samoa governor and 
other public officials said they supported a return to biennial 
reviews of minimum wage in American Samoa or other alternatives to the 
scheduled increases.[Footnote 15] 

* Inflation-adjusted earnings of those employed. Earnings data from 
SSA and consumer price data show that from 2008 to 2009, average 
inflation-adjusted earnings of those employed fell by 5 percent. This 
resulted from a decrease in average earnings of 2 percent, and an 
increase in prices of 3 percent. For the period from 2006 to 2009, 
average inflation-adjusted earnings fell by 11 percent. This resulted 
from a rise in average annual earnings of about 5 percent while local 
prices rose by about 18 percent. Although earnings data do not allow 
for a direct comparison of average and minimum wage annual earnings or 
for tracking the earnings of workers who lost their jobs, the hourly 
wage of minimum wage workers increased by more than inflation. The 
inflation-adjusted earnings of minimum wage cannery workers who 
retained their jobs and work hours rose by about 8 percent from 2008 
to 2009 and by about 23 percent for the entire period from 2006 to 
2009. 

The American Samoa Tuna Canning Industry Has Continued to Lay Off 
Workers and Has Considered Alternate Locations: 

* Tuna canning wages. Without a minimum wage increase in American 
Samoa in 2010, there was no increase in the median wage of tuna 
canning workers--in both 2009 and 2010, the median tuna canning worker 
wage was $4.76. Consistent with our last report, from 2007 to 2010, 
the median wage among workers in the tuna canning industry employed by 
questionnaire respondents rose by $1.46 (44 percent). Based on 
questionnaire responses about workers' wages as of June 2010, the 
future minimum wage increases would affect the wages of 99 percent of 
current workers in the tuna canning industry by the time the minimum 
wage reaches $7.25, increasing the average annual cost per worker in 
2016 by $4,660 since June 2010.[Footnote 16] 

* Tuna canning employer actions. The two employers in the tuna canning 
industry reported in our questionnaire that they had taken cost-
cutting actions from June 2009 to June 2010, including laying off 
workers, reducing overtime hours, freezing hiring, decreasing 
benefits, temporarily closing, reducing operating capacity or 
services, and raising prices, among other actions. They reported plans 
to take the same types of cost-cutting actions by early 2012, 
including laying off additional employees. They attributed most of 
their past and planned actions largely to the minimum wage increases 
and did so more often than they attributed their actions largely to 
some other factors, such as transportation and shipping costs and 
changes in business taxes and fees. However, they said a decrease in 
the number of customers, such as wholesale customers, was another 
important factor affecting their actions. 

* Tuna canning industry analysis. In addition to the minimum wage 
increases, cannery officials also expressed concern about American 
Samoa's dwindling competitive advantage in the global tuna canning 
industry and said that current operations in American Samoa were not 
competitive with other models. Analysis of alternate models available 
to the industry suggests that moving tuna cannery operations--
including unloading, loining (cleaning, cooking, and cutting), and 
canning fish--from American Samoa to another tariff-free country with 
lower labor costs would significantly reduce cannery operating costs. 
However, given that tuna facilities in American Samoa are among few in 
the United States that can meet the requirements of U.S. government 
contracts, many of which require U.S.-sourced and processed fish, 
maintaining some operations in American Samoa would allow the facility 
to continue to compete for these contracts. Despite the advantages of 
moving some operations to other countries, the remaining cannery's 
lease obligation through 2013 and the cost of building new facilities 
elsewhere may pose obstacles to near-term relocation. In addition, a 
new tuna facility operator has hired a small number of workers 
formerly employed by the cannery that closed, but it is unclear how 
many additional workers they will hire. 

* Tuna canning and other worker views. Some workers said they had 
looked forward to the 2010 minimum wage increase and were disappointed 
to see the increase delayed. However, more workers, particularly tuna 
canning workers, expressed concern over job security than favored a 
minimum wage increase with the potential for subsequent layoffs. 

See table 2 for key findings and appendix III for detailed findings 
and tables on American Samoa. 

Table 2: American Samoa Key Findings: 

Employment. 

All sectors: Percentage change in numbers employed, 2008-2009: 
19 percent decrease,[A] as well as direct loss of 2,000 jobs due to 
September 2009 cannery closure; full extent of employment change from 
loss of cannery unknown[B]. 

All sectors: Percentage change in numbers employed, 2006-2009: 
14 percent decrease[A]. 

Tuna canning industry: Percentage change in numbers employed, 2009- 
2010: 
55 percent decrease[C]. 

Tuna canning industry: Percentage change in numbers employed, 2007- 
2010: 
59 percent decrease[C]. 

Inflation-adjusted earnings: 

Percentage change in average inflation-adjusted earnings of those 
employed, 2008-2009: 
5 percent decrease[A,D]. 

Percentage change in average inflation-adjusted earnings of those 
employed, 2006-2009: 
11 percent decrease[A,D]. 

Estimated percentage change in inflation-adjusted earnings of minimum 
wage cannery earners who kept employment and work hours, 2008-2009: 
8 percent increase[B,D]. 

Estimated percentage change in inflation-adjusted earnings of minimum 
wage cannery earners who kept employment and work hours, 2006-2009: 
23 percent increase[B,D]. 

Tuna canning wages: 

Percentage of hourly-wage tuna canning workers employed by 
questionnaire respondents in 2010 with wages affected by the May 2009 
minimum wage increase: 
69 percent[C]. 

Percentage of hourly-wage tuna canning workers employed by 
questionnaire respondents in 2010 who would be affected by minimum 
wage increases through 2016 (when tuna canning minimum wage reaches 
$7.25): 
99 percent[C]. 

Tuna canning employer actions: 

Tuna canning employers that laid off workers from 2009 to 2010 and 
attribution to past minimum wage increases: 
* The two employers in the tuna canning industry reported laying off 
hourly-wage workers; 
* Employers attributed most of their actions largely to the past 
minimum wage increases[C]. 

Tuna canning employers that planned to lay off additional workers by 
early 2012 and attribution to the minimum wage increases: 
* The two employers in the tuna canning industry planned additional 
layoffs of hourly-wage workers; 
* Employers attributed most of their planned actions largely to the 
minimum wage increases[C]. 

Tuna canning and other worker views: 

More workers, particularly tuna canning workers, expressed concern 
over job security than favored a minimum wage increase with the 
potential for subsequent layoffs[E]. 

Source: GAO analysis of data from GAO tuna canning industry 
questionnaire, SSA, Consumer Price Index, and GAO discussion groups. 

Notes: Employers responding to GAO's first questionnaire in 2009 
included the two tuna canning employers, as well as other employers 
with 50 or more employees. Questionnaire updates in 2010 covered the 
two tuna canning employers and excluded employers in other industries, 
smaller employers, and employers that had closed between 2007 and the 
date of our questionnaire. Based on U.S. Economic Census data, our 
respondents represented about 17 percent of the American Samoa private 
sector workforce in 2007. In addition, they represented about 100 
percent of the tuna canning-related workforce. American Samoa 
questionnaire respondents provided hourly wage data on a total of 
1,869 workers as of June 2010. Responses are not necessarily 
representative of all American Samoa workers and employers. Because 
one respondent covered a large percentage of workers employed by the 
two questionnaire respondents, these employers' responses 
significantly affected reported questionnaire data. 

[A] GAO analysis of SSA data. 

[B] GAO estimate. 

[C] GAO analysis of responses to GAO's American Samoa tuna canning 
employer questionnaire. 

[D] GAO analysis of Consumer Price Index data. 

[E] GAO analysis of American Samoa discussion group results. 

[End of table] 

CNMI Employment, Earnings, and Status of Key Industries: 

CNMI Employment Fell in 2008-2009 and Has Decreased Substantially 
since 2006, and Average Inflation-Adjusted Earnings Have Remained 
Largely Unchanged: 

* Employment. From 2008 to 2009, the total number of people employed 
fell by about 13 percent, according to CNMI government tax data. For 
the entire period from 2006 to 2009, the number employed fell 35 
percent. The decrease largely reflected the early 2009 closure of the 
CNMI's last remaining garment factories, which employed many foreign 
workers.[Footnote 17] In addition, we estimated that less than 1,000 
temporary federal jobs funded beginning in June 2009 will end when 
federal funding is no longer available.[Footnote 18] In the tourism 
industry, employment among GAO questionnaire respondents fell 8 
percent from 2009 to 2010 and fell 14 percent over the entire period 
from 2007 to 2010. Private sector employers reported in discussion 
groups some layoffs and hiring freezes, and they said minimum wage 
increases imposed additional costs during a time in which multiple 
factors made it difficult to operate. They also expressed concerns 
about the departure of the garment industry, decline of the tourism 
industry, population loss, and changes to immigration law. According 
to CNMI government payroll data, about 17 percent of government 
workers are paid at or below $7.25 and would be affected by the 
minimum wage increases by 2016. 

* Inflation-adjusted earnings of those employed. From 2008 to 2009, 
based on CNMI government tax data and consumer price data, inflation- 
adjusted average earnings of those employed rose by 3 percent. This 
resulted from a 7 percent increase in average earnings, with a 3.5 
percent increase in prices. Over the entire period from 2006 to 2009, 
average inflation-adjusted earnings remained largely unchanged, with a 
slight drop of .5 percent. This resulted from a 19 percent increase in 
average earnings and a 19.5 percent increase in prices. Although 
earnings data do not allow for a direct comparison of average and 
minimum wage annual earnings or for tracking the earnings of workers 
who lost their jobs, the hourly wage of minimum wage workers increased 
by more than inflation. The inflation-adjusted earnings of minimum 
wage workers who retained their jobs and work hours rose by about 9 
percent from 2008 to 2009, and by about 25 percent for the entire 
period from 2006 to 2009. 

The CNMI Tourism Industry Has Experienced Declines in Visitor 
Arrivals, and Hotels Have Absorbed Minimum Wage Increases Rather than 
Raising Room Rates: 

* Tourism wages. From June 2007 to 2010, a period that included three 
minimum wage increases, the median wage among workers employed by CNMI 
tourism industry questionnaire respondents rose by 95 cents (26 
percent). In addition, in the tourism industry, the 2007 through 2010 
wage increases narrowed the wage gap between the lowest and highest 
paid employees of questionnaire respondents by 52 percent. Employers 
said in interviews that the wage compression had lowered morale for 
more senior employees. Based on questionnaire responses about workers' 
wages as of June 2010, the future minimum wage increases would affect 
the wages of 95 percent of current workers in the CNMI tourism 
industry by the time the minimum wage reaches the U.S. minimum wage of 
$7.25, increasing the average annual cost per worker in 2016 by $4,707 
since June 2010.[Footnote 19] 

* Tourism employer actions. Hotel and other employers in the CNMI 
tourism industry responding to our questionnaire reported having taken 
cost-cutting actions from June 2009 to June 2010, including reducing 
hours, freezing hiring, decreasing benefits, and raising prices of 
goods or services. Employers also reported plans to take the same 
types of cost-cutting actions by early 2012, as well as laying off 
workers. Few employers--weighted by numbers of employees--attributed 
their past actions largely to the minimum wage increases, and one half 
or less did so for each of the planned actions. Employers noted other 
factors, including changes in immigration law and a decrease in the 
number of customers, that largely contributed to their actions. 

* Hotel industry analysis. Due to competition from other vacation 
destinations and to declining visitor arrivals, CNMI hotels have 
generally absorbed minimum wage costs rather than raise room rates. 
Both visitor arrivals and flight seats available to the CNMI declined 
from 2005 to 2010, and the greatest declines in both by country were 
from Japan--the CNMI's largest tourism market. Industry data show that 
since 2006 the hotel occupancy rate has remained between 58 and 64 
percent, while inflation-adjusted room rates declined by about 12 
percent from 2006 to 2009. If observed trends continue, scheduled 
minimum wage increases will increase the share of hotels' total 
operating costs attributable to payroll from approximately 29 percent 
of operating costs in 2010 (with minimum wage increases representing 
about 1 percent of total operating costs) to 34 percent in 2016 (with 
minimum wage increases representing about 8 percent of the total). In 
discussion groups, some hotel and other tourism employers and managers 
expressed concern about the minimum wage increases, but others said 
the minimum wage increases were needed and manageable and that the 
primary difficulty was the CNMI tourism industry's general decline. 

* Tourism and other worker views. Workers participating in our CNMI 
discussion groups expressed mixed views regarding the minimum wage 
increases and said they would like pay increases but were concerned 
about losing jobs and work hours. Participants said they wanted to 
receive the pay increases to help meet rising prices, including for 
utilities and consumer goods. However, they said they had observed 
that while some workers received pay increases, others lost jobs or 
work hours. 

See table 3 for key findings and appendix IV for detailed findings and 
tables on the CNMI. 

Table 3: CNMI Key Findings: 

Employment: 

All sectors: percentage change in numbers employed, 2008-2009: 
13 percent decrease[A]. 

All sectors: percentage change in numbers employed, 2006-2009: 
35 percent decrease[A]. 

Tourism industry: percentage change in numbers employed by 
questionnaire respondents, 2009-2010: 
8 percent decrease[B]. 

Tourism industry: percentage change in numbers employed by 
questionnaire respondents, 2007-2010: 
14 percent decrease[B]. 

Inflation-adjusted earnings: 

Percentage change in average inflation-adjusted earnings of those 
employed, 2008-2009: 
3 percent increase[A,C]. 

Percentage change in average inflation-adjusted earnings of those 
employed, 2006-2009: 
0.5 percent decrease[A,C]. 

Estimated percentage change in inflation-adjusted earnings of minimum 
wage earners who kept employment and work hours, 2008-2009: 
9 percent increase[D]. 

Estimated percentage change in inflation-adjusted earnings of minimum 
wage earners who kept employment and work hours, 2006-2009: 
25 percent increase[D]. 

Tourism industry wages: 

Percentage of hourly-wage tourism workers employed by questionnaire 
respondents in 2010 with wages affected by September 2010 minimum wage 
increase: 
73 percent[B]. 

Percentage of hourly-wage tourism workers employed by questionnaire 
respondents in 2010 who would be affected by minimum wage increases 
through 2016 (when minimum wage reaches $7.25): 
95 percent[B]. 

Tourism employer actions: 

Percentage of tourism employers that laid off hourly workers from 2009 
to 2010 and percentage of those employers that attributed the action 
largely to the minimum wage increases (weighted by numbers of workers): 
* Employers representing 3 percent of workers employed by 
questionnaire respondents laid off hourly-wage workers; 
* Of those, none attributed layoffs largely to the minimum wage 
increases[B]. 

Percentage of tourism employers that planned to lay off additional 
workers by early 2012 and percentage of those employers that 
attributed the planned action largely to the minimum wage increases 
(weighted by numbers of workers): 
* Employers representing 62 percent of workers employed by private 
sector questionnaire respondents planned additional layoffs of hourly-
wage workers; 
* Of those, none attributed their plans largely to the minimum wage 
increases[B]. 

Tourism and other worker views: 

CNMI workers said they would like pay increases but were concerned 
about losing jobs and work hours[E]. 

Source: GAO analysis of data from GAO tourism industry questionnaire, 
CNMI government, Consumer Price Index, and GAO discussion groups. 

Notes: Employers responding to GAO's first questionnaire in 2009 
included hotels and other tourism-related employers, as well as other 
employers with 50 or more employees. Questionnaire updates in 2010 
covered hotels and other tourism-related employers and excluded 
employers in other industries, smaller employers, employers that did 
not respond to the 2009 questionnaire, and employers that had closed 
between 2007 and the date of our questionnaire, including garment 
factories. Based on 2007 U.S. Economic Census data, respondents 
represented about 8 percent of the total CNMI private sector workforce 
and hotels represented 48 percent of the accommodation workforce. CNMI 
questionnaire respondents provided hourly wage data on a total of 
1,567 workers as of June 2010. Responses are not necessarily 
representative of all CNMI workers and employers. Percentages of 
employers reporting actions are weighted by each employer's total 
number of workers in 2009. Percentages of employers that attributed 
each action largely to minimum wage increases are weighted to reflect 
those employers' number of workers relative to all workers employed by 
respondents that reported the action. 

[A] Based on CNMI tax data. 

[B] Based on responses to GAO's CNMI tourism industry questionnaire. 

[C] Based on analysis of Consumer Price Index data. 

[D] Based on GAO estimate. 

[E] Based on discussion group results. 

[End of table] 

Concluding Observations: 

Since the minimum wage increases began in 2007, both American Samoa 
and the CNMI have experienced substantial decreases in employment, 
largely resulting from the loss of one of two tuna canneries in 
American Samoa and, in the CNMI, loss of the garment industry. The 
local economies of both these insular areas differ from the U.S. 
economy in a number of ways, including that the percentage of workers 
paid the minimum wage is much higher than in the U.S. 50 states. 

In American Samoa, tuna canning employers responding to our 
questionnaire attributed most past actions such as layoffs, work hour 
reductions, and hiring freezes largely to the minimum wage increases. 
CNMI tourism employers responding to our questionnaire also took 
actions including reducing hours, freezing hiring, and decreasing 
benefits. Few attributed past actions and one half or less attributed 
each of the planned actions to the minimum wage increases. In both 
areas, employers in discussion groups said the minimum wage increases 
were one of multiple factors making it difficult to conduct business. 

The economic declines in American Samoa and the CNMI are substantial, 
and both areas face budget shortfalls that may threaten their ability 
to fund public services and make investments in support of future 
economic development. In addition, the expiration of federal 
assistance and temporary jobs funded through the Recovery Act and 
other programs will likely expose greater challenges. Both areas have 
tried to identify opportunities for new industries and growth, but so 
far neither has succeeded in attracting significant new investment. 
Identifying new growth opportunities and maintaining needed 
infrastructure and services in the meantime will require substantial 
effort by the private sector and by both the local and federal 
governments. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to officials in DOC, DOI, DOL, SSA, 
and in the governments of American Samoa and the CNMI for review and 
comment. We received written comments from DOC, the American Samoa 
government, and the CNMI government, which are reprinted in appendixes 
VI, VII, and VIII, respectively. We also received technical comments 
from DOI and DOL, which we incorporated as appropriate. SSA had no 
comments. We shared excerpts of the draft with several private sector 
entities and experts and incorporated their comments as appropriate. 

Following are summaries of the written comments from DOC, the American 
Samoa government, and the CNMI government, with our responses. 

* Department of Commerce. In its written comments, DOC said it 
appreciated the opportunity to provide comments, and it provided 
additional technical comments. 

* American Samoa. In its written comments, the American Samoa 
government generally agreed with our findings. However, it stated that 
employment losses and other aspects of economic decline in American 
Samoa are greater than the report suggests and constitute an economic 
depression. It stated that application of the U.S. minimum wage to 
American Samoa, pursuant to the scheduled increases mandated by 
Congress, continues to have devastating effects on American Samoa's 
economy and labor market. The American Samoa government also compared 
the economy and minimum wage increases in American Samoa to those in 
the U.S. states and concluded that the minimum wage increases caused 
severe employment decline in American Samoa. In addition, the American 
Samoa government recommended in its written comments and in a January 
2011 letter that GAO explore alternative methods for setting minimum 
wage levels in American Samoa and issue recommendations. The 
government provided several alternative methods for consideration. 
While we considered these suggestions and summarized them in the 
report, our research objectives and methodology were developed in 
response to the legislative mandate and in discussions with 
congressional requesters. These objectives and methodology were 
designed to provide sufficient information and analysis to support 
congressional deliberation on minimum wage in American Samoa and the 
CNMI. In its written comments, the American Samoa government asked GAO 
or other federal entities to consider the following recommendations: 
terminate increases in the minimum wage immediately in American Samoa; 
conduct a thorough analysis of why adverse economic effects of the 
minimum wage increases were greater in American Samoa than in the 
United States; and determine procedures for addressing minimum wage in 
American Samoa in a way that avoids future economic disasters. 
Appendix VII provides our more detailed evaluation of the American 
Samoa government's letter. 

* CNMI. In its written comments, the CNMI government said the draft 
report fairly characterized current conditions in the CNMI and stated 
that the findings were similar to those in our last report. It noted 
that CNMI businesses were struggling to survive as they faced multiple 
factors, including the contracting economy, uncertainties surrounding 
the application of U.S. immigration law, rising energy costs, and the 
global recession. It raised several questions and concerns regarding 
the report methodology. First, the CNMI government questioned that for 
some key past and future actions, such as reducing regular work hours 
and freezing hiring, no CNMI employers attributed the actions to the 
minimum wage increases. We note that, as stated in the report, we 
present the weighted percentage of employers who attributed each 
action to the minimum wage increases "to a large extent" (not those 
who attributed the action to the minimum wage increases "to a small 
extent" or "to a moderate extent"). The CNMI government cited several 
of the limitations of the tourism industry questionnaire, as described 
in this report, and recommended that the reporting method be improved 
to gather a clearer picture regarding minimum wage increases and to 
improve data integrity. However, for any questionnaire based on self-
reported data, we cannot eliminate the possibility that some 
employers' views of the minimum wage increases may have influenced 
their responses. In addition, the CNMI government stated that the 
analyses of CNMI residents' living standards should be strengthened, 
as required by congressional mandate. Although the original mandate 
(2009) specifically required us to study minimum wage effects on 
living standards, the current mandate (2010) does not. However, the 
report includes qualitative findings related to living standards based 
on discussion groups with employers and with workers, as well as 
quantitative findings on the inflation-adjusted earnings of average 
and minimum wage workers. Last, the CNMI government stated that it 
appreciated the delay in the minimum wage but was concerned about 
other factors. It recommended that this and future reports provide 
recommendations to Congress, federal agencies, and the local 
government on managing these challenges. Appendix VIII provides our 
more detailed evaluation of the CNMI government's letter. 

We are sending copies of this report to interested congressional 
committees. We also will provide copies of this report to the U.S. 
Secretaries of Commerce, the Interior, Labor, to the Commissioner of 
Social Security, and to the Governors of American Samoa and the CNMI. 
In addition, the report will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have questions about this report, please contact 
David Gootnick at (202) 512-3149 or gootnickd@gao.gov, or Tom McCool 
at (202) 512-2642 or mccoolt@gao.gov. Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in appendix IX. 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

Signed by: 

Tom McCool: 
Director, Center for Economics, Applied Research and Methods: 

List of Committees: 

The Honorable Jeff Bingaman: 
Chairman: 
The Honorable Lisa Murkowski: 
Ranking Member: 
Committee on Energy and Natural Resources: 
United States Senate: 

The Honorable Tom Harkin: 
Chairman: 
The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable John P. Kline: 
Chairman: 
The Honorable George Miller: 
Ranking Member: 
Committee on Education and the Workforce: 
House of Representatives: 

The Honorable Barbara Mikulski: 
Chairwoman: 
The Honorable Kay Bailey Hutchison: 
Ranking Member: 
Subcommittee on Commerce, Justice, Science, and Related Agencies: 
Committee on Appropriations: 
United States Senate: 

The Honorable Jack Reed: 
Chairman: 
The Honorable Lisa Murkowski: 
Ranking Member: 
Subcommittee on Interior, Environment, and Related Agencies: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tom Harkin: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Subcommittee on Labor, Health and Human Services, Education, and 
Related Agencies: 
Committee on Appropriations: 
United States Senate: 

The Honorable Frank R. Wolf: 
Chairman: 
The Honorable Chaka Fattah: 
Ranking Member: 
Subcommittee on Commerce, Justice, Science, and Related Agencies: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Michael K. Simpson: 
Chairman: 
The Honorable James P. Moran: 
Ranking Member: 
Subcommittee on Interior, Environment, and Related Agencies: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Denny Rehberg: 
Chairman: 
The Honorable Rosa DeLauro: 
Ranking Member: 
Subcommittee on Labor, Health and Human Services, Education, and 
Related Agencies: 
Committee on Appropriations: 
House of Representatives: 

The Honorable John Fleming: 
Chairman: 
The Honorable Gregorio Kilili Camacho Sablan: 
Ranking Member: 
Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs: 
Committee on Natural Resources: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report updates our 2010 report on American Samoa and the 
Commonwealth of the Northern Mariana Islands (CNMI)[Footnote 20] with 
an additional year of information and describes, since the minimum 
wage increases began, (1) employment and earnings, and (2) the status 
of key industries. 

To describe employment and earnings, we analyzed earnings data from 
the Social Security Administration (SSA) and tax data from the CNMI 
government, and we adjusted the earnings data using Consumer Price 
Index (CPI) data for each area. We also analyzed responses from GAO's 
questionnaire of large employers in the American Samoa tuna canning 
and CNMI tourism industries. To describe the status of key industries, 
we collected responses through the industry questionnaire. For both 
objectives, we conducted discussion groups with employers and workers 
and interviews with public officials. We provide additional 
information on each data source below. 

In preparing this report, we interviewed officials from the U.S. 
Departments of the Interior (DOI), Commerce (DOC), and Labor (DOL), as 
well as from SSA. We reviewed relevant reports and data from DOL and 
other U.S. government sources. We also reviewed U.S. minimum wage laws 
and other relevant laws and regulations. We did not focus on the 
extent to which laws were properly enforced or implemented, although 
we considered enforcement as appropriate. The scope of our study also 
does not include workers in the underground economy.[Footnote 21] 

Site Visits: 

As noted previously, the federal sources generally used to generate 
data on wages, occupations, and employment status for the United 
States, including the Current Population Survey and the Current 
Employment Statistics program, do not cover these insular areas. 
[Footnote 22] 

Because these data sources were unavailable, we collected our own data 
in each area. During visits to American Samoa and the CNMI in October 
2010, we conducted interviews and discussion groups with government 
officials, employers in a range of industries and sizes, other private 
sector representatives, workers, and community members to obtain views 
and information on the minimum wage increases and related topics. In 
each area, we established e-mail accounts to obtain comments from the 
public. We also collected detailed data from large employers in the 
American Samoa tuna canning and CNMI tourism industries through a 
questionnaire, as described below. 

In American Samoa, we visited the island of Tutuila and interviewed 
officials in the Office of the Governor, the Department of Commerce, 
the Department of Human Resources, the Department of the Treasury, the 
Department of Program Planning and Budget Development, the Office of 
Samoan Affairs, the Department of Legal Affairs, and other American 
Samoa agencies. We met with officials of DOI's Office of Insular 
Affairs. We also interviewed representatives of the private sector, 
including representatives from the tuna canneries, and workers. 

In the CNMI, we visited the island of Saipan and interviewed officials 
in the Office of the Governor, the Department of Commerce, and the 
Marianas Visitors Authority. We were not able to meet with some other 
CNMI agencies, and the Office of the Governor said the officials were 
not available because they had just returned to work following a 
government shutdown. We met with officials of DOI's Office of Insular 
Affairs and of DOL. We also interviewed representatives of the private 
sector, including representatives from hotels, and workers. In 
addition, we held a phone interview with the Tinian Chamber of 
Commerce.[Footnote 23] 

Employer Questionnaire: 

In American Samoa and the CNMI in 2010, we collected updated data on 
employment, wage structure, past and planned employer actions, and 
related topics covering 2009 and 2010 from employers in key industries 
who had responded to our 2009 questionnaire. We weighted employers' 
responses by the number of workers they employed. Questionnaire 
responses are limited to the American Samoa tuna canning industry and 
the CNMI tourism industry and are not representative of all workers 
and employers in each industry or each area. 

For our 2009 questionnaire, we defined a large employer as one that 
employed 50 or more workers in recent years. The employers selected to 
receive the 2009 questionnaire comprised for-profit, not-for-profit, 
and public sector employers. We sent the questionnaire only to 
employers with 50 or more workers because we did not have sufficiently 
reliable frames from which to draw a probability sample of employers 
and because we could contact only a limited number of employers in 
each area, given available resources. By limiting our questionnaire to 
the largest employers, we were able to concentrate data collection 
efforts on those who employed a disproportionately large percentage of 
the workforce.[Footnote 24] 

In accordance with other federal employment surveys and with our 2009 
questionnaire, our 2010 large-employer questionnaire asked for wage 
data for the pay period containing June 12. The questionnaire asked 
separately for data regarding workers paid an hourly wage and workers 
paid an annual salary. The questionnaire also included detailed 
questions about changes in benefits, about employers' past and 
possible future actions, and about the extent to which employers 
attributed these actions to past and future minimum wage increases. 
(The questionnaire is reproduced in appendix V.) Because our 
questionnaire collected wage data as of June 12 of each year, the data 
do not reflect the CNMI's September 30, 2010, minimum wage increase. 

Before sending the 2009 questionnaire to employers, we pretested it 
over the phone with three employers in the CNMI and two in American 
Samoa to make sure that the questions were clear and comprehensive, 
the data were readily obtainable, and the questionnaire did not place 
an undue burden on employers.[Footnote 25] While we eliminated some 
2009 questions for the 2010 questionnaire, revisions to remaining 
questions were minor and did not require additional pretesting. 

Most employers received the questionnaire by e-mail in an attached 
Microsoft Word form that they could return electronically after 
marking checkboxes or entering responses in open-answer boxes. 
Employers returned questionnaires by e-mail, mail, or fax. 

We conducted nonresponse follow-up in person and by phone while in the 
insular areas. We also contacted nonrespondents by e-mail and phone. 
In addition, we contacted respondents to clarify responses and request 
any missing data. 

Because of the lack of data on the entire workforce, it is difficult 
to precisely state the percentage of the workforce that our 
questionnaire represents. In 2010, both of the American Samoa 
employers that received our questionnaire provided responses--
including the one remaining tuna cannery and a closely related 
business that manufactures and supplies cans--resulting in a response 
rate of 100 percent (both in terms of respondents and 
employees).[Footnote 26] Based on Social Security data, our 
respondents in 2010 represented about 12 percent of the total 
workforce in 2009. Based on U.S. Economic Census data, our respondents 
represented about 17 percent of the private sector workforce in 2007. 
In all, American Samoa questionnaire respondents provided hourly wage 
data on a total of 1,869 workers as of June 2010. 

In the CNMI, 12 of 14 employers completed the questionnaire. We 
confirmed that one employer had closed, and thus we did not count the 
employer in the final unweighted response rate of 92 percent (12 of 
13). Respondents included hotels and other employers in the tourism 
sector, such as tour operators. Based on CNMI tax data, our 
respondents represented about 6 percent of the total workforce in 
2009. Based on Economic Census data, our respondents represented about 
8 percent of the total private sector workforce in 2007. Our hotel 
respondents represented about 48 percent of workers in the CNMI 
accommodations industry, also based on Economic Census data. In all, 
CNMI questionnaire respondents provided hourly wage data on a total of 
1,576 workers as of June 2010. 

In reporting the percentages for questionnaire responses throughout 
our report, we weighted each percentage to reflect the proportion of 
workers employed by the responding employers relative to all workers 
employed by all questionnaire respondents. As a result, the responses 
of larger employers affect our findings more than those of smaller 
employers. We determined the number of employees at each employer by 
summing the number of hourly and salaried workers that employers 
reported in questionnaire responses. In addition to asking a direct 
question about number of employees, the questionnaire asked 
respondents to complete a separate table listing the number of 
employees at each wage or salary level. Separate tables were required 
for hourly wage and salaried workers. To apply the weights, we cross-
multiplied the number of employees by the employer response, then 
divided by the total number of employees in the sample. For example, 
if three of five employers attributed an action to the minimum wage to 
a moderate extent, the unweighted response would be 60 percent. 
However, if those three employers represented 300 of 400 employees, 
the weighted response that we report would be 75 percent. 

For our analyses of the effect of minimum wage increases, we obtained 
information on earnings and employment for both hourly wage and 
salaried workers during the pay periods that included June 12, 2010, 
from our questionnaire. We analyzed these responses in conjunction 
with data we collected from the same employers in 2009 regarding the 
pay periods that included June 12, 2007, 2008, and 2009. For hourly 
wage workers, respondents were asked to provide the number of 
employees paid at each wage rate, and the number of both regular and 
overtime hours worked during the pay period. For salaried workers, 
respondents were asked the number of full-time and part-time workers 
paid at each salary level. However, we focused on the effect of 
minimum wage increases on hourly wage workers. Hourly wage workers 
represented about 98 percent of American Samoan workers and 90 percent 
of workers in the CNMI. One employer, which represented fewer than 20 
employees, did not provide complete information on the distribution of 
hourly wage employees and so was excluded from analyses requiring that 
information. To determine the number of workers affected by each 
minimum wage increase, we assumed that all workers employed by 
questionnaire respondents were legally required to receive the minimum 
wage. If some are not covered or are exempt, the minimum wage 
increases would affect fewer workers. 

After recording the questionnaire data, we verified all keypunched 
records by comparing them with the corresponding questionnaires and 
corrected the errors we found. Less than 0.5 percent of the data items 
we checked had random keypunch errors that would not have been 
corrected during data processing. Analysis programs were also 
independently verified. However, we did not independently verify that 
the wage and other information provided to us was correct. 

The questionnaire responses cannot be used to make inferences about 
all employers and workers in each insular area, or about all employers 
and workers in the covered industries. First, because the lists of 
employers that received the questionnaire were intended to include 
only those in the American Samoa tuna canning and CNMI tourism 
industries who had responded to our 2009 questionnaire (with more than 
50 employees), the lists were not representative of all employers or 
of all employers in those industries. Second, we were unable to survey 
employers that had closed between 2007 and our questionnaire date, 
including those in the CNMI garment industry. Third, some nonresponse 
bias may exist in some of the questionnaire responses, since 
characteristics of questionnaire respondents may differ from those of 
nonrespondents and nonrecipients in ways that affect the responses 
(e.g., if those that employ a larger number of workers would have 
provided different responses than those that employ a smaller number). 
Last, it is possible that some employers' views of the minimum wage 
increases may have influenced their responses. 

In addition, the one tuna cannery in American Samoa employed a large 
percentage of workers employed by the two questionnaire respondents; 
as a result, this employer's responses substantially affected our 
reported questionnaire data. Among CNMI employer responses, two hotels 
accounted for more than half of workers employed by questionnaire 
respondents, so those hotels' responses substantially affected our 
questionnaire results. 

To study CNMI hotel minimum wage and payroll costs in relation to 
operating costs, we analyzed data provided by CNMI tourism 
questionnaire respondents on 2009 annual payroll before deductions for 
taxes and benefits, Social Security and Medicare contributions under 
the Federal Insurance Contributions Act (FICA), payments for employee 
benefits, and other operating expenses. For this and other analyses in 
this report, we excluded nonwage labor costs due to the minimum wage 
increases, such as increases in employer payroll tax contributions 
under FICA. For 2011, employers must contribute the equivalent of 6.2 
percent of employee wages to Social Security and 1.45 percent to 
Medicare, up to $106,800 in employee wages. 

SSA Data: 

We obtained 2009 SSA data (as of October 2010) on the earnings and 
employment of individual taxpayers in American Samoa and the CNMI, to 
update our analysis of data for 2005 to 2008 (as of August 2009) in 
the previous report. While the SSA data cover all types of workers in 
American Samoa and were sufficiently reliable for our purposes, three 
large groups of people in the CNMI were not required to report 
earnings to SSA and thus are excluded from the SSA data--CNMI 
government workers and immigrant workers from the Philippines and 
Korea. In 2008, these three groups represented approximately half of 
all CNMI workers, according to CNMI government tax data. We have 
chosen not to report the CNMI SSA data due to these coverage gaps. 

For American Samoa, SSA told us that all employees were subject to SSA 
withholding--no group was systematically excluded. In our prior 
report, we determined that the data were generally consistent with 
information from other sources, including local American Samoa W-2 
data and our questionnaire results. We used SSA data to review trends 
in employment in American Samoa since the federal minimum wage 
increases were implemented, including to determine two aspects of 
employment of American Samoa workers from 2005 to 2009. First, we used 
SSA data to determine the level of employment. Our count of employed 
people was based on the number of people that had positive reported 
earnings to SSA. Second, we reported the average earnings per employed 
person in American Samoa (excluding those with zero earnings). In 
addition, we estimated the proportion of employed persons that dropped 
out of our sample in the following year. 

Because of data limitations, we were unable to report earnings that 
had not been reported to SSA, either because of a failure on the part 
of the employer or because the earnings were not subject to SSA 
withholding. We also were unable to report on earnings that exceeded 
the SSA withholding cap. In addition, because our data was as of 
October 2010, our sample did not include those individuals for whom W- 
2 records were entered into Social Security files created after 
October. 

To assess the reliability of the data, we interviewed agency officials 
at SSA. To the extent possible, we compared employment counts from the 
SSA data to counts from other sources. In addition, the counts of 
American Samoa employment and earnings differ from those in our prior 
report because of the inclusion of additional earnings from late W-2 
filers. We updated our analysis to better isolate the earnings of 
individuals working in American Samoa. We determined that the 
available data were adequate and sufficiently reliable for the 
purposes of depicting trends in employment and earnings in American 
Samoa. 

Discussion Groups: 

We conducted structured discussion groups with Chamber of Commerce 
members in American Samoa and the CNMI to collect information on the 
impact of the minimum wage increases on employers.[Footnote 27] 
Employers represented a range of industries and sizes, and we 
determined that the most effective and least burdensome method of 
collecting information from smaller employers would be to conduct 
discussion groups. For each discussion group, the Chamber of Commerce 
invited members to participate. In the CNMI, we also held discussion 
groups with members of the Hotel Association of the Northern Mariana 
Islands and with hotel human resource managers. The number of 
participants in each group ranged from 7 to about 18 business owners 
or managers. 

To collect information on workers' views of the minimum wage 
increases, we conducted structured discussion groups with various 
worker and community groups with different organizational 
affiliations. In each case, we asked the organizations' leadership to 
invite members to the discussion groups. In American Samoa, we 
conducted two worker discussion groups at the remaining cannery, one 
group with recipients of the U.S. Department of Agriculture's Women, 
Infants, and Children program, and one group with participants in a 
nonprofit organization providing job training to laid-off cannery 
workers. In the CNMI, we conducted one discussion group with U.S. 
Department of Agriculture Nutrition Assistance Program recipients and 
two discussion groups at the public library and publicized to 
employers, including members of the Hotel Association of the Northern 
Mariana Islands. The number of participants in each group ranged from 
4 to 11. 

All discussion groups were moderated by a GAO employee following a 
structured guide with open-ended questions about the minimum wage 
increases and related topics. Discussion groups are generally designed 
to obtain in-depth information about specific issues that cannot be 
easily obtained from single interviews. Methodologically, they are not 
designed to provide results generalizable to a larger population or 
provide statistically representative samples or quantitative 
estimates. They represent the views only of the participants in our 
groups and may or may not be representative of the population of 
employers and workers in these insular areas. Therefore, the 
experiences of other employers and workers may be different from those 
who participated in our discussion groups. In addition, the groups and 
participants in the groups were not random samples of employers and 
workers in these insular areas. 

Local Administrative Data: 

The U.S. Bureau of Labor Statistics collects CPI data on the U.S. 50 
states but not the insular areas. Therefore, we relied on other 
sources of data to compare changes in earnings or wage rates to 
changes in prices. 

We analyzed American Samoa administrative and survey data, including 
CPI data. We analyzed CNMI administrative and survey data, including 
CPI data and CNMI data on the number and earnings of workers from the 
CNMI Department of Finance's tax returns. The CNMI tax data provide 
ranges of earnings for both public and private sector workers and for 
both citizens and noncitizens in 2009, allowing us to update our 
analysis of data for 2005 to 2008. The CNMI tax data provide ranges of 
earnings, including all payments to employees such as overtime, shift 
differentials, cash housing and meal allowances, bonuses, etc. 

We obtained historical data on the CPI from both areas in order to 
estimate inflation-adjusted earnings.[Footnote 28] For both American 
Samoa and the CNMI, we used quarterly CPI data from the first quarter 
of 2006 to the fourth quarter of 2009. To produce an annual CPI 
series, we averaged the four quarters in each year. In addition, for 
American Samoa, because the CPI was rebased in the fourth quarter of 
2007, we recalculated the quarterly index series from the fourth 
quarter of 2008 back to the fourth quarter of 2007 by finding a 
rebasing factor such that the old and new indexes in the fourth 
quarter of 2007 were identical. 

For both CNMI and American Samoa, we interviewed agency officials and 
contractors responsible for producing the quarterly CPI estimates. 
During our interviews and review, we noted irregularities in the CNMI 
CPI data. After we brought this to the responsible agency officials' 
attention, they determined that there had been an error in the 
published CNMI CPI, and they provided to us a corrected index that did 
not exhibit the same irregularities. The revised CPI's inflation rate 
was approximately four percentage points lower than the one previously 
published. The CNMI CPI data cover the island of Saipan; CPI data for 
2006 to 2009 were not available for the islands of Tinian and Rota. 

We also analyzed industry data. For example, to determine hotel room 
prices and hotel occupancy rates in the CNMI, we collected data from 
the Hotel Association of the Northern Mariana Islands and conducted 
related interviews and correspondence. In addition, the Marianas 
Visitors Authority provided data on flight seats and arrivals by 
country of residence. We found the data used to be reliable and 
relevant for the purposes of our report. 

Data Reliability and Limitations: 

In general, to establish the reliability of the data that we used for 
reporting trends and statistics for both American Samoa and the CNMI, 
we systematically obtained information about the way in which data 
were collected and tabulated. When possible, we checked for 
consistency across data sources. While the data had some limitations, 
we determined that the available data were adequate and sufficiently 
reliable for the purposes of our review. 

Our review had certain limitations in addition to those already noted. 
In particular, although our approach yielded information on trends in 
employment, wages, and earnings in both areas, it is difficult to 
distinguish between the effects of minimum wage increases and the 
effects of other factors, including the global recession beginning in 
2009, fluctuations in energy prices, global trade liberalization, and 
the application of U.S. immigration law to the CNMI. In addition, our 
review of minimum wage increases is limited to American Samoa and the 
CNMI, and we did not study minimum wage increases in the U.S. economy 
more broadly. 

We conducted our work from September 2010 to June 2011 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for the findings in 
this product. 

[End of section] 

Appendix II: Background: 

American Samoa: 

American Samoa comprises five volcanic islands and two coral atolls 
with a combined land area of 76 square miles--slightly larger than 
Washington, D.C.--located about 2,600 miles southwest of Hawaii (see 
figure 1). In 2005, American Samoa had a population of about 63,780. 
[Footnote 29] Its capital, Pago Pago, is on the main island of 
Tutuila, which consists mostly of rugged terrain with relatively 
little level land; most economic activity and government operations in 
American Samoa take place in the Pago Pago Bay area. 

Figure 1: Map of American Samoa: 

[Refer to PDF for image: map] 

Source: Map Info (map). 

[End of figure] 

American Samoa-U.S. Relations: 

U.S. interest in the Samoan islands began in 1872 with the efforts of 
the U.S. Navy to establish a naval station in Pago Pago harbor. The 
protectorate over all the Samoan islands established by the United 
States, Britain, and Germany ended in 1899, when the islands composing 
American Samoa were placed under U.S. control. The U.S. Naval Station 
was established in 1900.[Footnote 30] From 1900 through 1904, the U.S. 
government negotiated control over American Samoa,[Footnote 31] and 
the U.S. Navy subsequently took responsibility for federal governance 
of the territory. In 1951, governance was transferred to the Secretary 
of the Interior.[Footnote 32] In 1960, American Samoa residents 
adopted their own constitution. Amendments to the constitution of 
American Samoa can only be made by the U.S. Congress.[Footnote 33] 
Persons born in American Samoa are U.S. nationals but may apply to 
become naturalized U.S. citizens.[Footnote 34] U.S. noncitizen 
nationals from American Samoa have the right to travel freely, live, 
and work throughout the United States. American Samoa exercises 
authority over its immigration system and customs through locally 
adopted laws.[Footnote 35] 

Additionally, the U.S. government has supported American Samoa's 
economy through trade and tax policies that, respectively, have 
provided tariff-free access to the United States for tuna canned in 
American Samoa and have reduced federal taxes on income earned by 
qualifying U.S. corporations investing in American Samoa.[Footnote 36] 
However, changes to various free trade agreements within the last 
decade have lowered U.S. tariffs on tuna exported from several other 
countries, reducing the American Samoa canneries' competitive 
advantage.[Footnote 37] U.S. tax policies, designed to encourage 
certain U.S. corporations to invest in the U.S. insular areas and 
create jobs, expired and were recently extended through 2011.[Footnote 
38] 

American Samoa Government Fiscal Condition: 

The American Samoa government, excluding component units, spent 
approximately $146.6 million in grants from several federal agencies 
in fiscal year 2009, according to the most recent American Samoa 
Single Audit Report.[Footnote 39] American Samoa has received federal 
funds under the American Recovery and Reinvestment Act (Recovery Act) 
that temporarily supplement local government revenues.[Footnote 40] 

Excluding component units, local government spending exceeded revenues 
each year from 2005 to 2009, except for fiscal year 2008 (see figure 
2). From 2005 to 2009, the American Samoa government's budget deficit 
averaged 4 percent of total revenues. In 2010, government revenues 
were lower than expected, and local government officials have 
projected a $7 million shortfall in local revenues for fiscal year 
2011. The governor of American Samoa has submitted revenue generating 
measures for legislative approval; in February 2011, the governor 
implemented a reduction-in-work-hours plan for select local government 
employees whose salaries are paid by local revenues. In March 2011, 
the governor signed into law a 2 percent increase in the wage tax that 
is intended to raise local revenues. 

Figure 2: American Samoa Government Revenues and Expenditures, 
Excluding Component Units, 2005-2009: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2005; 
Total expenditures excluding component units: $192.5 million; 
Total revenues excluding component units: $182.0 million. 

Fiscal year: 2006; 
Total expenditures excluding component units: $202.3 million; 
Total revenues excluding component units: $195.2 million. 

Fiscal year: 2007; 
Total expenditures excluding component units: $179.0 million; 
Total revenues excluding component units: $172.0 million. 

Fiscal year: 2008; 
Total expenditures excluding component units: $200.8 million; 
Total revenues excluding component units: $201.0 million. 

Fiscal year: 2009; 
Total expenditures excluding component units: $222.0 million; 
Total revenues excluding component units: $211.2 million. 

Source: GAO analysis of American Samoa Single Audit Reports, 2005-2009. 

Note: Revenues and expenditures data shown above exclude the following 
component units: the American Samoa Government Employees Retirement 
Fund, the American Samoa Economic Development Authority, the American 
Samoa Power Authority, the American Samoa Community College, Lyndon B. 
Johnson Tropical Medical Center, and the American Samoa 
Telecommunications Authority. In addition, the above data exclude some 
other funds, such as the proprietary fund. 

[End of figure] 

American Samoa Economy: 

The U.S. Department of Commerce's Bureau of Economic Analysis (BEA) 
estimated that in 2007 American Samoa's gross domestic product (GDP) 
was $532 million. From 2002 to 2007, real GDP increased at an 
estimated average annual rate of 0.4 percent while per capita real GDP 
decreased at an estimated average annual rate of 1.9 percent.[Footnote 
41] 

Key Industries: 

The tuna canning industry and the government sector have been American 
Samoa's two largest employers.[Footnote 42] In 2006, about a third of 
American Samoa's workforce was employed by the two tuna canneries; 
about a third was employed by other businesses, many supporting the 
tuna industry; and about a third worked in the government sector. 
[Footnote 43] Noncitizens, mostly from the independent state of Samoa, 
compose approximately a third of American Samoa's population of 63,780 
in 2005 (see figure 3) and roughly four-fifths of the canneries' 
employees. Many citizens of the independent state of Samoa reside in 
American Samoa on a long-term basis, including spouses and relatives 
of American Samoans. 

Figure 3: Citizenship Status of American Samoa Population, 1980-2005: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 1980[A]; 
Neither U.S. citizens nor nationals (percentage): 11,514 (36.7%); 
U.S. citizens or nationals (percentage): 20,783 (64.3%); 
Total population: 32,297. 

Year: 1985; 
Neither U.S. citizens nor nationals (percentage): NA; 
U.S. citizens or nationals (percentage): NA; 
Total population: NA. 

Year: 1990; 
Neither U.S. citizens nor nationals (percentage): 17,031 (36.4%); 
U.S. citizens or nationals (percentage): 29,742 (63.6%); 
Total population: 46,773. 

Year: 1995; 
Neither U.S. citizens nor nationals (percentage): NA; 
U.S. citizens or nationals (percentage): NA; 
Total population: NA. 

Year: 2000; 
Neither U.S. citizens nor nationals (percentage): 20,251 (35.3%); 
U.S. citizens or nationals (percentage): 37,040 (64.7%); 
Total population: 57,291. 

Year: 2005; 
Neither U.S. citizens nor nationals (percentage): 21,370 (33.5%); 
U.S. citizens or nationals (percentage): 42,410 (66.5%); 
Total population: 63,780. 

[Text box: 
U.S. Census Bureau 2010 midyear population estimate: 66,000. 

In 2008, the American Samoa Department of Commerce estimated that from 
45 to 55 percent of the population was foreign born. End text box] 

Sources: GAO analysis of decennial U.S. Census data and 2005 (draft) 
report by American Samoa government on household, income, and 
expenditures survey (bar chart); U.S. Census Bureau, Population
Division, International Database (text box, 2010); and Immigration and 
Population Growth in the Territory of American Samoa from 1980 to 2008—
Analysis and Trends, January 20, 2009 (text box, 2008). 

Note: Comparable data were not available for years 1985 and 1995. U.S. 
Decennial Census data from 2010 were not available for our review. 

[A] For 1980, the definition of U.S. citizen includes people born in 
the United States, the CNMI, Guam, and American Samoa. Persons with 
place of birth not reported are classified as not U.S. citizens. 

[End of figure] 

The tuna canning industry, a mainstay of the American Samoa economy 
since the 1950s, maintained a relatively constant flow of exports to 
the United States until 2008, despite competition from other 
countries. From 2008 to 2010, tuna exports from American Samoa to the 
United States declined, as shown in figure 4. Tuna exports represented 
97 percent of the total value of American Samoa's commodity exports 
(over $312 million) to the United States in 2010. 

Figure 4: American Samoa Tuna Exports to the United States, 1997-2010: 

[Refer to PDF for image: line graph] 

Year: 1997; 
Tuna exports: $403.9 million. 

Year: 1998; 
Tuna exports: $451.0 million. 

Year: 1999; 
Tuna exports: $446.5 million. 

Year: 2000; 
Tuna exports: $426.3 million. 

Year: 2001; 
Tuna exports: $400.8 million. 

Year: 2002; 
Tuna exports: $470.6 million. 

Year: 2003; 
Tuna exports: $467.6 million. 

Year: 2004; 
Tuna exports: $408.9 million. 

Year: 2005; 
Tuna exports: $445.9 million. 

Year: 2006; 
Tuna exports: $445.1 million. 

Year: 2007; 
Tuna exports: $451.5 million. 

Year: 2008; 
Tuna exports: $579.7 million. 

Year: 2009; 
Tuna exports: $471.1 million. 

Year: 2010; 
Tuna exports: $302.0 million. 

Source: GAO analysis of U.S. Department of Commerce data. 

[End of figure] 

In addition, the canneries have provided many indirect benefits to 
other industries and the economy in American Samoa. For example, many 
businesses exist to support the canneries, such as the company that 
manufactures the cans. Maintenance for the canneries and for the 
vessels that supply the canneries also brings business and jobs to the 
island. Cannery workers spend money at local establishments, such as 
restaurants and retail stores. Additionally, exported cannery products 
and delivery of materials to the canneries reduced the shipping cost 
of bringing other goods to American Samoa. 

Chicken of the Sea International,[Footnote 44] which operated one of 
the two canneries in American Samoa, closed its cannery operations in 
the territory at the end of September 2009.[Footnote 45] Chicken of 
the Sea relocated canning facilities to the U.S. state of Georgia 
while outsourcing the more labor-intensive processes, including 
cleaning and cooking the tuna loins (a low-tariff U.S. import), to 
countries with lower labor costs. The remaining tuna cannery, 
StarKist,[Footnote 46] has expressed concerns about the costs of 
operating in American Samoa. 

On October 5, 2010, Tri Marine International acquired the former 
Chicken of the Sea tuna cannery in American Samoa.[Footnote 47] While 
provisions in the company's local tax exemption certificate indicate 
opportunities for new employment and investment, expected short-range 
employment is well below the certificate's benchmark targets, 
according to the company.[Footnote 48] 

On September 29, 2009, a tsunami following a strong earthquake left 34 
people dead in American Samoa. Although the two tuna canneries were 
mostly spared, the tsunami caused severe damage to homes, businesses, 
and water and electrical infrastructure. The federal government issued 
a disaster declaration and has assisted with tsunami recovery efforts. 
As of September 21, 2010, the Federal Emergency Management Agency had 
provided more than $37.4 million in grant assistance for housing and 
disaster-related needs.[Footnote 49] 

Local government and private sector officials have expressed interest 
in developing American Samoa's tourism industry in an effort to spur 
future economic development in the territory. In 2008, the American 
Samoa government created the American Samoa Visitors Bureau; in 2009, 
DOI funded the creation of a Tourism Master Plan--a written report 
that proposes next steps and discusses challenges for developing 
tourism in American Samoa.[Footnote 50] However, some public and 
private sector officials have indicated that challenges exist in 
developing the island's tourism industry, including restrictive 
immigration policies, lack of promotional material, and insufficient 
flight frequency. They also said that American Samoa is competing with 
neighboring Pacific islands with more developed tourism industries. 

Personal Income and Poverty Rates: 

Current federal data on income and poverty levels in American Samoa do 
not exist; however, the most recent available data show that American 
Samoa had lower income and higher poverty rates than the mainland 
United States. For example: 

* In 2004, the median household income in American Samoa was $22,930, 
[Footnote 51] while the U.S. 50-state and District of Columbia median 
household income was $44,334.[Footnote 52] 

* In 2004, the poverty rate for persons age 25 and older in American 
Samoa was 49.9 percent,[Footnote 53] while the U.S. 50-state and 
District of Columbia poverty rate for all persons was 12.7 percent. 
[Footnote 54] 

Commonwealth of the Northern Mariana Islands: 

Part of the Mariana Islands Archipelago in Micronesia, the CNMI is a 
chain of 14 islands in the western Pacific Ocean--just north of Guam 
and about 3,200 miles west of Hawaii (see figure 5). Most of the CNMI 
population--65,927 in 2005,[Footnote 55] with recent estimates of 
decline--resides on the island of Saipan, with additional residents on 
the islands of Tinian and Rota. 

Figure 5: Map of the CNMI: 

[Refer to PDF for image: map] 

Source: Map Info (map). 

[End of figure] 

CNMI-U.S. Relations: 

The United States took control of the Northern Mariana Islands from 
Japan during the latter part of World War II, and after the war the 
U.S. Congress approved the Trusteeship Agreement making the United 
States responsible to the United Nations for the administration of the 
islands.[Footnote 56] Later, the Northern Mariana Islands sought self- 
government and permanent ties with the United States. In 1976, after 
almost 30 years as a trust territory, the District of the Mariana 
Islands entered into a covenant with the United States establishing 
the island territory's status as a self-governing commonwealth in 
political union with the United States.[Footnote 57] This covenant 
grants the CNMI the right of self-governance over internal affairs and 
grants the United States complete responsibility and authority for 
matters relating to foreign affairs and defense affecting the CNMI. 
[Footnote 58] The covenant initially made many federal laws applicable 
to the CNMI, including laws that provide federal services and 
financial assistance programs.[Footnote 59] The covenant preserved the 
CNMI's exemption from certain federal laws that had previously been 
inapplicable to the Trust Territory of the Pacific Islands, including 
federal immigration laws, with certain limited exceptions,[Footnote 
60] and certain federal minimum wage provisions. However, under the 
terms of the covenant, the federal government has the right to apply 
federal law in these exempted areas without the consent of the CNMI 
government.[Footnote 61] 

Until recently, the CNMI retained legislative authority over most 
aspects of immigration, regulating entry into the CNMI through a 
permit system. In 2008, federal legislation amended the U.S.-CNMI 
Covenant to establish federal control of CNMI immigration; the law 
includes several provisions affecting access to the CNMI by foreign 
workers, tourists, and foreign investors that were implemented 
beginning in November 2009.[Footnote 62] As we reported in August 
2008, the potential impact of the legislation's implementation on the 
CNMI's labor market will largely depend on decisions that the U.S. 
Departments of Homeland Security (DHS) and DOL make in implementing a 
program to provide foreign workers temporary permits to work in the 
CNMI.[Footnote 63] Although modest reductions in CNMI-only permits for 
foreign workers would cause minimal impact, any substantial and rapid 
decline in the availability of CNMI-only work permits for needed 
workers would have a negative effect on the economy, given foreign 
workers' prominence in key CNMI industries. As of May 2011, DHS had 
not issued final regulations for workers, nor has it made a permanent 
decision regarding access for visitors from Russia and China. It 
issued regulations for foreign investors in December 2010.[Footnote 64] 

CNMI Government Fiscal Condition: 

The CNMI government, excluding component units, spent approximately 
$64 million in grants from several federal agencies in fiscal year 
2009, according to the most recent CNMI Report on the Audit of 
Financial Statements.[Footnote 65] The CNMI has received federal funds 
under the American Recovery and Reinvestment Act that temporarily 
supplement local government revenues.[Footnote 66] 

Excluding component units, local government spending exceeded revenues 
each year from 2005 to 2009 (see figure 6). From 2005 to 2009, the 
CNMI government's budget deficit averaged 15 percent of total 
revenues. In October 2010, the CNMI government partially shut down due 
to a budget impasse. The shutdown was in effect for 10 days, and the 
local government has since enacted austerity measures, including 
eliminating paid holidays for government employees and reducing full-
time employees' schedules by 16 hours per 2-week pay period.[Footnote 
67] Since June 2010, the local government has also occasionally 
delayed payroll and is currently considering laying off employees. 

Additionally, the CNMI government has struggled to make payments to 
various local government departments and units. For example, the 
Northern Mariana Islands Retirement Fund actuarial assessment for 
fiscal year 2008 reported unfunded pension liabilities of about $530 
million.[Footnote 68] In December 2010, the CNMI government owed 
unpaid utility bills to the Commonwealth Utilities Corporation, 
resulting in disconnected power and water service for some local 
government departments, and the Marianas Visitors Authority had 
unfunded liabilities of about $2 million. The Commonwealth Utilities 
Corporation has been operating under a state of emergency since August 
2008. 

Figure 6: CNMI Government Revenues and Expenditures, Excluding 
Component Units, 2005-2009: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2005; 
Total expenditures excluding component units: $334.4 million; 
Total revenues excluding component units: $308.5 million. 

Fiscal year: 2006; 
Total expenditures excluding component units: $320.8 million; 
Total revenues excluding component units: $297.3 million. 

Fiscal year: 2007; 
Total expenditures excluding component units: $289.1 million; 
Total revenues excluding component units: $244.3 million. 

Fiscal year: 2008; 
Total expenditures excluding component units: $329.3 million; 
Total revenues excluding component units: $281.2 million. 

Fiscal year: 2009; 
Total expenditures excluding component units: $277.6 million; 
Total revenues excluding component units: $230.2 million. 

Source: GAO analysis of CNMI Reports on the Audit of Financial 
Statements, 2005-2009. 

Note: Revenues and expenditures data shown above exclude the following 
component units: the Public School System, the Northern Mariana 
Islands Retirement Fund, the Northern Mariana Islands Government 
Health and Life Insurance Trust Fund, the CNMI Workers' Compensation 
Commission, the Commonwealth Ports Authority, the Commonwealth 
Development Authority, the Commonwealth Utilities Corporation, the 
Marianas Public Land Trust, the Northern Marianas College, and the 
Marianas Visitors Authority. In addition, the above data exclude some 
other funds, such as the fiduciary fund. 

[End of figure] 

CNMI Economy: 

BEA estimated that the CNMI's GDP in 2007 was $962 million. From 2002 
to 2007, real GDP decreased at an estimated average annual rate of 4.2 
percent. Per capita real GDP increased at an estimated average annual 
rate of 0.5 percent at least partly because of population loss. 
[Footnote 69] 

Key Industries: 

For years, the garment and tourism industries were the mainstay of the 
CNMI's economy, generating employment and bringing revenue from 
outside the CNMI.[Footnote 70] For example, in 1999, these two 
industries accounted for about 85 percent of the CNMI's total economic 
activity and 96 percent of its exports.[Footnote 71] 

Several developments in international trade caused the CNMI's garment 
industry to decline dramatically. In January 2005, in accordance with 
a World Trade Organization 10-year phaseout agreement, the United 
States eliminated quotas on textile and apparel imports from other 
textile-producing countries, exposing the CNMI apparel industry's 
shipments to the United States to greater competition.[Footnote 72] 
Subsequently, the value of CNMI textile exports to the United States 
dropped from a peak of $1.1 billion in 1998 to close to zero in 2010 
(see figure 7).[Footnote 73] The number of licensed CNMI apparel 
manufacturers decreased rapidly, from 34 firms in 1999 to 6 firms as 
of July 2008. By the end of the first quarter of 2009, the last 
garment factory in the CNMI had closed. 

Figure 7: CNMI Textile Exports to the United States, 1997-2010: 

[Refer to PDF for image: line graph] 

Year: 1997; 
Textile exports: $797.9 million. 

Year: 1998; 
Textile exports: $1.066 billion. 

Year: 1999; 
Textile exports: $1.048 billion. 

Year: 2000; 
Textile exports: $1.025 billion. 

Year: 2001; 
Textile exports: $946.7 million. 

Year: 2002; 
Textile exports: $815.3 million. 

Year: 2003; 
Textile exports: $823.8 million. 

Year: 2004; 
Textile exports: $807.4 million. 

Year: 2005; 
Textile exports: $677.0 million. 

Year: 2006; 
Textile exports: $495.5 million. 

Year: 2007; 
Textile exports: $316.7 million. 

Year: 2008; 
Textile exports: $103.9 million. 

Year: 2009; 
Textile exports: $4.5 million. 

Year: 2010; 
Textile exports: $0.002 million. 

Source: GAO analysis of U.S. Department of Commerce data. 

[End of figure] 

In addition, the CNMI economy has been negatively affected by trends 
and uncertainty in the tourism industry--the CNMI's primary private 
sector industry. For example, tourism in the CNMI declined after 
peaking in the mid 1990s, beginning with the Asian financial crisis in 
the late 1990s. In 2003, according to CNMI officials, tourism slowed 
for several months in reaction to the severe acute respiratory 
syndrome epidemic, which originated in Asia, and the war in Iraq. 
Total visitor arrivals to the CNMI dropped from a peak of 726,690 in 
1997 to 368,186 in 2010, a decline of 49 percent, as shown in figure 
8. Japan, Korea, Russia, and China are the CNMI's primary visitor 
markets, with Japan representing the largest share of any country and 
Russia and China representing emerging markets. CNMI government 
officials reported declines in Japanese visitor arrivals following the 
March 2011 earthquake and tsunami in Japan, and they expressed concern 
about the impact on the CNMI's tourism industry. The tourism industry 
also may be affected by the November 28, 2009, implementation of a 
joint visa waiver program for visitors to the CNMI and Guam, as part 
of the application of U.S. immigration law.[Footnote 74] While an 
interim final rule currently governs the operation of the Guam-CNMI 
Visa Waiver Program, DHS has not issued final regulations for this 
program. 

Figure 8: CNMI Visitor Arrivals, 1990-2010: 

[Refer to PDF for image: line graph] 

Year: 1990; 
Visitor arrivals: 417,146. 

Year: 1991; 
Visitor arrivals: 424,459. 

Year: 1992; 
Visitor arrivals: 488,330. 

Year: 1993; 
Visitor arrivals: 536,263. 

Year: 1994; 
Visitor arrivals: 583,557. 

Year: 1995; 
Visitor arrivals: 654,375. 

Year: 1996; 
Visitor arrivals: 721,935. 

Year: 1997; 
Visitor arrivals: 726,690. 

Year: 1998; 
Visitor arrivals: 526,298. 

Year: 1999; 
Visitor arrivals: 491,602. 

Year: 2000; 
Visitor arrivals: 526,111. 

Year: 2001; 
Visitor arrivals: 497,696. 

Year: 2002; 
Visitor arrivals: 424,932. 

Year: 2003; 
Visitor arrivals: 458,444. 

Year: 2004; 
Visitor arrivals: 531,584. 

Year: 2005; 
Visitor arrivals: 529,557. 

Year: 2006; 
Visitor arrivals: 443,812. 

Year: 2007; 
Visitor arrivals: 395,360. 

Year: 2008; 
Visitor arrivals: 396,497. 

Year: 2009; 
Visitor arrivals: 375,808. 

Year: 2010; 
Visitor arrivals: 368,186. 

Source: GAO analysis of Marianas Visitors Authority arrivals data. 

[End of figure] 

During the expansion of the CNMI garment and tourism industries prior 
to 1995, the CNMI economy became dependent on foreign labor, as the 
CNMI government used its authority over its own immigration policy to 
bring in large numbers of foreign workers and investors. In 1995, two- 
thirds of the CNMI working population were temporary residents, 
including about 93 percent of workers in the garment industry and 
slightly over 72 percent in the tourism industry. In contrast, in the 
same year, U.S. citizens and permanent residents of the CNMI held 
about 96 percent of jobs in the public sector. As a result, the CNMI 
economy developed a two-tiered wage structure, with U.S. citizens and 
permanent residents earning 3.5 times more in 1995 than temporary 
residents.[Footnote 75] However, with the decline of the garment and 
tourism industries, the number and proportion of noncitizens in the 
CNMI labor force and population have decreased (see figure 9). In 
2005, noncitizen workers in the CNMI were predominantly from China or 
the Philippines. As noted above, the application of U.S. immigration 
law might result in further changes in the composition of the CNMI's 
workforce. 

Figure 9: Citizenship Status of CNMI Population, 1980-2005: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 1980[A]; 
Neither U.S. citizens nor nationals (percentage): 3,703 (22.1%); 
U.S. citizens or nationals (percentage): 13,077 (77.9%); 
Total population: 16,780. 

Year: 1985; 
Neither U.S. citizens nor nationals (percentage): NA; 
U.S. citizens or nationals (percentage): NA; 
Total population: NA. 

Year: 1990; 
Neither U.S. citizens nor nationals (percentage): 23,263 (53.7%); 
U.S. citizens or nationals (percentage): 20,082 (46.3%); 
Total population: 43,345. 

Year: 1995; 
Neither U.S. citizens nor nationals (percentage): 31,357 (53.3%); 
U.S. citizens or nationals (percentage): 27,489 (46.7%); 
Total population: 58,846. 

Year: 2000; 
Neither U.S. citizens nor nationals (percentage): 39,089 (56.5%); 
U.S. citizens or nationals (percentage): 37,132 (43.5%); 
Total population: 69,221. 

Year: 2005; 
Neither U.S. citizens nor nationals (percentage): 32,749 (49.7%); 
U.S. citizens or nationals (percentage): 33,178 (50.3%); 
Total population: 65,927. 

[Text box: 
U.S. Census Bureau 2010 midyear population estimate: 48,000. 

In 2009 the CNMI Department of Labor reported that guest workers 
accounted for 16,500 (59 percent) of the CNMI workforce of 28,000 
persons. End of text box] 

Sources: GAO analysis of decennial U.S. Census data (1980, 1990, 
2000); report by CNMI government on population, labor force, and 
unemployment (1995); and report by CNMI government on household, income,
and expenditures survey (2005) (bar chart); U.S. Census Bureau, 
Population Division, International Data 

Note: Comparable data were not available for 1985. U.S. Decennial 
Census data from 2010 were not available for our review. 

[A] For 1980, the definition of U.S. citizen includes people born in 
the United States, CNMI, Guam and American Samoa. Persons with place 
of birth not reported are classified as not a U.S. citizen. 

[End of figure] 

In addition, the CNMI's economy may be affected in the future by the 
planned build-up of the U.S. military in neighboring Guam. By 2014, 
the U.S. Department of Defense intends to relocate 8,600 Marines and 
additional military units, as well as an estimated 9,000 dependents 
from Okinawa, Japan, to Guam, increasing Guam's current population by 
an estimated 25,000 active duty military personnel and dependents. 
[Footnote 76] The Department of Defense plans to use the island of 
Tinian to conduct training operations and construct firing ranges. 
Local government officials expect the build-up to have a small 
positive impact on the CNMI in the immediate future, with potentially 
greater positive impacts in the medium-to long-term. However, while it 
is possible that the build-up will result in new businesses and 
tourism opportunities for the CNMI, some local private sector 
officials anticipate that the build-up will have little to no economic 
benefit for the commonwealth. 

In an effort to explore opportunities for future economic development, 
the local government has identified potential growth industries, 
including call centers, agriculture, and aquaculture. The CNMI's 
Comprehensive Economic Development Strategic Plan, 2009-2014 outlines 
a number of developmental projects in various industries.[Footnote 77] 
However, the plan indicates that many challenges exist to implementing 
these projects and notes that, despite past studies and efforts to 
identify new industries, the CNMI has had difficulty attracting new 
investors and developing new industries. 

Personal Income and Poverty Rates: 

Current federal data on income and poverty levels in the CNMI do not 
exist; however, the most recent available data show that the CNMI had 
lower income and higher poverty rates than the mainland United States. 
For example: 

* In 2004, the CNMI median household income was $17,138,[Footnote 78] 
while the U.S. 50-state and District of Columbia median household 
income was $44,334.[Footnote 79] 

* In 2004, the CNMI poverty rate for all persons was 53.5 
percent,[Footnote 80] while the U.S. 50-state and District of Columbia 
poverty rate for all persons was 12.7 percent.[Footnote 81] 

Minimum Wage Increases: 

U.S. Minimum Wage Law: 

The federal minimum wage was first enacted as part of the Fair Labor 
Standards Act of 1938 (FLSA). That first federally mandated minimum 
wage had repercussions in the U.S. Virgin Islands and Puerto Rico that 
led the United States, in 1940, to revise the application of the law 
in those territories; the overarching goal of the FLSA continued to be 
pursued there, but at a slower pace than in the U.S. 50 states. As of 
July 2009, the federal minimum wage was set at $7.25 per 
hour.[Footnote 82] Federal minimum wage laws apply generally to any 
employee engaged in commerce, with limited exceptions and 
exemptions.[Footnote 83] Certain employees who would otherwise be 
covered under the FLSA definitions are exempted by law from the 
minimum wage requirements--for example, employees involved with 
seafood at sea are exempt.[Footnote 84] Employees not covered by FLSA 
include, for example, individuals engaged in agriculture, if the 
employer is an immediate family member. 

DOL's Wage and Hour division enforces a variety of U.S. labor laws, 
including laws related to minimum wage, overtime pay, child labor, and 
family medical leave. The division uses a number of enforcement 
strategies, including investigations and partnerships with external 
groups, such as states, foreign consulates, and employee and employer 
organizations. 

Minimum Wage Law in American Samoa: 

From the passage of the FLSA in 1956 to 2007, employers in American 
Samoa were allowed to pay their employees at hourly rates less than 
the federal minimum wage. During that period, rates were set by 
special industry committees established by the U.S. DOL, through 
biennial reviews conducted with the participation of island 
stakeholders that included representatives of government, key 
industries, and workers.[Footnote 85] The special industry committees 
system continued to exist until May 2007, when Congress required an 
incremental increase in the minimum wage for all industries in 
American Samoa, at $.50 per year in each industry, until it reaches 
the full federal minimum wage.[Footnote 86] In 2010, the U.S. enacted 
a law delaying the scheduled minimum wage increases for 2 years, 
providing for no increase in 2010 or 2011.[Footnote 87] For example, 
if the current federal minimum wage of $7.25 remains unchanged, the 
minimum wage for American Samoa tuna canning industry workers will 
reach $7.25 in 2016 (see table 4). 

Table 4: American Samoa Scheduled Minimum Wage Increases for Tuna 
Canning Industry Workers and for Workers Paid the Lowest Minimum Wage: 

Date: Before July 25, 2007; 
Minimum wage (tuna canning industry): $3.26; 
Lowest minimum wage: $2.68. 

Date: July 25, 2007; 
Minimum wage (tuna canning industry): $3.76; 
Lowest minimum wage: $3.18. 

Date: May 25, 2008; 
Minimum wage (tuna canning industry): $4.26; 
Lowest minimum wage: $3.68. 

Date: May 25, 2009; 
Minimum wage (tuna canning industry): $4.76; 
Lowest minimum wage: $4.18. 

Date: September 30, 2010; 
Minimum wage (tuna canning industry): $4.76 (no change); 
Lowest minimum wage: $4.18 (no change). 

Date: September 30, 2011; 
Minimum wage (tuna canning industry): $4.76 (no change); 
Lowest minimum wage: $4.18 (no change). 

Date: September 30, 2012; 
Minimum wage (tuna canning industry): $5.26; 
Lowest minimum wage: $4.68. 

Date: September 30, 2013; 
Minimum wage (tuna canning industry): $5.76; 
Lowest minimum wage: $5.18. 

Date: September 30, 2014; 
Minimum wage (tuna canning industry): $6.26; 
Lowest minimum wage: $5.68. 

Date: September 30, 2015; 
Minimum wage (tuna canning industry): $6.76; 
Lowest minimum wage: $6.18. 

Date: September 30, 2016; 
Minimum wage (tuna canning industry): $7.25; 
Lowest minimum wage: $6.68. 

Date: September 30, 2017; 
Minimum wage (tuna canning industry): no change; 
Lowest minimum wage: $7.18. 

Date: September 30, 2018; 
Minimum wage (tuna canning industry): no change; 
Lowest minimum wage: $7.25. 

Source: GAO review of American Samoa Industry Committee wage 
categories, H.R. Rep. No. 111-386, Pub.L. No. 110-28, and Pub. L. No. 
111-244. 

Note: Under Pub.L. No. 110-28, any future changes to the minimum wage 
enacted under U.S. law also will apply to American Samoa and the CNMI. 
Wage rates vary for workers in the 17 industries other than tuna 
canning. 

[End of table] 

Minimum Wage Law in the CNMI: 

Under the terms of the CNMI-U.S. covenant, the CNMI was exempt from 
the minimum wage provisions of the FLSA and maintained control over 
its own minimum wage system.[Footnote 88] Legislative changes to the 
federal minimum wage in 2007 specified that the CNMI would be subject 
to the federal minimum wage, through a staged $.50 incremental 
approach. The law raised the CNMI minimum wage from $3.05 to $3.55 per 
hour in July 2007 and required a $.50 increase every year thereafter 
until the FLSA-CNMI minimum wage equals the full federal minimum wage. 
[Footnote 89] In 2010, the U.S. enacted a law delaying the scheduled 
minimum wage increase for 1 year, providing for no increase in 2011 
[Footnote 90] (see table 5). 

Table 5: CNMI Scheduled Minimum Wage Increases: 

Date: Before July 25, 2007; 
Minimum wage in the CNMI: $3.05. 

Date: July 25, 2007; 
Minimum wage in the CNMI: $3.55. 

Date: May 25, 2008; 
Minimum wage in the CNMI: $4.05. 

Date: May 25, 2009; 
Minimum wage in the CNMI: $4.55. 

Date: September 30, 2010; 
Minimum wage in the CNMI: $5.05. 

Date: September 30, 2011; 
Minimum wage in the CNMI: $5.05 (no change). 

Date: September 30, 2012; 
Minimum wage in the CNMI: $5.55. 

Date: September 30, 2013; 
Minimum wage in the CNMI: $6.05. 

Date: September 30, 2014; 
Minimum wage in the CNMI: $6.55. 

Date: September 30, 2015; 
Minimum wage in the CNMI: $7.05. 

Date: September 30, 2016; 
Minimum wage in the CNMI: $7.25. 

Source: GAO review of H.R. Rep. No. 111-386, Pub. L. No. 110-28, and 
Pub. L. No. 111-244. 

Note: Under Pub. L. No. 110-28, any future changes to the minimum wage 
enacted under U.S. law also will apply to American Samoa and the CNMI. 

[End of table] 

Prior Studies of Minimum Wage Increases in American Samoa and the CNMI: 

The federal government has conducted or funded several reports on 
minimum wage increases in American Samoa and the CNMI in recent years. 

* In May 2007, DOL's Wage and Hour Division issued a report on the 
minimum wage in American Samoa as part of DOL's biennial review 
process under the special industry committees.[Footnote 91] The report 
analyzes American Samoa's wage and employment structure based on a 
2006 employment and wage survey, and it provides the numbers of 
employees in each industry who would be affected by a range of 
possible minimum wage increases. The report stated that the average 
hourly wage in the fish canning industry was $3.60 and in the American 
Samoa government was $7.75. It found that 50 percent of American Samoa 
workers were paid less than $4 per hour. 

* In January 2008, DOL issued a report on the economic impact of 
minimum wage increases in both American Samoa and the CNMI,[Footnote 
92] as required by a 2007 law.[Footnote 93] 

- For American Samoa, the study noted concern that the tuna canneries 
would close before the minimum wage reached the U.S. federal minimum 
wage of $7.25 per hour, causing substantial job losses. The report 
stated that over three-quarters of American Samoa workers earned under 
$7.25 per hour and that if the U.S. minimum wage were increased to the 
level of the 75th percentile of hourly-paid U.S. workers, it would be 
raised to $16.50 per hour. 

- For the CNMI, the study found that although data were not available 
to precisely quantify the impact of the scheduled minimum wage 
increases, it seemed likely that the CNMI's existing economic decline 
would be made worse and that the CNMI population would continue to 
decline. 

* DOI-funded studies of the American Samoa and CNMI economies, 
including the minimum wage increases.[Footnote 94] 

- A February 2008 study assessing the relationships between different 
sectors of the American Samoa economy found that a doubling of 
American Samoa's minimum wage in a 7-year period could result in the 
end of the fish processing industry, which represented approximately 
one-half of American Samoa's economic base, and serious consequences 
for the economy.[Footnote 95] The authors predicted that costs would 
rise due to minimum wage increases in other industries, and 
transportation, energy, and utility costs would increase because the 
canneries would no longer be available to share those costs. They 
found that, under a worst-case scenario, American Samoa could lose 46 
percent of all jobs in the territory. In this scenario, rising minimum 
wages would cause a complete closure of American Samoa's tuna 
canneries. A long recovery period would follow, with high unemployment 
rates, business closures or cutbacks, and declines in local revenue 
collection. They found that local government would be unable to 
adequately address the situation, requiring outside assistance. 

- An October 2008 study of the CNMI economy examined the impact of 
both federal immigration policy and the minimum wage increases. 
[Footnote 96] In framing this analysis, the study found that lifting 
of quotas on garment imports to the United States had rendered the 
CNMI's garment industry unfeasible and estimated that the loss of 
16,800 garment jobs could ultimately cost the CNMI economy about 
25,200 jobs, about 60 percent of peak employment in 2004. The study 
projects the combined effect of the closure of the garment industry 
with the implementation of the federal minimum wage and an application 
of federal immigration policy, whereby almost the entire foreign 
workforce is removed from the CNMI economy. In this projection, the 
employment of U.S.-qualified residents increases by 21 percent from 
2005 to 2015, but real wages and salaries of U.S.-qualified residents 
fall by 19 percent. In addition, immigration-policy changes quickly 
remove foreign workers on government-approved contracts from the 
economy, and U.S.-qualified residents take jobs in the tourism 
industry. Despite the increased minimum wage, most of the jobs are 
projected to pay lower wages than U.S.-qualified residents had come to 
expect. The study also provides an alternative projection under which 
the minimum wage is held at $4.05, foreign labor is not restricted, 
and an aggressive promotion program successfully doubles visitor 
arrivals by 2015. In this projection, the employment of U.S.-qualified 
residents increases by 4 percent from 2005 to 2015, and real wages and 
salaries of U.S.-qualified residents increase by 15 percent. The 
authors suggested, among other recommendations, that the law extending 
the minimum wage requires further analysis and notes that officials 
are seeking to modify the scheduled increases. Possible modifications 
discussed include lengthening the period over which the minimum wage 
is increased, basing increases on measures of worker productivity, or 
using a special program for adjustment as had previously been done in 
American Samoa. 

[End of section] 

Appendix III: American Samoa: 

In American Samoa, SSA data show that total employment fell 19 percent 
from 2008 to 2009 and fell 14 percent from 2006 to 2009, though it 
increased in some years. Data from 2010 on total employment are not 
yet available. Questionnaire responses show that tuna canning 
employment dropped by 55 percent from 2009 to 2010, reflecting the 
September 2009 closure of one cannery and layoffs in the remaining 
cannery. In addition, we estimated that from 2,000 to 3,000 temporary 
federal jobs funded beginning in June 2009 will end when federal 
funding is no longer available. Average inflation-adjusted earnings in 
American Samoa fell by 5 percent from 2008 to 2009 and by 11 percent 
from 2006 to 2009. However, over both periods, the minimum wage 
increased by significantly more than inflation. Private sector 
officials said the minimum wage was one of a number of factors making 
it difficult to do business, and public officials said they supported 
returning to biennial reviews of minimum wages or other alternatives 
to the scheduled increases. In the tuna canning industry, without a 
minimum wage increase in American Samoa in 2010, there was no increase 
in the median wage of tuna canning workers, which was $4.76 in both 
2009 and 2010. The most recent minimum wage increase in May 2009 
affected the wages of 69 percent of hourly-wage cannery workers. 
Future minimum wage increases would affect the wages of 99 percent of 
current cannery workers. The two canning industry employers included 
in our questionnaire reported taking cost-cutting actions from June 
2009 to June 2010, including laying off workers, reducing overtime 
hours, freezing hiring, and decreasing benefits, as well as raising 
prices. The employers reported plans to continue taking cost-cutting 
actions in 2011. The employers attributed most of their past and 
planned actions largely to the minimum wage increases. Cannery 
officials we interviewed expressed concern about American Samoa's 
dwindling competitive advantage in the global tuna canning industry. 
Though the cannery faces some near-term obstacles to relocating, our 
analysis suggests that relocating tuna cannery operations from 
American Samoa to a tariff-free country with lower labor costs would 
significantly reduce cannery operating costs and reduce American Samoa 
jobs; however, maintaining some operations in American Samoa would 
allow the facility to continue to compete for U.S. government 
contracts. Some workers said they were disappointed to see the minimum 
wage increase delayed in 2010 and 2011; however, more workers 
expressed concern over job security than favored a minimum wage 
increase with the potential for subsequent layoffs. 

American Samoa Employment Fell Sharply in 2008-2009, and Employment 
and Average Inflation-Adjusted Earnings Were Lower than in 2006: 

American Samoa Employment Declined 2006-2009, though Employment 
Increased in Some Years: 

Overall American Samoa employment declined from 2006 to 2009, based on 
Social Security data; however, employment increased in some years. As 
shown in figure 10, employment grew from 2006 to 2008 but then fell in 
2009 to a level lower than in 2006. Specifically, available data show 
that from 2008 to 2009, the total number of people employed in 
American Samoa fell by 19 percent (from 19,171 to 15,434)[Footnote 97] 
and that over the entire period from 2006 to 2009, employment fell by 
14 percent (from 17,852 to 15,434, with a peak of 19,171 in 2008). 

Figure 10: American Samoa Employment Based on SSA Data, 2006 through 
2009: 

[Refer to PDF for image: line graph] 

Year: 2005; 
Employment: 17,769. 

Year: 2006; 
Employment: 17,852. 

Year: 2007; 
Employment: 18,878. 

Year: 2008; 
Employment: 19,171. 

Year: 2009; 
Employment: 15,434. 

Source: GAO analysis of Social Security Administration data. 

[End of figure] 

Because Social Security data are not available for 2010, we are unable 
to report on the overall level of employment for the year. However, 
the cannery that closed in September 2009 employed approximately 2,000 
workers, and there were layoffs in the remaining cannery--most of 
these losses do not appear in the 2009 SSA data.[Footnote 98] For the 
tuna canning industry, questionnaire responses from the remaining 
cannery and a closely related business show that employment of their 
workers--most of whom are foreign workers from independent Samoa--
dropped by 55 percent from 2009 to 2010 (from 4,125 to 1,869) and 
dropped by 59 percent for the entire period from 2007 to 2010 (from 
4,593 to 1,869).[Footnote 99] 

In addition, we estimated that from 2,000 to 3,000 jobs funded by the 
U.S. Census Bureau, the Recovery Act, and recovery efforts after the 
2009 tsunami were temporary and will end when federal funding is no 
longer available.[Footnote 100] As a result, counts of the total 
number employed during this period will be higher than the number of 
long-term positions. The temporary jobs were funded beginning in June 
2009, and the great majority of those were disaster recovery positions 
related to the tsunami. In addition, the Census Bureau employed 
enumerators and managers to assist with collection of 2010 Decennial 
Census data, and Recovery Act funds supported workers on 
infrastructure projects and in other fields. 

In discussion groups, private sector employers generally opposed 
additional minimum wage increases but said that a number of other 
factors made it difficult to do business in American Samoa. For 
example, they said increases in prices of utilities, shipping, and raw 
materials; an outdated tax structure; low levels of investment; and 
business licensing problems also make it difficult to establish and do 
business in American Samoa. They said that federal tsunami recovery 
assistance, Recovery Act funds, and Decennial Census employment 
provided relief and increased business, particularly in the 
construction industry, temporarily obscuring the full force of 
American Samoa's economic downturn. As this temporary relief period 
ends, employers expect that American Samoa's economic situation will 
worsen. They also said that, with fewer tuna exports, they expect 
increases in shipping wait-times and costs. Many employers supported 
the 2010 and 2011 delays in the minimum wage increases, and some said 
it is important to use the 2-year delay to address business 
challenges. For example, they said that while it is difficult to 
develop tourism in American Samoa, it is important to try. They also 
said they were concerned about the fiscal status of the local 
government and the possibility of harmful tax increases. 

An American Samoa government analysis found that the minimum wage 
increases would raise the government's wage and salary costs for its 
employees by about 1 percent (about $9 million) over 7 years.[Footnote 
101] Public officials said they supported a return to biennial reviews 
of minimum wage in American Samoa or other alternatives to the 
scheduled increases. In January 2011, the American Samoa governor 
signed a letter saying that the federal minimum wage increases had had 
devastating effects on American Samoa employment and the economy. The 
letter urged consideration of alternative methods of determining 
minimum wages in American Samoa, including the previous DOL biennial 
review process or some modification, or amending laws to specify the 
conditions to be considered in determining the minimum wage.[Footnote 
102] 

Average Inflation-Adjusted Earnings of Those Employed Have Fallen 
Since 2006: 

Average earnings of workers who maintained employment rose from 2006 
to 2009, but available data show that the increase was not sufficient 
to overcome the increase in prices. As shown in figure 11, based on 
SSA and consumer price data, from 2008 to 2009 (the most recent year 
available), average inflation-adjusted earnings fell by 5 percent. 
This decline resulted from a decrease in average earnings of 2 
percent, and an increase in prices of 3 percent. For the period from 
2006 to 2009, average inflation-adjusted earnings fell by 11 percent, 
due to a rise in average annual earnings of about 5 percent with an 18 
percent increase in prices.[Footnote 103] 

Figure 11: American Samoa Average Nominal and Inflation-Adjusted 
Earnings Based on SSA Data, 2006 through 2009: 

[Refer to PDF for image: multiple line graph] 

Year: 2006; 
Nominal earnings: $11,389; 
Inflation adjusted earnings: $11,389. 

Year: 2007; 
Nominal earnings: $11,628; 
Inflation adjusted earnings: $11,217. 

Year: 2008; 
Nominal earnings: $12,197; 
Inflation adjusted earnings: $10,638. 

Year: 2009; 
Nominal earnings: $11,967; 
Inflation adjusted earnings: $10,117. 

Source: GAO analysis of Social Security Administration data and 
American Samoa Consumer Price Index data. 

[End of figure] 

While Social Security earnings data do not allow for a direct 
comparison of average and minimum wage annual earnings or for tracking 
the earnings of workers who lost their jobs or left the area, the 
hourly wage of minimum wage workers increased by more than inflation. 
The inflation-adjusted earnings of minimum wage cannery workers who 
retained their jobs and work hours rose by about 8 percent from 2008 
to 2009 and by about 23 percent for the entire period from 2006 to 
2009. 

American Samoa Tuna Canning Industry Has Continued to Lay off Workers 
and Has Considered Alternate Locations: 

Minimum Wage Increases through 2016 Would Affect Wages of Almost All 
Workers in American Samoa's Tuna Canning Industry Employed in 2010: 

Minimum Wage Increases in 2007-2010 Increased Median Wage for Tuna 
Canning Industry Employees: 

Without a minimum wage increase in American Samoa in 2010, there was 
no increase in the median wage of workers in the tuna canning 
industry--in both 2009 and 2010, the median tuna canning worker wage 
was $4.76. Consistent with our last report, the median hourly wage 
rose from $3.30 in June 2007 to $4.76 in June 2010, a 44 percent 
increase, according to tuna canning questionnaire responses (see table 
6). During this period, the minimum wage for canning workers increased 
three times from $3.26 to $4.76, an overall increase of 46 percent. 

Table 6: Median Wages for Hourly-wage Workers in the American Samoa 
Tuna Canning Industry, June 2007 to June 2010: 

Year: 2007 (after zero minimum wage increases); 
Median wage: $3.30. 

Year: 2008 (after two minimum wage increases); 
Median wage: $4.26; 
Percentage change year to year: 29%. 

Year: 2009 (after three minimum wage increases); 
Median wage: $4.76; 
Percentage change year to year: 12%. 

Year: 2010 (after three minimum wage increases); 
Median wage: $4.76; 
Percentage change year to year: 0%. 

Source: GAO analysis of wage data provided in American Samoa tuna 
canning industry questionnaire, as of June 12 each year. 

Note: The minimum wage for workers in the tuna industry in American 
Samoa was $3.26 in June 2007, $3.76 in July 2007 (first increase), 
$4.26 in May 2008, and $4.76 in May 2009 and in 2010. It is scheduled 
to remain at $4.76 until the next increase in September 2012; there 
was no minimum wage increase in 2010 and none scheduled for 2011. 

[End of table] 

Minimum Wage Increases in 2007-2010 Slightly Narrowed the Wage Gap 
between Lower-and Higher-Paid Workers Employed by Questionnaire 
Respondents in Tuna Canning Industry: 

Responses to our questionnaire indicate that the minimum wage 
increases narrowed the gap between the wages of lower-and higher-paid 
workers in American Samoa's tuna canning industry (see figure 12). 
Specifically, the gap between the wages of the lowest-and highest-paid 
tuna canning workers was $0.28 in June 2007 and $0.25 in June 2010, a 
small decline of 11 percent. 

Figure 12: Changes in Wages of Hourly-wage Workers Employed by 
American Samoa Tuna Canning Questionnaire Respondents: 

[Refer to PDF for image: multiple line graph] 

Year: 2007 (after zero minimum wage increases); 
25th percentile of hourly wage earners: $3.30; 
75th percentile of hourly wage earners: $3.58. 

Year: 2008 (after two minimum wage increases); 
25th percentile of hourly wage earners: $4.26; 
75th percentile of hourly wage earners: $4.36. 

Year: 2009 (after three minimum wage increases); 
25th percentile of hourly wage earners: $4.76; 
75th percentile of hourly wage earners: $4.81. 

Year: 2010 (after three minimum wage increases); 
25th percentile of hourly wage earners: $4.76; 
75th percentile of hourly wage earners: $5.01. 

Source: GAO analysis of wage data provided in American Samoa tuna 
canning industry questionnaire, as of June 12 each year. 

Note: The minimum wage for workers in the tuna industry in American 
Samoa was $3.76 in July 2007 (first increase), $4.26 in May 2008, and 
$4.76 in May 2009 and in 2010. It is scheduled to remain at $4.76 
until the next increase in September 2012; there was no minimum wage 
increase in 2010 and none scheduled for 2011. 

[End of figure] 

Minimum Wage Increases in 2010-2018 Would Affect Wages of Almost All 
Workers in Tuna Canning Industry: 

As the minimum wage increases continue, they will affect a growing 
percentage of workers in American Samoa's tuna canning industry. Based 
on questionnaire responses about workers' wages as of June 2010, 69 
percent of canning industry workers were at the minimum wage in 2009 
and 2010. The future minimum wage increases would affect the wages of 
99 percent of current canning industry workers by the time the minimum 
wage reaches $7.25 in 2016. By 2016, the extra annual cost added by 
minimum wage increases after June 2010 (reflecting the 2009 increase) 
would be $4,660 per worker (see table 7). We identified the additional 
cost by calculating the difference between the cost per worker in June 
2010 and the cost per worker through 2016, based on the scheduled 
minimum wage increases and averaged across all workers. 

Table 7: Distribution and Increased Annual Cost Since June 2010 per 
Hourly-wage Worker in American Samoa Tuna Canning Industry Due to 
Minimum Wage Increases: 

Year of minimum wage increase: 2010 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 69%; 
Minimum wage of cannery workers: $4.76; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
0; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$0. 

Year of minimum wage increase: 2011 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 69%; 
Minimum wage of cannery workers: $4.76; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
0; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$0. 

Year of minimum wage increase: 2016 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 99%; 
Minimum wage of cannery workers: $7.25; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
$2.24; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$4,660[A]. 

Source: GAO analysis of June 12, 2010 wage data provided in American 
Samoa tuna canning industry questionnaire. 

Note: To estimate the annual cost of future minimum wage increases, we 
first calculated the difference between the hourly wage for each 
worker in June 2010 (reflecting the 2009 minimum wage of $4.76) and 
all scheduled minimum wage increases through 2016 (scheduled to occur 
in September 30 of each year except for 2010 and 2011). We multiplied 
that value by 2,080 (annual hours worked per full-time worker) to 
obtain an annual estimate for each worker. Finally, we reported the 
average of that value. For workers in June 2010 paid above a scheduled 
minimum wage, we assumed that the cost of that minimum wage for those 
workers would be zero (that they would receive no increase in pay). 
The average wage of canning industry workers in June 2010 was $5.02. 
We calculated the average cost for all workers, not only workers 
affected by the minimum wage. In contrast, by 2016 the cost for 
workers affected by the minimum wage would be $4,736. There was no 
minimum wage increase in 2010 and none scheduled for 2011. 

[A] The cost of the 2016 minimum wage is not adjusted for inflation. 
For illustration purposes, adjusting for projected U.S. inflation 
using the Congressional Budget Office's projection of the GDP price 
index shows that the real minimum wage cost in 2016 would be $4,275, 
an 8.3 percent decrease. The analysis excluded nonwage labor costs due 
to the minimum wage increases, such as increases in employer payroll 
tax contributions under FICA. For 2011, employers must contribute the 
equivalent of 6.2 percent of employee wages to Social Security and 
1.45 percent to Medicare, up to $106,800 in employee wages. 

[End of table] 

American Samoa Tuna Canning Employers Reported Past and Planned 
Actions to Reduce Costs and Lay Off Workers, with Most Actions 
Attributed to Minimum Wage Increases: 

Tuna Canning Employers Reported Cutting Costs and Laying Off Workers 
from 2009 to 2010, with Most Actions Attributed to Minimum Wage 
Increases: 

The two employers in the tuna canning industry reported in our 
questionnaire that they had taken cost-cutting actions from June 2009 
to June 2010. For example, the two respondents reported having taken 
cost-cutting actions affecting workers' income, including laying off 
hourly and salaried workers, reducing overtime hours for hourly 
workers, freezing hiring, and temporarily closing. The employer 
representing the majority of workers employed by questionnaire 
respondents also reported having decreased hourly workers' benefits 
and reduced regular work hours for hourly workers. The two employers 
reported additional cost-cutting actions, including reducing operating 
capacity or services offered and implementing other cost-and labor- 
saving strategies or technology. The employer representing the 
majority of workers employed by questionnaire respondents also 
reported having delayed expansions. Both employers reported that they 
had raised prices of goods or services. For most of these actions, 
employers attributed their actions largely to the minimum wage 
increases. 

Tuna Canning Employers Reported Plans to Take Additional Actions by 
Early 2012, with Most Planned Actions Attributed to Minimum Wage 
Increases: 

The two questionnaire respondents in the tuna canning industry also 
reported plans to take the same types of cost-cutting actions in the 
next 18 months, by early 2012. They reported planning to take cost- 
cutting actions affecting workers' income, including laying off 
additional hourly and salaried workers and freezing hiring. The 
employer representing the majority of workers employed by 
questionnaire respondents reported planning to decrease benefits of 
both hourly and salaried workers and reduce regular and overtime 
hours. The two employers also reported plans to take additional cost-
cutting actions, including implementing other cost-and labor-saving 
strategies or technology. The employer representing the majority of 
workers employed by questionnaire respondents reported planning to 
delay expansions and reduce operating capacity or services offered. 
The employer representing fewer workers employed by questionnaire 
respondents reported planning to raise prices. Employers attributed 
most of these plans largely to the minimum wage increases. Employers 
in American Samoa's tuna canning industry reported that any actions by 
the larger employer will affect the smaller employer. 

Tuna Canning Employers Attributed Their Actions to Minimum Wage 
Increases More Often than to Other Factors: 

Employers attributed their actions largely to the minimum wage 
increases more often than they attributed their actions largely to 
other factors, such as transportation and shipping costs and changes 
in business taxes and fees. However, they said a decrease in the 
number of customers, such as wholesale customers, was another 
important factor affecting their past and planned actions. Employers 
also attributed their past and planned actions to increased utility 
costs to a moderate extent. 

American Samoa Tuna Canning Industry Faces Challenges, and Relocating 
to Alternate Locations Would Significantly Reduce Business Costs but 
Eliminate American Samoa Jobs: 

Cannery Officials Are Concerned about American Samoa's Dwindling 
Competitive Advantage in Global Tuna Canning Industry: 

Cannery company officials we interviewed indicated that labor costs, 
including the minimum wage increases, continued to place American 
Samoa at a significant cost disadvantage compared with other canned 
tuna exporting countries. As we previously reported, by raising the 
hourly minimum wage for cannery workers in American Samoa from $3.26 
in 2006 to $4.76 in May 2009 (remaining at $4.76 in 2010 and 2011)--a 
total increase of 46 percent--the three minimum wage increases to date 
have further widened the gap between American Samoa and production 
sites with lower labor costs, such as Thailand, which has a minimum 
wage of less than $1 an hour. Cannery officials continued to state 
that wage increases were one of many factors affecting the tuna 
canning industry in American Samoa.[Footnote 104] Officials from the 
remaining cannery said that in previous years uncertainty regarding 
the minimum wage increases meant they could not plan American Samoa 
operations further than months in advance, impacting their ability to 
make a long-term commitment to maintaining operations in American 
Samoa. They said that although they continue to consider relocation or 
closure of the American Samoa facility as one of many possible 
scenarios, knowing that wages would be stable through 2012 had allowed 
them to better stabilize operations in American Samoa. 

In addition to higher wages, company officials noted that the 
continued increases in shipping and utility rates--partly owing to 
increased fuel costs in recent years--add to increased operating 
costs. Loss of eligibility for certain U.S. tax benefits also 
contributed to rising costs. Furthermore, as a result of the September 
2009 cannery closure, the remaining cannery has since been responsible 
for all maintenance costs--such as waste disposal and water discharge--
that the two canneries previously shared, as well as increased power 
and water costs. Opportunities for shared services between the 
remaining cannery and the newly acquired facility will depend on the 
scope of operation at the new facility, which remains unknown. 

Officials at the remaining cannery noted that, while duty-free access 
to the U.S. market for canned tuna exports from American Samoa once 
made production in American Samoa advantageous, trade liberalization 
has since significantly reduced tariff advantages.[Footnote 105] 
Additionally, cheaper operating costs in alternative locations expand 
the cost gap between canned tuna produced in American Samoa and canned 
tuna produced elsewhere. As a result of the factors discussed, 
representatives from the remaining cannery report that they have 
shifted a portion of production to facilities outside of American 
Samoa and continue to report that it is no longer cost-effective to 
operate a canning facility in American Samoa. 

As we previously reported, cannery officials stated that minimum wage 
increases were a significant factor in the closure of one of the two 
canneries in American Samoa but that other factors also contributed to 
the cannery's closure. In addition to those mentioned above, cannery 
officials said that factors that contributed to the cannery's closing 
included an attractive environment for investment in alternative 
locations and the high costs associated with environmental 
regulations.[Footnote 106] 

Although a new tuna facility operator acquired the facility that 
closed, operations planned in the short-term are more limited than 
those before the facility closed. Company officials indicated that 
they are considering using the plant as a logistics and storage 
facility for handling fresh, and potentially frozen, fish and for the 
company's existing fleet in the Western and Central Pacific Ocean. 
These operations would require between 50 to 100 employees. The 
company will continue to evaluate and reconstruct the facility and has 
hired a small number of workers who had remained employed at the 
facility after its closure. As of March 2011, the company expected 
plant renovations to last 12 to 18 months, though some limited 
operations may begin before renovations are complete. However, company 
officials stated that all future employment and investment plans will 
depend on several factors, most important of which are the scheduled 
minimum wage increases. Specifically, officials said the opportunity 
to produce canned tuna could depend on American Samoa's labor cost 
relative to alternate locations. 

Industry Experts Said Prices and Other Factors Are a Constraint as 
Tuna Canning Industry Becomes More Competitive: 

In addition to factors affecting American Samoa operations in 
particular, industry experts noted that the global tuna industry is 
changing in many ways. For example, various fishery management 
organizations and other parties have increased restrictions on fishing 
some tuna target species, including tuna used for canning, in the 
western and central Pacific Ocean. Additionally, experts and industry 
officials said price dynamics are a major constraint to the industry; 
as the industry becomes increasingly competitive, profit margins 
decrease. The highly competitive global market for tuna products makes 
it increasingly difficult to pass along higher labor and operating 
costs to consumers by raising prices. For example, industry officials 
note that it is difficult for companies to raise prices when 
supermarket brands offer consumers very low prices. Growing 
supermarket and consumer demand for assurances of social and 
environmental responsibility also contributes to changing industry 
dynamics.[Footnote 107] 

Comparison of Four Tuna Canning Business Models: 

Although American Samoa is located near rich fishing grounds, its 
labor costs are significantly higher than those in competing 
countries, both before and after the minimum wage increases. Cannery 
officials said that current operations in American Samoa were not 
competitive with other models. We compared the labor and tariff costs 
associated with alternate business models for tuna canning in order to 
illustrate how the costs differ under each estimated model. The 
following analysis provides cost estimates under four possible 
scenarios for cannery operations currently located in American Samoa, 
assuming constant total production under each model, and including two 
models presented in our previous report.[Footnote 108] It considers 
only labor costs and tariffs, in order to show the effect of variation 
in different countries. It excludes other associated costs, including 
transportation, refrigeration, opening of a new plant (if needed), and 
other costs associated with establishing multiple production 
locations. It also excludes nonwage labor costs, such as the costs of 
employer payroll tax contributions.[Footnote 109] 

* Model A (loining and canning located in American Samoa): Tuna 
processing currently done in American Samoa remains entirely in 
American Samoa. Canneries located in American Samoa hire local and 
foreign workers to loin (clean, cook, and cut) and can the fish. In 
addition, the plant processes some frozen loins imported from 
countries with lower wages. The canned tuna from American Samoa is 
exported directly to the United States and benefits from tariff-free 
access to the U.S. market. With an estimated workforce of 1,500 
employees in American Samoa, the associated labor cost is $14.9 
million in 2010 and $23.4 million in 2016, with zero tariff costs. 

* Model B (relocating loining to Thailand or another country with 
lower labor costs, and canning frozen loins in the U.S. 50 states): 
The loining operation--the most labor-intensive part of the operation--
moves to low labor-cost countries, such as Thailand, Trinidad, Fiji, 
Mauritius, or Papua New Guinea, where the fish loin is frozen. The 
frozen fish is exported to the United States, where it is canned. The 
frozen fish carries a tariff of $11 per metric ton, and workers are 
employed in a low labor-cost country at $0.75 per hour. [Footnote 110] 
The combined labor and tariff cost in 2010 and 2016 of this model is 
$11.4 million.[Footnote 111] No workers remain in American Samoa 
cleaning fish, and 300 workers are employed in the U.S. 50 states at 
$14.00 per hour.[Footnote 112] Tuna facilities in American Samoa are 
currently among few in the United States that can meet the 
requirements of U.S. government contracts, many of which require U.S.-
sourced and -processed fish.[Footnote 113] While facilities outside 
American Samoa may qualify for these contracts based on their 
location, it is unclear whether their production models meet the 
requirements, according to an industry expert. Facilities under this 
model might not meet the requirements of U.S. government contracts and 
could lose this business. 

* Model C (relocating all loining and canning to a tariff-free 
country): Loining is done in a country with zero tariffs on canned 
tuna exported to the United States.[Footnote 114] Workers are employed 
at $1 per hour. The basis for tariff-free access to the United States--
the Generalized System of Preferences--expired at the end of 2010; 
however, the Office of the U.S. Trade Representative is supporting 
reauthorization in 2011. Under this model, the American Samoa cannery 
closes, and all 1,500 positions are relocated to a tariff-free 
country. The cost is $3.1 million for 2010 and 2016, assuming no wage 
increases in the tariff-free country. As with Model B, facilities 
under this model might not meet the requirements of U.S. government 
contracts and could lose this business. 

* Model D (hybrid, with one half of production, including for U.S. 
government contracts, located in American Samoa and the other half 
relocated to a tariff-free country): The American Samoa cannery 
continues to supply canned tuna for U.S. government contracts (20 
percent of production from Model A), and another 30 percent of 
production remains in American Samoa.[Footnote 115] The remaining 50 
percent of production moves to a country that exports canned tuna 
tariff-free to the United States. For this model, we assume that the 
workforce remaining in American Samoa will be 50 percent of the 
current total workforce, and the other 50 percent will be in a tariff-
free country. The associated cost is $8.6 million in 2010 and $12.9 
million in 2016, with zero tariff costs. 

Considering only labor and tariff costs, figure 13 shows that a 
business model in which all loins are processed in American Samoa 
(Model A) has higher costs than the alternatives. The model that 
presents the highest combined labor and tariff cost savings involves 
moving operations to a tariff-free country and closing operations in 
American Samoa (Model C). This model would result in approximately 
1,500 fewer jobs in American Samoa. The next cost-saving option is to 
move 50 percent of production to a tariff-free country and keep 50 
percent in American Samoa (Model D), while retaining eligibility for 
U.S. government contracts. This model would result in about 750 fewer 
jobs in American Samoa.[Footnote 116] Moving the loining operations to 
a country with lower wages (Model B) presents significant cost 
savings; however, under this scenario tariffs on imported frozen loins 
are imposed, and the canning process is done in the U.S. 50 states at 
higher wages than in competing tuna processing countries. 
Additionally, lease obligations in American Samoa and the cost of 
building new facilities may pose obstacles to near-term relocation. 
[Footnote 117] 

Figure 13: Comparison of Estimated Wage and Tariff Costs for Tuna 
Canneries Using Alternate Business Models: 

[Refer to PDF for image: model data with illustrations] 

Model A: All loining and canning located in American Samoa. 

Jobs in American Samoa: 
remaining: 1,500; 
lost: 0. 

Year: 2010; 
Labor cost: $14.9 million; 
Total cost: $14.9 million; 
Tariff cost: $0. 

Year: 2016; 
Labor cost: $23.4 million; 
Total cost: $23.4 million; 
Tariff cost: $0. 

Illustration: 
Boat for fishing: 
To American Samoa for loining and canning; 
Boat exporting tariff-free canned fish to the United States from 
American Samoa. 

Model B: Relocating loining to Thailand or another country with lower 
labor costs, and canning frozen loins in the U.S. 50 states. 

Jobs in American Samoa: 
remaining: 0; 
lost: 1,500. 

Year: 2010; 
Labor cost: $11.1 million; 
Total cost: $11.4 million; 
Tariff cost: $0.32 million; 
Cost savings compared to Model A: $3.5 million. 

Year: 2016; 
Labor cost: $11.1 million; 
Total cost: $11.4 million; 
Tariff cost: $0.32 million; 
Cost savings compared to Model A: $12.0 million. 

Illustration: 
Boat for fishing: 
To Thailand for loining; 
Boat transporting loined, frozen fish to the United States to be 
canned. 

Model C: Relocating all loining and canning to a tariff-free country. 

Jobs in American Samoa: 
remaining: 0; 
lost: 1,500. 

Year: 2010; 
Labor cost: $3.1 million; 
Total cost: $3.1 million; 
Tariff cost: $0; 
Cost savings compared to Model A: $11.7 million. 

Year: 2016; 
Labor cost: $3.1 million; 
Total cost: $3.1 million; 
Tariff cost: $0; 
Cost savings compared to Model A: $20.3 million. 

Illustration: 
Boat for fishing: 
To tariff-free country for loining and canning; 
Boat exporting tariff-free canned fish to the United States from a 
tariff-free country. 

Model D: Hybrid, with loining and canning for U.S. government 
contracts located in American Samoa and with other production 
relocated to a tariff-free country. 

Jobs in American Samoa: 
remaining: 300; 
lost: 1,200. 

Year: 2010; 
Labor cost: $4.8 million; 
Total cost: $4.8 million; 
Tariff cost: $0; 
Cost savings compared to Model A: $10.0 million. 

Year: 2016; 
Labor cost: $6.6 million; 
Total cost: $6.6 million; 
Tariff cost: $0; 
Cost savings compared to Model A: $16.8 million. 

Illustration: 
Boat for fishing: 

To tariff-free country for loining and canning; 
Boat exporting tariff-free canned fish to the United States from a 
tariff-free country. 

To American Samoa for loining and canning; 
Boat exporting tariff-free canned fish to the United States from 
American Samoa; Production for U.S. government contracts[A]. 

Sources: GAO analysis of information from tuna industry data and U.S. 
tariff law; Art Explosion (clip art); Map Resources (map). 

Notes: Calculations for 2016 assume constant level of production and 
assume minimum wages in Thailand and the tariff-free country remain at 
2010 levels. They assume an average hourly wage in Thailand of $.75, 
in the U.S. state of Georgia of $14.00, and in the tariff-free country 
of $1. American Samoa hourly wages are based on the minimum wage 
increases as scheduled. 

For Model D, we assume that 50 percent of production (20 percent for 
U.S. government contracts and 30 percent for other production) remains 
in American Samoa, and the remaining 50 percent of production moves to 
a country that exports canned tuna tariff-free to the United States. 

[End of figure] 

While cannery company officials and industry experts continue to 
report that American Samoa's competitive advantage in the global tuna 
canning industry is decreasing, they have also stated that the ability 
to qualify for U.S. government contracts is one of the few remaining 
factors making American Samoa an attractive location for tuna canning. 
Although the comparison of labor and tariff costs under different 
business models shows the greatest savings by moving operations to a 
tariff-free country and closing operations in American Samoa (Model 
C), operations under this model would lose eligibility for U.S. 
government contracts for canned tuna. In addition, savings from moving 
the loining operations to a country with lower wages (Model B) also 
would be partially offset by the loss of U.S. government contracts. 
The model moving 50 percent of production to a tariff-free country and 
keeping 50 percent in American Samoa (Model D) would retain 
eligibility for these contracts. 

American Samoa Tuna Canning Workers Generally Opposed the Minimum Wage 
Increases, While Other Workers Shared Mixed Views: 

In discussion groups, most participants working in the tuna canning 
industry said they opposed further minimum wage increases. However, 
some participants supported the increases, especially to help with 
cost-of-living increases. 

* Job insecurity. More tuna canning workers expressed concern over job 
security than favored a minimum wage increase with the potential for 
subsequent layoffs. Many workers said that their current wages are 
enough and that they prefer to remain at the current wage and keep 
their jobs. In addition, participants said that they fear the 
remaining cannery will close with more minimum wage increases, causing 
more job loss. 

* Minimum wage increase delays. Many participants supported the delays 
to the 2010 and 2011 minimum wage increases. However, some said they 
had looked forward to the 2010 minimum wage increase and were 
disappointed to not receive an increase after they had expected it. A 
few said they were tired of the process of considering the minimum 
wage increases. Some supported waiting until 2012 to make a decision 
about future increases. 

* Cost of living. Many participants said that the cost of living is 
increasing substantially, including the prices of bus fare, food, 
water, electricity, and health care. Some of these workers said that 
the cost of living increases as the minimum wage increases. 

* Cannery closure. Participants are concerned about the spillover 
effects of cannery closures and layoffs on the rest of the American 
Samoa economy. They said that the economy and other businesses rely on 
the tuna canning industry and will suffer without canneries. 
Participants noted that there is high unemployment in American Samoa 
and that they fear additional unemployment. 

* Reduced benefits and work hours. Participants reported that their 
benefits had been reduced, including paid holidays and vacations. In 
addition to reductions in benefits, participants are concerned that 
future wage increases will mean a reduction in hours. 

* Foreign workers. Discussion group participants noted that workers 
from independent Samoa have fewer options for jobs and benefits. They 
said that some who were laid off have stayed in American Samoa and 
others have returned home. 

Discussion group participants outside the tuna canning industry shared 
mixed views on the minimum wage increases. Laid off workers said they 
supported the minimum wage increases more than employed cannery 
workers, though some were concerned about job loss and availability. 
Like discussion group participants in the tuna canning industry, 
participants outside the cannery fear that the remaining cannery will 
close with more minimum wage increases and that other companies will 
not invest in American Samoa. Participants said it is hard to find 
jobs and that American Samoa needs new jobs. In addition to noting 
that the cost of living is increasing, participants also said they 
thought that enrollment in social services is increasing. Participants 
said that people leave American Samoa in difficult times, but many 
return. 

The text box lists some of the comments by discussion group 
participants. 

[Text box: 

American Samoa Workers' Views Based on Discussion Groups: 

Job insecurity: 

* "I'm scared of the wage increases because I might lose my job again." 

* "It's better to have something than nothing, better to have a job 
than none. What's the point of a minimum wage increase if you lose 
your job?" 

* "What we have now [wages] is enough. Add 50 cents and we lose our 
jobs or the company closes. I don't want to lose my job." 

Minimum wage increase delays: 

* "It's a very good idea for this island and us people to stop minimum 
wage for this year and next year." 

* "It's disappointing to think you're going to get an increase and 
then not get it." 

* "As long as I have a job, I don't mind the delay. I'll wait until 
2012." 

Cost of living: 

* "The cost of food is sky high, and water and electricity is high 
also." 

* "As increases in wages come, so do price increases in everything-- 
food, power." 

Cannery closure: 

* "Minimum wage is a problem--it is too high, and companies are moving 
out." 

* "I think minimum wage is the reason companies are failing." 

* "The economy here depends on the cannery. Without it, the economy 
falls apart." 

Reduced benefits and work hours: 

* "There has been cost-cutting. They got rid of benefits. There's no 
annual leave or vacations." 

* "If we have another 50 cent increase, hours are reduced--no more 
eight hours a day, it'll be six hours a day. So if the [hourly] rate 
goes up, it doesn't matter." 

Foreign workers: 

* "If there's no job for me, because I'm from Western Samoa, where can 
I find work and money for my family?" 

* "Those that lost their jobs after [the cannery] closed are staying 
at home, doing nothing, went back home [to Western Samoa], or they're 
on social services." 
End of text box] 

[End of section] 

Appendix IV: CNMI: 

CNMI employment fell by about 13 percent from 2008 to 2009 and by 
about 35 percent from 2006 to 2009, largely reflecting the closure of 
the CNMI's last remaining garment factories. In addition, we estimate 
that less than 1,000 temporary federal jobs funded beginning in June 
2009 will end when federal funding is no longer available. Inflation- 
adjusted average earnings of CNMI workers who maintained employment 
rose by 3 percent from 2008 to 2009 and remained largely unchanged, 
with a slight drop of .5 percent, from 2006 to 2009, according to CNMI 
government data. In addition, over both periods, the minimum wage 
increased by significantly more than inflation. In discussion groups, 
private sector employers said minimum wage increases imposed 
additional costs during a time in which multiple factors made it 
difficult to operate. According to CNMI government payroll data, about 
17 percent of government workers are paid at or below $7.25 and would 
be affected by the minimum wage increases by 2016. In the tourism 
industry, close to three-quarters of hourly-wage workers in June 2010 
were at the current minimum wage, and future scheduled increases 
through 2016 would affect 95 percent of those workers. Tourism 
questionnaire employers reported that they took cost-cutting actions 
from June 2009 to June 2010, including reducing hours and freezing 
hiring; employers also reported plans to take the same types of 
actions by early 2012, as well as laying off workers. Few employers--
weighted by numbers of employees--attributed their past cost-cutting 
actions largely to the minimum wage increases, and one-half or less 
did so for each of the planned actions. Due to the decline in visitors 
and to competition from other destinations, hotels have generally 
absorbed minimum wage costs rather than raise room rates, and they 
have postponed other investments and renovations. Both visitor 
arrivals and flight seats available to the CNMI declined from 2005 to 
2010. Industry data show that from 2006 to 2010 the CNMI hotel 
occupancy rate remained between 58 and 65 percent, and inflation-
adjusted room rates declined. If observed trends continue, payroll 
will represent an increasing share of total operating cost for hotels 
in the CNMI, due to the minimum wage increases. In discussion groups, 
some tourism employers and managers expressed concern about the 
minimum wage increases, but others said the minimum wage increases 
were needed and manageable and that the primary difficulty was the 
CNMI tourism industry's general decline. Workers participating in our 
CNMI discussion groups expressed mixed views regarding the minimum 
wage increases and said they would like pay increases but were 
concerned about losing jobs and work hours. 

CNMI Employment Fell in 2008-2009 and Has Decreased Substantially 
Since 2006, and Average Inflation-Adjusted Earnings Have Remained 
Largely Unchanged: 

CNMI Employment Decreased Substantially 2006-2009: 

Overall CNMI employment fell substantially from 2006 to 2009, with 
drops in the numbers employed in every year, based on CNMI tax data. 
As shown in figure 14, based on CNMI tax data, from 2008 through 2009 
the total number of people employed fell by about 13 percent. For the 
entire period from 2006 through 2009, the number employed fell 35 
percent. A large part of this decline, especially early in this 
period, is likely attributable to the closure of the CNMI's last 
remaining garment factories, which employed many foreign workers. 
[Footnote 118] 

Figure 14: CNMI Employment Based on CNMI Government Tax Data, 2006 
through 2009: 

[Refer to PDF for image: line graph] 

Year: 2005; 
Employment: 49,224. 

Year: 2006; 
Employment: 43,036. 

Year: 2007; 
Employment: 36,524. 

Year: 2008; 
Employment: 32,053. 

Year: 2009; 
Employment: 27,897. 

Source: GAO analysis of CNMI annual tax data. 

[End of figure] 

Because CNMI tax data are not available for 2010, we are unable to 
report on the overall level of employment for the year. Wage data from 
the 12 respondents to our 2010 tourism questionnaire show that hourly- 
wage employment in the tourism industry (including hotels and other 
employers, such as tour operators) fell 8 percent from 2009 to 2010 
(from 1,703 to 1,567) and fell by 14 percent over the period from 2007 
to 2010 (from 1,827 to 1,567). 

In addition, we estimated that less than 1,000 jobs funded by the U.S. 
Census Bureau and Recovery Act funds were temporary and will end when 
federal funding is no longer available. As a result, counts of the 
total number employed during this period will be higher than the 
number of long-term positions.[Footnote 119] The temporary jobs were 
funded beginning in June 2009 and included Census enumerators and 
managers to assist with collection of 2010 Decennial Census data, as 
well as jobs in infrastructure and other areas supported by Recovery 
Act funds. 

In interviews and discussion groups, private sector employers reported 
declines in employment due to layoffs and hiring freezes, as well as 
cuts in hours and benefits. Many discussion group participants said 
the minimum wage increases were one of multiple factors in a "perfect 
storm" that made it difficult to operate businesses in the CNMI. They 
expressed concern about increases in crime and in poverty, including 
people without water and power. They said the departure of the garment 
industry and the inability to replace the industry had initiated a 
downward economic spiral that hurt businesses, including by 
contributing to higher shipping costs and reduced flights. The tourism 
industry has declined, and population loss from people leaving the 
CNMI also has resulted in decreased sales. In addition, businesses 
faced high and increasing costs of inputs, including power and other 
utilities, gas, and food. They said the legitimate economy was 
shrinking, while the underground economy--including some employers 
that do not pay the minimum wage--was growing. Private sector 
employers expressed particular concerns about changes to immigration 
law and incomplete regulations, which created uncertainty regarding 
access to needed foreign workers and to visitors. In general, they 
said minimum wage increases imposed additional costs at a particularly 
difficult time for CNMI businesses. They also expressed concerns about 
instability and possible tax increases from the local government, and 
some said that the federal government had made insufficient efforts to 
improve living conditions and to collect and monitor data on the CNMI. 

According to CNMI government payroll data, about 17 percent of 
government workers are paid at or below $7.25 and would be affected by 
the minimum wage increases by 2016. In addition, after a partial 
government shutdown in October 2010, the CNMI government made 
significant cuts to government employees' work hours. 

CNMI Average Inflation-Adjusted Earnings of Those Employed Have 
Remained Largely Unchanged Since 2006: 

Average earnings for those who maintained employment rose from 2006 to 
2009, but prices increased by about the same amount. As shown in 
figure 15, based on CNMI tax and consumer price data, from 2008 to 
2009 (the most recent year available) average inflation-adjusted 
earnings rose by 3 percent. This increase resulted from an increase in 
average earnings of 7 percent and an increase in prices of 3.5 
percent. For the period from 2006 to 2009, average inflation-adjusted 
earnings remained largely unchanged, with a slight drop of about 0.5 
percent, due to a rise in average annual earnings of about 19 percent 
and a 19.5 percent increase in prices.[Footnote 120] 

Figure 15: CNMI Average Nominal and Inflation-Adjusted Earnings Based 
on CNMI Government Tax Data, 2006 through 2009: 

[Refer to PDF for image: multiple line graph] 

Year: 2006; 
Nominal earnings: $11,455; 
Inflation adjusted earnings: $11,455. 

Year: 2007; 
Nominal earnings: $11,925; 
Inflation adjusted earnings: $11,027. 

Year: 2008; 
Nominal earnings: $12,781; 
Inflation adjusted earnings: $11,068. 

Year: 2009; 
Nominal earnings: $13,625; 
Inflation adjusted earnings: $11,402. 

Source: GAO analysis of CNMI annual tax data and CNMI Consumer Price 
Index data. 

[End of figure] 

Although CNMI tax data do not allow for a direct comparison of average 
and minimum-wage annual earnings or for tracking the earnings of 
workers who lost their jobs, the hourly wage of minimum wage workers 
increased by more than inflation. The inflation-adjusted earnings of 
minimum wage workers who retained their jobs and work hours rose by 
about 9 percent from 2008 to 2009 and by about 25 percent for the 
entire period from 2006 to 2009. 

CNMI Tourism Industry Experienced Declines in Visitor Arrivals, and 
Hotels Have Absorbed Minimum Wage Increases Rather than Raising Room 
Rates: 

Minimum Wage Increases in 2007-2010 Increased Median Wage for Workers 
in Tourism Industry, and 2010-2018 Increases Would Affect Wages of 
Almost All Tourism Workers: 

Minimum Wage Increases in 2007-2010 Increased Median Wage for Tourism 
Industry Employees: 

From June 2007 to June 2010, the median hourly wage in the CNMI 
tourism industry rose from $3.65 to $4.60, a 26 percent increase, 
according to our questionnaire responses (see table 8).[Footnote 121] 
During this period, the minimum wage increased from $ 3.05 to $4.55, 
an increase of 49 percent. Because our questionnaire collected wage 
data as of June of each year, these data cover the first three minimum 
wages (in 2007, 2008, and 2009) but do not reflect the September 2010 
minimum wage increase. 

Table 8: Median Wages for Hourly-wage Workers in the CNMI Tourism 
Industry, June 2007 to June 2010: 

Year: 2007 (after zero minimum wage increase); 
Median wage: $3.65. 

Year: 2008 (after two minimum wage increases); 
Median wage: $4.05; 
Percentage change: 11%. 

Year: 2009 (after three minimum wage increases); 
Median wage: $4.55; 
Percentage change: 12%. 

Year: 2010 (after three minimum wage increases); 
Median wage: $4.60; 
Percentage change: 1%. 

Year: Percent change 2007-2010; 
Percentage change: 16%. 

Source: GAO analysis of wage data provided in CNMI tourism industry 
questionnaire, as of June 12 each year. 

Note: The minimum wage for the CNMI was $3.05 in June 2007, $3.55 in 
July 2007 (first increase), $4.05 in May 2008, $4.55 in May 2009, and 
$5.05 in October 2010 (not included in table). Because our 
questionnaire collected wage data as of June 12 of each year, the data 
do not reflect the CNMI's September 30, 2010, minimum wage increase. 

[End of table] 

Minimum Wage Increases in 2007-2010 Narrowed Wage Gap between Lower-
and Higher-Paid Workers Employed by Questionnaire Respondents in 
Tourism Industry: 

Responses to our questionnaire indicate that the timing of minimum 
wage increases corresponded to narrowing of the gap between the wages 
of lower-and higher-paid workers in the CNMI's tourism industry (see 
figure 16). Specifically, the gap between the wages of the lowest-and 
highest-paid hourly-wage workers of hotels and other tourism employers 
dropped from $1.35 in June 2007 to $0.65 in June 2010, a decline of 52 
percent. 

Figure 16: Changes in Wages of Hourly-wage Workers Employed by CNMI 
Hotel and Other Tourism Questionnaire Respondents: 

[Refer to PDF for image: multiple line graph] 

Year: 2007 (after zero minimum wage increases); 
25th percentile of hourly wage earners: $3.25; 
75th percentile of hourly wage earners: $4.60. 

Year: 2008 (after two minimum wage increases); 
25th percentile of hourly wage earners: $4.05; 
75th percentile of hourly wage earners: $4.75. 

Year: 2009 (after three minimum wage increases); 
25th percentile of hourly wage earners: $4.55; 
75th percentile of hourly wage earners: $5.10. 

Year: 2010 (after three minimum wage increases); 
25th percentile of hourly wage earners: $4.55; 
75th percentile of hourly wage earners: $5.20. 

Source: GAO analysis of wage data provided in CNMI tourism industry 
questionnaire, as of June 12 each year. 

Note: The minimum wage for the CNMI was $3.55 in July 2007 (first 
increase), $4.05 in May 2008, $4.55 in May 2009, and $5.05 in October 
2010. Because our questionnaire collected wage data as of June 12 of 
each year, the data do not reflect the CNMI's September 30, 2010, 
minimum wage increase. 

[End of figure] 

Some hotel and other tourism employers said in interviews that the 
compression of wages had resulted in lower morale for more senior 
employees who now earned little more than new employees. Other 
employers told us that their voluntary efforts to provide pay 
increases to workers above the minimum wage had increased the total 
costs of the minimum wage increases. 

Minimum Wage Increases in 2010-2018 Would Affect Wages of Almost All 
Workers in Tourism Industry: 

As the minimum wage increases continue, they will affect a growing 
percentage of workers in the CNMI's tourism industry. Based on 
questionnaire responses about hotel and other tourism workers' wages 
as of June 2010, 73 percent of hourly-wage workers were at the current 
minimum wage. The future minimum wage increases would affect the wages 
of 95 percent of current workers by the time the minimum wage reaches 
$7.25 in 2016. By 2016, the extra annual cost added by minimum wage 
increases after June 2010 (reflecting the 2009 increase) would be 
$4,707 per worker (see table 9). We identified the additional cost by 
calculating the difference between the cost per worker in June 2010 
and the cost per worker through 2016, based on the scheduled minimum 
wage increases and averaged across all workers. 

Table 9: Distribution and Increased Annual Cost Since June 2010 per 
Hourly-wage CNMI Tourism Worker Due to Minimum Wage Increases: 

Year of minimum wage increase: 2010 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 73%; 
Minimum wage: $5.05; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
$0.36; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$757. 

Year of minimum wage increase: 2011 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 73%; 
Minimum wage: $5.05; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
$0.36; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$757. 

Year of minimum wage increase: 2016 (September 30); 
Percent of hourly-wage workers in June 2010 at or below the new 
minimum wage: 95%; 
Minimum wage: $7.25; 
Increased average hourly cost since June 2010 per hourly-wage worker: 
$2.26; 
Increased average annual cost since June 2010 per hourly-wage worker: 
$4,707[A]. 

Source: GAO analysis of June 12, 2010 wage data provided in CNMI 
tourism industry questionnaire. 

Note: To estimate the annual cost of future minimum wage increases, we 
first calculated the difference between the hourly wage for each 
worker in June 2010 (reflecting the 2009 minimum wage of $4.55) and 
all scheduled minimum wage increases through 2016 (scheduled to occur 
September 30 of each year except for 2011). We multiplied that value 
by 2,080 (annual hours worked per full-time worker) to obtain an 
annual estimate for each worker. Finally, we reported the average of 
that value. For workers in June 2010 paid above a scheduled minimum 
wage, we assumed that the cost of that minimum wage for those workers 
would be zero (that they would receive no increase in pay). The 
average wage of tourism workers in June 2010 was $5.10. We calculated 
the average cost for all workers, not only workers affected by the 
minimum wage. In contrast, by 2016 the cost for workers affected by 
the minimum wage would be $4,971. No minimum wage increase is 
scheduled for 2011. 

[A] The cost of the 2016 minimum wage increases has not been adjusted 
for inflation. For illustration purposes, adjusting for projected U.S. 
inflation using the Congressional Budget Office's projection of the 
GDP price index shows that the real minimum wage cost in 2016 would be 
$4,318, a 8.3 percent decrease. The analysis excluded nonwage labor 
costs due to the minimum wage increases, such as increases in employer 
payroll tax contributions under the Federal Insurance Contributions 
Act. For 2011, employers must contribute the equivalent of 6.2 percent 
of employee wages to Social Security and 1.45 percent to Medicare, up 
to $106,800 in employee wages. 

[End of table] 

CNMI Hotel and Other Tourism Employers Reported Past and Planned 
Actions to Reduce Costs and Raise Prices, but Few Attributed Past and 
One-Half or Less Attributed Each Planned Action Largely to Minimum 
Wage Increases: 

Tourism Employers Reported Cutting Costs and Raising Prices from 2009 
to 2010, but Few Attributed Their Actions Largely to the Minimum Wage 
Increases: 

Hotel and other employers in the tourism industry reported in our 
questionnaire that they had taken cost-cutting actions, including 
those affecting workers' income or benefits, and had raised prices 
from 2009 to 2010. While few--weighted by numbers of employees--
attributed their actions largely to the minimum wage increases, some 
attributed hiring freezes to the minimum wage increases. 

Cost-Cutting Actions Affecting Workers' Income or Benefits in 2009- 
2010: 

* Reduced overtime hours. Employers representing 96 percent of all 
workers employed by tourism questionnaire respondents reported that 
they had decreased overtime work hours for hourly-wage workers. Of 
these, employers representing 1 percent of workers employed by these 
respondents attributed the action largely to the minimum wage 
increases. 

* Reduced regular hours. Employers representing 91 percent of all 
workers employed by tourism questionnaire respondents reported having 
reduced regular work hours for hourly-wage workers. Of these, 
employers representing 1 percent of workers employed by these 
respondents attributed the action largely to the minimum wage 
increases. 

* Froze hiring. Employers representing 79 percent of all workers 
employed by tourism questionnaire respondents reported that they had 
implemented a hiring freeze. Of these, employers representing 40 
percent of workers employed by these respondents attributed the action 
largely to the minimum wage increases.[Footnote 122] 

* Decreased benefits. Employers representing 50 percent of all workers 
employed by tourism questionnaire respondents reported that they had 
decreased the level of hourly-wage workers' benefits, while employers 
representing 56 percent reported that they had decreased the level of 
salaried workers' benefits. Of those that reported reducing benefits 
of hourly-wage workers, employers representing 3 percent of workers 
employed by these respondents attributed the action largely to the 
minimum wage increases. Of those that reported reducing benefits of 
salaried workers, employers representing 2 percent of workers employed 
by these respondents attributed the action largely to the minimum wage 
increases. 

Additional Cost-Cutting Actions in 2009-2010: 

* Implemented other labor-and cost-saving strategies or technology. 
Employers representing 95 percent of all workers employed by 
questionnaire respondents reported that they had implemented other 
labor-and cost-saving strategies or technology. Of these, employers 
representing 4 percent of workers employed by these respondents 
attributed the action largely to the minimum wage increases. 

* Reduced capacity or services. Employers representing 63 percent of 
all workers employed by questionnaire respondents reported that they 
had reduced their operating capacity or customer services. Of these, 
employers representing 5 percent of workers employed by these 
respondents attributed the action largely to the minimum wage 
increases. 

Price Increases in 2009-2010: 

* Raised prices. Employers representing 76 percent of all workers 
employed by tourism questionnaire respondents reported that they had 
raised prices of goods or services.[Footnote 123] Of these employers, 
none attributed the action largely to the minimum wage increases. 

Tourism Employers Reported Plans to Take Cost-Cutting Actions by Early 
2012, and One-Half or Less Attributed Each Action Largely to the 
Minimum Wage Increases: 

Hotel and other employers in the tourism industry reported in our 
questionnaire plans to take additional cost-cutting actions in the 
next 18 months, by early 2012. More employers--weighted by numbers of 
employees--attributed their future actions than their past actions to 
the minimum wage increases. Specifically, one-half or less attributed 
each planned action largely to the minimum wage increases. 

Planned Cost-Cutting Actions Affecting Workers' Income or Benefits: 

* Reduce overtime hours. Employers representing 93 percent of all 
workers employed by questionnaire respondents reported planning to 
decrease overtime work hours for hourly workers. Of these, employers 
representing 35 percent of workers employed by these respondents 
attributed the planned action largely to the minimum wage increases. 

* Reduce regular hours. Employers representing 87 percent of all 
workers employed by tourism questionnaire respondents reported 
planning to reduce regular work hours for hourly-wage workers. Of 
these employers, none attributed the planned action largely to the 
minimum wage increases. 

* Freeze hiring. Employers representing 83 percent of all workers 
employed by tourism questionnaire respondents reported planning to 
freeze hiring. Of these employers, none attributed the planned action 
largely to the minimum wage increases. 

* Decrease benefits. Employers representing 63 percent of all workers 
employed by questionnaire respondents reported planning to decrease 
benefits of both hourly and salaried workers. Of those that reported 
planning to reduce benefits of hourly-wage workers, employers 
representing 1 percent of workers employed by these respondents 
attributed the planned action largely to the minimum wage increases. 
Of those that reported planning to reduce benefits of salaried 
workers, none attributed the planned action largely to the minimum 
wage increases. 

* Lay off workers. Employers representing 62 percent of all workers 
employed by tourism questionnaire respondents reported planning to lay 
off hourly-wage workers, and employers representing 61 percent planned 
to lay off salaried workers. Of these employers, none attributed the 
planned action largely to the minimum wage increases. 

Additional Planned Cost-Cutting Actions: 

* Implement other cost-saving strategies. Employers representing 88 
percent of all workers employed by questionnaire respondents reported 
planning to implement other cost-saving strategies. Of these, 
employers representing 44 percent of workers employed by these 
respondents attributed the planned action largely to the minimum wage 
increases. 

* Implement labor-saving strategies or technology. Employers 
representing 81 percent of all workers employed by questionnaire 
respondents reported planning to implement labor-saving strategies or 
technology. Of these, employers representing 40 percent of workers 
employed by these respondents attributed the planned action largely to 
the minimum wage increases. 

* Reduce capacity or services. Employers representing 62 percent of 
all workers employed by tourism questionnaire respondents reported 
planning to reduce operating capacity or customer services. Of these, 
employers representing 51 percent of workers employed by these 
respondents attributed the planned action largely to the minimum wage 
increases. 

Planned Price Increases: 

* Raise prices. Employers representing 80 percent of all workers 
employed by tourism questionnaire respondents reported planning to 
raise prices of goods or services. Of these employers, none attributed 
the planned action largely to the minimum wage increases. 

Tourism Industry Employers Attributed Past and Planned Actions Largely 
to Factors Other than Minimum Wage Increases: 

Hotel and other tourism industry questionnaire respondents reported 
that factors other than the minimum wage increases largely contributed 
to their past and planned actions. For example, employers representing 
32 percent of workers employed by questionnaire respondents cited 
changes to U.S. immigration laws, and employers representing 55 
percent of workers cited the decrease in numbers of customers. 
Employers noted that these factors contributed to their future plans 
as well. Specifically, employers representing 57 percent of workers 
employed by questionnaire respondents cited changes to U.S. 
immigration laws, and employers representing 25 percent of workers 
cited the decrease in numbers of customers.[Footnote 124] 

CNMI Hotel Occupancy Has Stagnated, and Hotels Have Generally Absorbed 
Costs of Minimum Wage Increases: 

Due to the decline in visitors and to competition from other 
destinations, hotels have generally absorbed minimum wage costs rather 
than raising room rates, and they have postponed other investments and 
renovations that could make their properties more attractive to 
potential visitors. Both visitor arrivals and flight seats available 
to the CNMI declined from 2005 to 2010, particularly those from Japan. 
Industry data show that from 2006 to 2010 the CNMI hotel occupancy 
rate remained between 58 and 65 percent, and inflation-adjusted room 
rates declined. If observed trends in room and occupancy rates 
continue, payroll will represent an increasing share of total 
operating costs for hotels in the CNMI, due to the minimum wage 
increases. Payroll costs as a percentage of total operating costs will 
increase from approximately 29 percent in 2010 (with minimum wage 
increases representing about 1 percent of total operating costs) to 34 
percent in 2016 (with minimum wage increases representing 8 percent), 
assuming other costs remain constant. In discussion groups, some 
tourism employers and managers expressed concern about the minimum 
wage increases, but others said the minimum wage increases were needed 
and manageable and that the primary difficulty was the CNMI tourism 
industry's general decline. 

Both CNMI Visitor Arrivals and Flight Seat Availability Have Declined: 

Visitor arrivals to the CNMI have decreased 31 percent--from 529,557 
in 2005 to 368,186 in 2010. Seats available on flights to the CNMI 
have decreased 27 percent--from 740,673 in 2005 to 541,399 in 2010, as 
shown in figure 17. Arrivals account on average for 71 percent of 
overall flight seat capacity during this period.[Footnote 125] 

Airline service to the CNMI has fluctuated in recent years and remains 
unpredictable. For example, in September 2005, Japan Airlines 
discontinued service to the CNMI. Other flights have been added and 
subsequently removed; for example, Northwest Airlines added routes 
from Narita and Osaka, Japan, to the CNMI in 2005, but the Osaka 
flight was suspended the next year. Flights from these cities are now 
only available seasonally throughout the year, and the local 
government passed a bill providing financial incentives to travel 
agents in an effort to stabilize this service.[Footnote 126] A new 
airline, Fly Guam, established flights between the CNMI and Hong Kong 
in March 2011. Because of the lack of flights to and from China, 
Chinese visitors arrive largely on charter flights instead of 
regularly scheduled flights. 

The CNMI's greatest declines in both visitors and flight seats by 
country were from Japan, which represents the largest share of 
visitors of any country. The Japanese market share dropped from 71 
percent of the tourist arrivals in 2005 to 50 percent in 2010. In 
particular, the Japanese arrivals decreased 51 percent from 2005 to 
2010 (from 376,263 to 182,820).[Footnote 127] Korean arrivals 
increased from 65,049 in 2005 to 108,079 in 2010, and the Korean 
market share increased from 12 percent to 29 percent in the same 
period. Some visitors may arrive on airlines to or from countries 
other than their own. For example, Korean visitors may arrive on 
flights from Japan. In addition, there are no flights from Russia to 
the CNMI; Russian travelers arrive on flights through other countries. 
China and Russia still have a combined share of less than 10 percent 
of the total tourist arrivals, but they are emerging markets, and 
Russia accounts for a disproportionate percentage of tourism 
expenditures. 

Figure 17: Total CNMI Visitor Arrivals and Flight Seats Available, 
Fiscal Years 2005 to 2010: 

[Refer to PDF for image: vertical bar graph] 

Year: 2005; 
Total visitor arrivals: 529,557; 
Total flight seats: 740,673. 

Year: 2006; 
Total visitor arrivals: 443,812; 
Total flight seats: 607,599. 

Year: 2007; 
Total visitor arrivals: 395,360; 
Total flight seats: 523,556. 

Year: 2008; 
Total visitor arrivals: 396,497; 
Total flight seats: 552,685. 

Year: 2009; 
Total visitor arrivals: 375,808; 
Total flight seats: 547,710. 

Year: 2010; 
Total visitor arrivals: 368,186; 
Total flight seats: 541,399. 

Source: GAO analysis of Marianas Visitors Authority data. 

Note: Visitor arrivals include those from China, Japan, Korea, Russia, 
the United States, and other countries. Flight seats include the total 
number available on flights from China (primarily charter flights), 
Japan, and Korea. There are no flights from Russia to the CNMI. 

[End of figure] 

Due Partly to Stagnant Occupancy Rates and Declines in Inflation- 
Adjusted Room Rates, CNMI Hotels Have Absorbed Costs of Minimum Wage 
Increases: 

Due to competition from other vacation destinations, such as Guam, and 
to declining visitor arrivals and occupancy rates remaining between 58 
and 65 percent, economic reasoning suggests that hotels in the CNMI 
have limited ability to raise prices, as shown in recent stagnation in 
nominal hotel room rates and decline in inflation-adjusted room rates. 
If CNMI hotels had more flexibility in pricing, some of the costs of 
minimum wage increases could be passed on to consumers. However, due 
to the decline in visitors, hotels have generally absorbed these 
costs, and hotel managers said they have postponed other investments 
and renovations that could make their properties more attractive to 
potential visitors.[Footnote 128] 

Occupancy. Data from the Hotel Association of the Northern Mariana 
Islands, which covers 12 CNMI hotels, show that from 2009 to 2010, the 
overall occupancy rate increased by 7.5 percent, as shown in table 10. 
For the overall period from 2006 through 2010, the occupancy rate has 
no significant changes, with a slight decrease of 1.5 percent, and 
remained between 58 and 65 percent. 

Room rates. Room rates decreased by 8 percent from 2009 to 2010, as 
shown in table 10. For the overall period from 2006 to 2010, room 
rates decreased slightly, by 2 percent. When adjusted for inflation in 
the CNMI, real room rates declined by almost 12 percent from 2006 to 
2009. 

Number of workers. Our questionnaire responses show that for the 
period from 2007 to 2010, the number of hourly hotel workers declined 
by 13 percent.[Footnote 129] 

Table 10: CNMI Hotel Occupancy and Room Rates, 2006 through 2010: 

Year: 2006; 
Occupancy rate: 64%; 
Nominal room rate ($): $91; 
Inflation-adjusted room rates in 2006 dollars: $91. 

Year: 2007; 
Occupancy rate: 59%; 
Percent change: -7.2%; 
Nominal room rate: $92; 
Percent change: 0.7%; 
Inflation-adjusted room rates in 2006 dollars: $85; 
Percent change: -6.9%. 

Year: 2008; 
Occupancy rate: 62%; 
Percent change: 4.9%; 
Nominal room rate: $98; 
Percent change: 6.3%; 
Inflation-adjusted room rates in 2006 dollars: $85; 
Percent change: -0.4%. 

Year: 2009; 
Occupancy rate: 58%; 
Percent change: -5.8%; 
Nominal room rate: $97; 
Percent change: -1.2%; 
Inflation-adjusted room rates in 2006 dollars: $81; 
Percent change: -4.5%. 

Year: 2010; 
Occupancy rate: 63%; 
Percent change: 7.5%; 
Nominal room rate: $89; 
Percent change: -7.5%. 

Year: Percent change 2006-2010; 
Occupancy rate: -1.5%; 
Nominal room rate: -2.2%; 
Inflation-adjusted room rates in 2006 dollars: -11.5%; 

Source: Hotel Association of the Northern Mariana Islands (HANMI) data 
and CNMI CPI data. 

Note: Data cover HANMI members only. We were unable to calculate 2010 
inflation-adjusted room rates because 2010 CNMI CPI data are not 
available. HANMI data on number of workers in 2010 are not available. 
In addition, we used the CPI because a CNMI Producer Price Index was 
not available. During this period, the number of available rooms has 
remained essentially unchanged. 

[End of table] 

Scheduled Minimum Wage Increases and Payroll Will Represent an 
Increasing Percentage of Total Operating Costs: 

If observed trends in room rates and occupancy rates continue, payroll 
will represent an increasing share of total operating costs for hotels 
in the CNMI, due to the minimum wage increases. We estimate that for 
the hotels that responded to our questionnaire, the minimum wage 
increases from 2010 through 2016 will raise average annual payroll 
costs by approximately $160,528 and $983,076, respectively, from their 
average payroll costs in 2009. As a result, payroll costs as a 
percentage of total operating costs will slightly increase from 
approximately 28 percent in 2009, to 29 percent in 2010 (with minimum 
wage increases representing about 1 percent of total operating costs), 
to 34 percent in 2016 (with minimum wage increases representing almost 
8 percent). Figure 18 shows the estimated average impact of the 
minimum wage increases on these hotels' payroll costs in 2010 and 2016 
(assuming that the number of employees and other operating costs 
remain constant). 

Figure 18: Estimated Average Impact of Minimum Wage Increases on CNMI 
Hotels' Payroll Costs in 2010 and 2016, Relative to Average Payroll 
and Other Costs in 2009: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2009; 
Operating cost excluding payroll costs in 2009: $8,016,170; 
Payroll cost in 2009: $3,183,756; 
Increases in payroll cost due to minimum wage increases since 2009: $0 

Year: 2010; 
Operating cost excluding payroll costs in 2009: $,8016,170; 
Payroll cost in 2009: $3,183,756; 
Increases in payroll cost due to minimum wage increases since 2009: 
$160,528. 

Year: 2016; 
Operating cost excluding payroll costs in 2009: $8,016,170; 
Payroll cost in 2009: $3,183,756; 
Increases in payroll cost due to minimum wage increases since 2009: 
$983,076. 

Source: GAO analysis of wage and other data provided in responses to 
GAO CNMI tourism industry questionnaire. 

Notes: Our estimates of hotels' average costs in 2010 and 2016 are 
based on hotels' responses to our 2010 industry questionnaire. 
Estimates of hotels' average costs are for 2009 levels. Minimum wage 
costs only include workers directly affected by the future minimum 
wages. The impact of minimum wage increases on required employer 
contributions to Social Security and Medicare under FICA are excluded 
from this analysis. Including such elements as part of minimum wage 
costs would increase the estimated impact of minimum wage increases. 
However, if other operating costs excluding payroll were to increase, 
the minimum wage increases would have a smaller effect on overall 
operating costs. 

"Operating costs excluding payroll costs" includes Social Security and 
Medicare contributions under FICA, payments for employee benefits, and 
other operating expenses. "Payroll costs" includes payroll before 
deductions for taxes and benefits. "Increases in payroll costs due to 
minimum wage" is the annual cost of payroll increases that would be 
required to comply with the minimum wages since 2010, based on the 
2010 distribution of wages. 

Costs shown are unweighted average costs for CNMI hotels that 
responded to our questionnaire. To determine the costs of the minimum 
wage increases, we assumed that all workers employed by questionnaire 
respondents were legally required to receive the minimum wage. If some 
are not covered or are exempt, the minimum wage increases would affect 
fewer workers, and cost increases would be lower. 

[End of figure] 

Hotel and Other Tourism Employers Said Multiple Factors Made It 
Difficult to Attract Increased Numbers of Visitors: 

In discussion groups, some hotel and other tourism employers and 
managers expressed concern about the minimum wage increases, saying 
that the CNMI competed with similar tourism destinations with lower 
wages and was very different from the U.S. economy.[Footnote 130] 
Others said the minimum wage increases were needed and manageable and 
that the primary difficulty was the general decline in the CNMI 
tourism industry. Some said they had taken steps to reduce regular and 
overtime hours--including cutting operating hours--and to reduce the 
cost of benefits. They also described other cost-saving measures, 
including consolidating office space and cutting utility costs by 
reducing phone lines. Employers said CNMI tourism business had 
decreased, with fewer visitor arrivals and expenditures, including 
substantial loss of the Japanese market. They said that too few 
flights from key tourism countries and frequent changes in flight 
availability deterred visitors and led travel agents to send clients 
to other destinations. In addition, employers expressed concern about 
whether the CNMI tourism industry would retain access to foreign 
workers, including those with needed language and other skills, and 
access to visitors from China and Russia under U.S. immigration law. 
They expressed concern that the quality of the destination had 
declined and that the CNMI needed investment in new or updated 
attractions and hotel renovations. However, they said uncertainty 
about immigration rules, flight availability, and visitor arrivals had 
discouraged new investment. Employers said the CNMI needed more 
tourism promotion, possibly including incentives for airlines and 
assistance from the federal government. 

Tourism and Other Workers Said They Would Like Pay Increases but Were 
Concerned about Job Availability: 

Workers participating in our CNMI discussion groups expressed mixed 
views regarding the minimum wage increases and said they would like 
pay increases but were concerned about losing jobs and work hours. 
Workers in the tourism industry generally expressed greater concern 
about the minimum wage increases than other workers and unemployed 
workers. 

* Price increases. Participants said they wanted to receive minimum 
wage increases to help them meet rising prices, including for 
utilities such as power and water and for food and other consumer 
goods. However, they said the minimum wage increases had not kept pace 
with changes in the price of goods, and some said the minimum wage 
increases had not made a difference. 

* Job insecurity. Workers were concerned about the impact of the wage 
increases on their ability to find and retain jobs, which was already 
difficult. They said they had observed that while some workers 
received pay increases, others lost their jobs or work hours. Several 
said they would rather keep their jobs and work hours and stay at the 
current wage. They also said that many people were leaving the CNMI to 
find work. 

* Poverty and crime. Some said that with or without the minimum wage, 
people in the CNMI were suffering from poverty. People who have lost 
jobs or had their hours reduced rely on food stamps and other 
benefits, though some said they would like to find jobs rather than 
relying on benefits. One said he planned to find and sell cans from 
the street to generate income. Participants also expressed concern 
about rising crime rates resulting from decreased employment, and 
several said they had been victims of theft. 

* Immigration. Participants said that both workers and employers were 
worried about the transition to U.S. immigration law, including 
increased immigration fees and the status of foreign workers. 

The text box lists some of the comments by discussion group 
participants. 

Text box: 

CNMI Workers' Views Based on Discussion Groups: 

Price increases: 

* "Groceries here are pretty expensive. Prices keep going higher and 
higher." 

* "It's very hard to pay for everything just with our salary. Power is 
expensive." 

* "The minimum wage that was raised is good for people working. We 
want to try that minimum wage ourselves." 

* "Every time the minimum wage goes up, I notice stores raise the 
price of commodities." 

Job insecurity: 

* "Minimum wage going up to $7.25 is great for workers, but at the 
same time is a big burden to employers." 

* "Minimum wage increases are useless. They cut hours so, in the end, 
our paychecks are the same." 

* "When minimum wage increased I was laid off and up to now have not 
been able to find a job." 

* "With minimum wage some are getting a benefit of higher wages, but 
others are losing their jobs." 

* "I'd rather wait for my increase than be laid off." 

Poverty and crime: 

* "Crime is skyrocketing--I'm not ok with that, but it's because of 
the cost of living going up." 

* "Nothing changes, even with the delay in the minimum wage. 

* People are suffering." 

Immigration: 

* "Federal immigration is hurting foreign workers now that we have to 
pay fees to go back." 

* "Employers and employees are scared of the transition in the next 
few years. They're all just waiting." 
End of text box] 

[End of section] 

Appendix V: GAO Questionnaire Used in Report: 

Note: The questionnaire reproduced below was provided to American 
Samoa tuna canning employers who had responded to our 2009 
questionnaire. CNMI tourism employers who had responded in 2009 
received a questionnaire with nearly identical wording, except as 
noted and except where "American Samoa" was replaced with "CNMI." In 
addition, the CNMI questionnaire included the following: 

24. Which one of the following best describes this establishment's 
principal kind of business? 

(Please check only ONE box): 

Accommodations/hotels: 

Other tourism-related: Please specify: 

Other non-tourism-related: Please specify: 

Instructions for Completing the Questionnaire Update Onscreen: 

Please use your mouse to navigate, clicking on the field or check box 
you wish to answer. 

To select a check box or a button, click on the center of the box. 

To change or deselect a check box response, click on the check box and 
the 'X' will disappear. 

To answer a question that requires that you write a comment, click on 
the answer box and begin typing. The box will expand to accommodate 
your answer. 

Start Here: 

Note: The reporting unit for this questionnaire is an establishment. 
An establishment is generally (1) a single physical location where 
business is conducted or where services or industrial operations are 
performed or (2) a permanent office, payroll office, or other place 
where business activities are conducted. 

Part I. Establishment Information: 

These questions cover basic information about this establishment. 

1. What is the 9-digit Employer Identification Number (EIN) for this 
establishment? 

If you or your employer operates establishment in American Samoa with 
more than one EIN, please fill out one questionnaire per EIN. 
(Please enter numerals only) 

2. What is this establishment's name? 

Part II. Expenses And Income: 

These questions ask about this establishment's labor and 
establishment's cost structure and ability to absorb cost increases. 

capital expenses in order to better understand this does incur—for a 
for 

3. The questions in Part II will refer to the 12-month period that 
includes June 12th in a given year. How does your establishment prefer 
to provide expense data--for a calendar year (January through 
December) or for a fiscal year as defined by your establishment? 

Calendar year: Skip to Question 4; 
Fiscal year: 
3a. What is the first and last month of your establishment's fiscal 
year that includes June 12th?  
First month of fiscal year: 
Last month of fiscal year: 

The data reported in questions 4 through 8 will be used its employees. 
Each question asks you to report a different total payroll, FICA 
contributions, and costs of employee categories are provided below. 

4. What was the total U.S. dollar amount of this establishment's 
payroll before employee deductions for taxes and for the 12-month 
period for 2009 identified in question 3? 

For each year only include the following as payroll expenses: 

* Wages and salaries, including overtime pay, commissions, and 
bonuses, paid only to employees of this establishment; 
* Paid holidays, vacation, sick leave, and other paid leave for all 
employees. 

12-month period that includes June 12th: 

If did not incur any expenses, please write in 0. 
(Please round to the nearest whole dollar)  

5. What was the total U.S. dollar amount of this establishment's FICA 
contributions for the 12-month period for 2009 identified in question 
3?. 

FICA contributions are those made for: 
* Social Security (OASDI) and, 
* Medicare. 

12-month period that includes June 12th: 

If did not incur any expenses, please write in 0. 
(Please round to the nearest whole dollar) 

6. What was the total U.S. dollar amount of this establishment's 
payments for employee benefits (other than FICA) for the 12-month 
period for 2009 identified in question 3? 

For each year only include the following as benefits if offered to any 
employee who earned an annual salary or an hourly wage: 
* Insurance contributions (e.g., health, life); 
* Payments for health expenses; 
* Pension or 401(k) contributions; 
* Housing or food allowances; 
* Transportation payments for local or international travel; 
* Payments for education expenses; 
* Workers' compensation; 
* Other benefits not listed above. 

12-month period that includes June 12th: 

If did not incur any expenses, please write in 0.
(Please round to the nearest whole dollar) 

7. Excluding payroll, FICA contributions, and employee of this 
establishment's other operating expenses for the benefits, what was 
the total U.S. dollar amount 12-month period for 2009 identified in 
question 3? 

For each year only include: 
* Lease and rental payments; 
* Costs of materials, such as raw materials, packaging, or food; 
* Utilities and telecommunications costs; 
* Advertising services, office supplies, and shipping costs; 
* Services provided by contractors, such as legal, data processing, 
janitorial, or other; 
* Insurance, storage, repairs, theft, and damage losses; 
* Merchandise purchased for resale; 
* Equipment that was expensed (rather than capitalized); 
* Depreciation and amortization charges; 
* Business taxes and fees; 
* Other expenses not listed above, except expenses reported in 
questions 4 through 6. 

12-month period that includes June 12th: 
If did not incur any expenses, please write in 0. 
(Please round to the nearest whole dollar) 

8. What was the total U.S. dollar amount of this establishment's 
capital expenditures for the 12-month period for 2009 identified in 
question 3? 

For each year only include the following as capital 12-month period 
that includes expenditures: 
* Value of new construction completed; 
* Value of physical improvements made to establishment's facilities 
that were completed; 
* Equipment that was capitalized (rather than expensed) travel. 

12-month period that includes June 12th: 
If did not incur any expenses, please write in O. 
(Please round to the nearest whole dollar) 

Part III. Employment And Wages Data: 

These questions ask for detailed data about employment and wages for 
employees at this establishment for 2010. These data are necessary to 
develop a historical time series of comparable employment and wage 
data for large employers American Samoa. 

Note: The questions in Part III ask about employees on this 
establishment's payroll. When answering, please refer to the following 
definition of employee: 

Include the following in your count of employees: 

* Full- and part-time employees, including executives, who earn an 
hourly wage or annual salary; 
* Employees on paid leave during any part of the stated pay period. 

Exclude the following in your count of employees: 

* Employees on the payroll of establishments with a different EIN from 
this establishment; 
* Proprietors, owners, or partners of unincorporated establishments; 
* Employees on unpaid leave for the entire stated pay period; 
* Unpaid family members; 
* Pensioners. 

Several questions in Part III also ask about employees covered by the 
Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage, 
overtime pay, recordkeeping, and youth employment standards affecting 
employees in the private sector and in federal, state, and local 
governments. 

9. Are any of the employees on this establishment's payroll paid an 
hourly wage instead of an annual salary? 

(Please check only One box): 
Yes: Continue with Question 10; 
No: Skip to Question 14; 
Don't know: Skip to Question 14. 

10. The reporting period for questions in Part II was either a 
calendar or fiscal year. The reporting period questions in Part HI 
will now be a pay period. A pay period is a recurring length of time 
over which employee for the wage at work time is recorded and paid. 
What length of time defines a pay period for employees paid an hourly 
this establishment? 

(Please check only onE box): 
1 week: 
2 weeks: 
1 month: 
Other: Please specify: 

11. For employees paid an hourly wage, what were the start and end 
dates of the pay period including June 12th for 2010? 

12. If this establishment was not in operation during the pay period 
that included June 12th in any year, please check the appropriate box 
in the last column of the table. 
(Please enter two numerals per answer box) 

Start date of pay period that includes June 12, 2010: 
Month: 
Day: 

End date of pay period that includes June 12, 2010: 
Month: 
Day: 

Establishment was not in operation on June 12 2010 

12. What was the total number of employees paid an hourly wage on this 
establishment's payroll period that included June 12th 2010? 

If this establishment was not in operation during the pay period that 
included June 12th, please enter "0" in the corresponding box. 
(Please enter numerals in each box below) 

Total number of employees paid an hourly wage: 
Pay period that includes June 12 2010: 

13. The next table asks for detailed information about employees who 
were paid different base hourly wages (before deductions) during the 
pay period that included June 12th 2010. Question text and 
instructions are provided at the top of each column. 

Please do not include employees paid an annual salary in these tables. 
Data for employees paid an annual salary will be reported separately 
in question 16. 

You may also submit the requested data in an Excel spreadsheet or as a 
computer printout instead of reentering the data into the tables below. 

a. For each of the questions below, please answer for the pay period 
that included June 12, 2010: 

(A) Base hourly wage rate before deductions (in U.S. dollars): 
(Please enter in $XX.XX format for each hourly wage earned by 
employees at your establishment): 

(B) How many employees earned the base hourly wage listed in (A)? 
(Please enter only numerals) 

(C) How many of the employees listed in (B) are covered by the FLSA? 
(Please enter only numerals): 

(D) How many of the employees listed in (B) are U.S. citizens or 
nationals, U.S. or American Samoan permanent residents, or citizens of 
the Freely Associated States? 
(Please enter only numerals) 

(E) How many total hours not including overtime hours) did employees 
who earned this base hourly wage work during this pay period? 
(Please report hours rounded to the quarter hour and to two decimal 
places): 

(F) How many total overtime hours did employees who earned this base 
hourly wage work during this pay period?
(Please report hours rounded to the quarter hour and to two decimal 
places): 

14. Are any of the employees on this establishment's payroll paid an 
annual salary instead of an hourly wage? 
(Please check only one box) 
Yes: Continue with question 15; 
No: Skip to question 17; 
Don't know: Skip to question 17. 

15. What was the total number of employees paid an annual salary on 
this establishment's payroll during the pay period that included June 
12th 2010? 

If this establishment was not in operation during the pay period that 
included June 12th in any year, please enter a "0" in the 
corresponding box. 
(Please enter numerals in each box below) 

Total number of employees paid an annual salary: 
Pay period that includes June 12, 2010: 

16. The next table asks for detailed information about full- and part-
time employees on this establishment's payroll who were paid different 
annual salaries (before deductions) during the pay period that 
included June 12th 2010. Question text and instructions are provided 
at the top of each column. 

Please do not include employees paid an hourly wage. Data for 
employees paid an hourly wage were reported separately in question 13. 

Full-time employees are those typically worked 35 or more hours per 
week; part-time employees are those who typically worked less than 35 
hours per week. If this establishment was not in operation during the 
pay period, please enter a 0 for that year in each box. 
(Please enter numerals only in each box below) 

Pay period including June 12, 2010: 

(A) Annual salary before deductions (in U.S. dollars): 
(Please enter in $XX,XXX format each salary earned by employees at 
your establishment) 

(B) Number of full-time employees: 
(Please enter only numerals): 

(C) Number of part-time employees: 
(Please enter only numerals): 

(D) How many of the employees listed in (B) and (C) are covered by the 
FLSA? 
(Please enter only numerals): 

(E) How many of the employees listed in (B) and (C) are U.S. citizens 
or nationals, U.S. or American Samoan permanent residents, or citizens 
of the Freely including Associated States? 
(Please enter only numerals): 

(F) How many total hours (not including overtime hours) did employees 
who earned this salary work during this pay period? 
(Please report hours rounded to the quarter hour and to two decimal 
places): 

Part IV. Questions About The Minimum Wage Increases: 

The questions in this section ask about past and future actions this 
establishment has taken and what factors contributed to the decisions 
to implement each action. 

17. Between June 2009 and June 2010, did this establishment implement 
any of the following actions? 
(Please check one box per action): 

a. Introduced labor-saving strategies or technology: 
Yes: 
No: 
Don't know: 
Not applicable: 

b. Introduced other cost-saving strategies (e.g., energy-saving 
technologies): 
Yes: 
No: 
Don't know: 
Not applicable: 

c. Reduced operating capacity or services offered: 
Yes: 
No: 
Don't know: 
Not applicable: 

d. Delayed expansion of business: 
Yes: 
No: 
Don't know: 
Not applicable: 

e. Relocated business outside of American Samoa: 
Yes: 
No: 
Don't know: 
Not applicable: 

f. Closed establishment temporarily: 
Yes: 
No: 
Don't know: 
Not applicable: 

g. Laid off salaried employees: 
Yes: 
No: 
Don't know: 
Not applicable: 

h. Laid off employees who are paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

i. Reduced regular work hours for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

j. Reduced overtime work hours for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

k. Decreased level of benefits for salaried employees: 
Yes: 
No: 
Don't know: 
Not applicable: 

l. Decreased level of benefits for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

m. Implemented a hiring freeze: 
Yes: 
No: 
Don't know: 
Not applicable: 

n. Raised prices of goods or services: 
Yes: 
No: 
Don't know: 
Not applicable: 

o. Others (Please specify): 

If you checked yes for any of these actions, continue to question 18. 

If you did not check YES for any of these actions, skip to question 20. 

18. To what extent did the minimum wage increases (past or future) 
contribute to this establishment's decision to implement each action 
listed in question 17 for which you checked yes? 
(Please check ONE box per action) 

a. Introduced labor-saving strategies or technology: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

b. Introduced other cost-saving strategies (e.g., energy-saving 
technologies): 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

c. Reduced operating capacity or services offered: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

d. Delayed expansion of business: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

e. Relocated business outside of American Samoa: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

f. Closed establishment temporarily: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

g. Laid off salaried employees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

h. Laid off employees who are paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

i. Reduced regular work hours for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

j. Reduced overtime work hours for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

k. Decreased level of benefits for salaried employees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

1. Decreased level of benefits for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

m. Implemented a hiring freeze: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

n. Raised prices of goods or services: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

o. Others (Please specify): 

19. To what extent did each of the following factors contribute to 
this establishment's decision to implement actions listed in question 
17? 
(Please check ONE box per cost) 

a. Increased utility costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

b. Increased costs of materials: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

c. Increased transportation/shipping costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

d. Increased maintenance costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

e. Decreased number of customers: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

f. Changes to U.S. immigration laws: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

g. Changes in business taxes or fees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

h. Others (please specify): 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

20. Do you think this establishment will implement as of the following 
actions in the next 18 months? 
(Please check one box per action) 

a. Introduce labor-saving strategies or technology: 
Yes: 
No: 
Don't know: 
Not applicable: 

b. Introduce other cost-saving strategies (e.g., energy saving 
technologies): 
Yes: 
No: 
Don't know: 
Not applicable: 

c. Reduce operating capacity or services offered: 
Yes: 
No: 
Don't know: 
Not applicable: 

d. Delay expansion of business: 
Yes: 
No: 
Don't know: 
Not applicable: 

e. Relocate business outside of American Samoa: 
Yes: 
No: 
Don't know: 
Not applicable: 

f. Close establishment temporarily: 
Yes: 
No: 
Don't know: 
Not applicable: 

g. Lay off salaried employees: 
Yes: 
No: 
Don't know: 
Not applicable: 

h. Lay off employees who are paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

i. Reduce regular work hours for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

j. Reduce overtime work hours for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

k. Decrease level of benefits for salaried employees: 
Yes: 
No: 
Don't know: 
Not applicable: 

1. Decrease level of benefits for employees paid an hourly wage: 
Yes: 
No: 
Don't know: 
Not applicable: 

m. Implement a hiring freeze: 
Yes: 
No: 
Don't know: 
Not applicable: 

n. Raise prices of goods or services: 
Yes: 
No: 
Don't know: 
Not applicable: 

o. Close establishment permanently: 
Yes: 
No: 
Don't know: 
Not applicable: 

p. Others (Please specify): 

If you checked yes for any of these actions, continue to question 21. 
If you did not check yes for any of these actions, skip to question 23. 

21. To what extent do you think the minimum wage increases (past or 
future) will contribute to this establishment's decision to implement 
each action listed in question 20 for which you checked Yes?  
(Please check ONE box per action) 

a. Introduce labor-saving strategies or technology: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

b. Introduce other cost-saving strategies (e.g., energy-saving 
technologies): 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

c. Reduce operating capacity or services offered: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

d. Delay expansion of business: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

e. Relocate business outside of American Samoa: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

f. Close establishment temporarily: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

g. Lay off salaried employees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

h. Lay off employees who are paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

i. Reduce regular work hours for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

j. Reduce overtime work hours for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

k. Decrease level of benefits for salaried employees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

1. Decrease level of benefits for employees paid an hourly wage: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

m. Implement a hiring freeze: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

n. Raise prices of goods or services: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

o. Close establishment permanently: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

p. Others (Please specify): 

22. To what extent do you think each of the following factors will 
contribute to this establishment's decision to implement the actions 
listed in question 20? 
(Please check one box per cost) 

a. Increased utility costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

b. Increased costs of materials: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

c. Increased transportation/shipping costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

d. Increased maintenance costs: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

e. Decreased number of customers: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

f. Changes to U.S. immigration laws: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

g. Changes in business taxes or fees: 
Not at all: 
To a small extent: 
To a moderate extent: 
To a large extent: 
Don't know: 

f. Others (please specify):
 
23. Do you have any other comments to add that you feel would help us 
understand (or provide context for): 

* your responses to any specific question(s) in this questionnaire or; 

* the impact the increases in the minimum wage or other factors had or 
will have on this establishment or its employees? 

24. What is the name, title, and contact information of the primary 
person who completed this questionnaire in case GAO needs to follow up 
on information provided in this questionnaire? 

a. Name of person completing the questionnaire: 
b. Title of person completing the questionnaire: 
c. E-mail address of person completing the questionnaire: 
d. Phone number of person completing the questionnaire: 
e. Fax number of person completing the questionnaire: 

25. What is this establishment's mailing address? 

This concludes the questionnaire. Thank you very much for your 
assistance! 

[End of section] 

Appendix VI: Comments from the Department of Commerce: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

United States Department of Commerce: 
The Secretary of Commerce: 
Washington, D.C. 20230: 

May 25, 2011: 

Mr. David Gootnick: 
Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Gootnick: 

The U.S. Department of Commerce appreciates the opportunity to provide 
comments on the U.S. Government Accountability Office's draft report 
titled American Samoa and Commonwealth of the Northern Mariana 
Islands: Employment, Earnings, and Status of Key Industries Since 
Minimum Wage Increases Began (GA0-11-427). The Department of 
Commerce's comments on this report are enclosed. [See comment 1] 

Sincerely, 

Signed by: 

Gary Locke: 

Enclosure: 

The following is GAO's comment on the Department of Commerce's letter, 
dated May 25, 2011. 

GAO Comment: 

1. The Department of Commerce provided technical comments in addition 
to the signed letter. In discussions with the Department of Commerce, 
we agreed to include only the signed letter and not the technical 
comments. 

[End of section] 

Appendix VII: Comments from the American Samoa Government: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

Office of the Governor: 
American Samoa: 
Togiola T.A. Tulafono: 
Governor: 
Faoa A. Sunia: 
Lieutenant Governor: 
Telephone: (684)633-4116
Fax: (684) 633-2269
Serial: 410: 

May 25, 2011: 

Mr. David Gootnick: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 
411 G Street, N.W. 
Washington, DC 20548: 

Subject: GAO Draft Report (GAO-11-427) American Samoa and Commonwealth 
of the Northern Mariana Islands: Employment, Earnings, and Status of 
Key Industries Since Minimum Wage Increases Began: 

Dear Mr. Gootnick: 

Thank you for the opportunity to submit our response on GAO's Draft 
Report on the effects of recent minimum wage increases in American 
Samoa. 

We are generally in agreement with the findings presented in the 
report. However, we would like to bring attention to several 
fundamental concerns we have regarding this GAO study. 

1. The draft report itself does not capture or convey the magnitude of 
the economic disaster that has befallen American Samoa. The economic 
impact analysis is so fragmented as to suggest a form of recession 
(page 56). On the contrary it is an economic depression. Rates of 
unemployment may be or soon reach 20-25 percent (Answer to GAO 
question, 3-25-11 email). This is a very important order of magnitude 
estimate. 

2. The report is replete with admonitions that the minimum wage was 
only one of several factors influencing economic conditions in 
American Samoa. Nevertheless, it is absolutely clear that American 
Samoa's cannery employment losses, plant closures and other adverse 
actions were attributed significantly and most often to the minimum 
wage increases (pages 62-65). 

3. The report finds that economic conditions are serious in American 
Samoa and that employers expect things to get worse when this 
temporary relief period ends. In other words, American
Samoa's economy is in dire straits, and the forces that caused the 
decline remain intact to prevent an economic recovery (page 56). 

There is more than sufficient evidence in the report to support our 
recommendations. 

1. Terminate increases in the minimum wage immediately in American 
Samoa. 

2. Conduct a thorough analysis of what caused the minimum wage 
increases to lead to such adverse economic effects in American Samoa 
and not in the U.S. 

3. Determine procedures for dealing with the minimum wage in American 
Samoa in such a manner as to avoid such economic disasters in the 
future. 

Our contention is that someone must address these issues for Congress 
in order for them to formulate appropriate legislation. As it stands, 
the magnitude of the impacts is unclear, and there is nothing in the 
report to give Congress any guidance as to what could be done to 
remedy the situation or prevent it from occurring again. 

We understand the GAO has its particular charter, its legislative 
mandates and research conventions that may limit the extent of 
interpretation it has to work with. Nevertheless, Congress needs 
answers to the following key questions: 

1. Congress needs to know the general magnitude of the economic 
impacts: 

The GAO report seriously understates its own case. As with the 
previous report, employment loss estimates are never combined in any 
coherent manner to suggest the true magnitude of the economic impacts. 
For example, consider the table below combining GAO numbers to provide 
an order of magnitude impact estimate. These employment numbers are 
found on pages 55 and 56. [See comment 1] 

Estimated Employment Losses in American Samoa, 2009-2010: 

SSA Estimates: 
2009: 3,737; 
2010-11: 3,737. 

Cannery Questionnaire: 
2010-11: 2,256. 

Current Temp Workers: 
2010-11: 2,000. 

Total 
2009: 3,737; 
2010-11: 7,993. 

This table is very conservative. It shows employment losses of almost 
8000 by 2010-11, approximately a 40 percent decline from the 2008 peak 
of 19,171. It is conservative because it assumes (a) no further non-
cannery employment losses in 2010, (b) no additional cannery losses 
or closures in 2010, and (c) the low estimate of GAO temporary worker 
job loss range. 

It would not take much change in these conservative assumptions for 
total employment losses in 2010-11 to reach 10-12,000, or roughly 50 
to 60 percent declines in total employment in American Samoa from 
2008.  

This information is in the report, but it is spread throughout even in 
footnotes. It does not appear in any integrated form that would 
provide any clear statement of the magnitude or seriousness of the 
impacts. 

This economic impact is a great deal more serious than conveyed in the 
GAO report. This is very important for Congress to know. 

2. Congress needs to know why the US minimum wage has had such adverse 
economic effects on the territories but not on the U.S. 

We went to a great deal of effort to shed light on this issue for the 
GAO in a letter to you of January 31, 2011. We saw brief reference to 
the matter in the report but no serious consideration. [See comment 2] 

Our view was that Congress itself recognized the danger in the 
original minimum wage legislation in 1938 designed explicitly to help 
maintain a "minimum standard of living....without substantially 
curtailing employment or earning power". 

When Congress applied the US minimum wage in American Samoa in 2007, 
it did not consider that the US minimum wage would be applied to a 
much larger proportion of American Samoa's economy than was the case 
for the U.S. 

The result was that American Samoa suffered a vastly more severe 
relative employment decline than ever could have been anticipated in 
the U.S. [See comment 3] 

a. American Samoa's minimum wages and average wages were only a 
fraction of the US averages. 

b. About half of American Samoa's workers had wages below the US 
minimum compared with about 2 percent for the U.S. 

c. Scheduled minimum wage increases could result in a one-third 
increase in total wage costs in American Samoa. Such increases could 
not be absorbed through increased productivity, reduced profits, or 
higher prices. Therefore, the rising wage costs would have to be 
absorbed through major employment reductions. 

d. The U.S. minimum wage would have to be raised to more than $16.50 
per hour to expand minimum wage coverage in the US to the same 
proportion that it applies in American Samoa. 

e. American Samoa's production per person is less than one-fifth that 
of the US as measured by per capita GDP. 

Application of the US minimum wage to American Samoa, pursuant to the 
scheduled increases mandated by Congress, continues to have 
devastating effects on American Samoa's economy. It is causing severe 
distortions in American Samoa's labor market. It has driven up labor 
costs such that businesses are being forced to cut employment, close 
or relocate. 

Congress must now address how American Samoa's minimum wage should be 
determined to remedy and avoid these catastrophic employment losses in 
the future. We recommended that the GAO explore alternative methods 
for setting minimum wage levels in American Samoa that will have less 
damaging effects on its economy. Congress is obligated by its own 
legislation to establish a minimum wage "without substantially 
curtailing employment or earning power". [See comment 2] 

The GAO has been instrumental in the preparation of this knowledge 
base. The GAO should have some latitude to explore the extent to which 
a new minimum wage should apply to American Samoa, especially in light 
of the requirement of the original minimum wage legislation that 
minimum wages be imposed without substantially curtailing employment 
or earning power. 

We recommended to GAO that in its September 1, 2011 report to Congress 
it address how the minimum wage can be determined without 
substantially curtailing employment or earning power in American 
Samoa. [See comment 2] 

Accordingly, it was recommended that GAO explore alternative 
procedures for setting minimum wage levels in American Samoa. 
Alternatives include but are not limited to the following: 

a. Consider previous US DOL Special Industry Committee processes or 
some modification thereof for determining minimum wages in American 
Samoa. 

b. Consider processes used to raise the minimum wage in Puerto Rico 
and the Virgin Islands which permit some variation in minimum wage 
rates by industry and gross receipts levels. 

c. Consider some form of negotiated minimum wage involving the public 
and private sectors. 

d. Consider amending statutes to specify the conditions to be taken 
into account in determining the minimum wage in American Samoa. 

e. Consider other methods used in state minimum wage programs or those 
of other countries. 

3. We now recommend the following: 

a. Increases in the minimum wage should be terminated immediately in 
American Samoa. [See comment 2] 

b. Conduct a thorough analysis of what caused the minimum wage 
increases to lead to such adverse economic effects in American Samoa 
and not in the U.S. 

c. Determine procedures for dealing with the minimum wage in American 
Samoa in such a manner as to avoid such economic disasters in the 
future. 

It may now be too late to include action on these recommendations in 
the GAO final report (GAO-11-427). However, these recommendations 
should be the subject of follow-up studies by the GAO, the U.S. 
Department of Labor, or some other appropriate agency. 

We thank the GAO for its work and offer our assistance and support for 
any future efforts on minimum wage for American Samoa. 

Sincerely, 

Signed by: 
Togiola T.A. Tulfono: 
Governor of American Samoa: 

The following are GAO's comments on the American Samoa government's 
letter, dated May 25, 2011. 

GAO Comments: 

1. The American Samoa government developed its own estimates of 
employment loss based on the information included in our report. It 
concluded that American Samoa employment fell by 3,737 in 2009 and by 
7,993 in 2010-2011. Our report does not include an estimate of total 
employment losses in 2009 because the data come from multiple sources 
that cannot be combined. Specifically, it is unclear the extent to 
which the SSA data reflect some losses of cannery jobs in addition to 
other job losses, so these cannot be added to cannery job losses from 
our industry questionnaire. In addition, the SSA data count the number 
of employed people, while the questionnaires count the number of jobs 
held at each firm. It is possible that the same person could hold 
positions at multiple firms. Moreover, the SSA data include workers 
who had earnings in American Samoa at any point in the year, while the 
questionnaire reflects the number of jobs in the tuna canning industry 
as of June of each year. Furthermore, because many of the temporary 
federal jobs began after our SSA counts of employment in American 
Samoa, and because workers can hold multiple jobs, it is unclear how 
the temporary federal jobs will affect employment counts based on SSA 
data. 

2. The American Samoa government recommended in its written comments 
and in a January 2011 letter that GAO explore alternative methods for 
setting minimum wage levels in American Samoa. The government provided 
several alternative methods for consideration. While we considered 
these suggestions and summarized them in the report, our research 
objectives and methodology were developed in response to the 
legislative mandate and in discussions with Congressional requesters. 
These objectives and methodology were designed to provide sufficient 
information and analysis to support congressional deliberation on 
minimum wage in American Samoa and the CNMI. 

3. The American Samoa government provided statements comparing the 
economy and minimum wage increases in American Samoa to those in the 
U.S. states. We agree that the minimum wage applies to a much larger 
proportion of American Samoa (and CNMI) workers than of workers in the 
U.S. states. Our report states, "In our April 2010 report,[Footnote 
131] we found that before the first minimum wage increase in July 
2007, 37 percent of all workers and about three-quarters of private 
sector workers employed by American Samoa questionnaire respondents 
earned wages close enough to the minimum wage to be directly affected 
by the first increase.[Footnote 132] In the CNMI, 18 percent of all 
workers and about a third of private sector workers were directly 
affected by the first increase. For both areas, we found that most 
private sector workers would be directly affected by the increases 
once the minimum wage reached $7.25. In contrast, according to Bureau 
of Labor Statistics estimates, in 2006 approximately 2.2 percent of 
all hourly workers in the U.S. states earned the federal minimum wage 
of $5.15 or less." The report also states, "Current federal data on 
income and poverty levels in American Samoa do not exist; however, the 
most recent available data show that American Samoa had lower income 
and higher poverty rates than the mainland United States." 

[End of section] 

Appendix VIII: Comments from the Commonwealth of the Northern Mariana 
Islands Government: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

Department of Commerce: 
Commonwealth of the Northern Mariana Islands: 
Caller Box 10007 CK, Saipan, MP 96950: 
Tel. (670) 664-3000: 
Fax: (670) 664-3067: 
email: commercedept@pticom.com: 

May 26, 2011: 

David Gootnick: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Subject: Response to CNMI Employment, Earnings, and Status of Key 
Industries Since Minimum Wage Increase Began: 

Dear Mr. Gootnick: 

The CNMI Department of Commerce is pleased .with the opportunity to 
comment on the GAO report #11-427 on the minimum wage increases in the 
CNMI. Please find our responses as attached. 

If we can be of further assistance in the issuance of the final 
report, please let us know. 

Thank you, 

Signed by: 

Sixto K. Igisomar: 
Deputy Secretary: 
For the Department of Commerce: 

cc: Governor, CNMI: 

[End of letter] 

The draft GAO report #11-427 on Employment, Earnings, and Status of 
Key Industries since Minimum Wage Increases Began for the CNMI intends 
to update the 2010 GAO #10-333. 

Overall, we find the findings remained relatively unchanged since the 
last GAO report #10-333, as illustrated below: 

GAO-10-333 Released 2010; Findings: 

1) Future increases will affect wages of more than 80 percent of those 
employers' workers by 2015. 

2) Employment continued on an existing downward trend by 22 percent in 
2006 to 2007. 

3) Inflation adjusted earnings declined by 6 percent from 2006 to 2008. 

4) Increase in room rates may cause a 2.6 to 13.7 percent decline in 
visits. 

5) Small employers and other private sector officials expressed mixed 
views about the future increases, and many expressed greater concern 
about immigration changes. 

6) In discussion groups, CNMI workers generally expressed support for 
the minimum wage increases and cited other factors affecting living 
standards. 

7) Employers reported having taken cost-cutting actions, such as 
freezing hiring, since the increases began and also reported planning 
such actions by the end of 2010. 

Draft GA0-11-427 to be released Spring 2011; Findings: 

1) Future increases will affect 95 percent of workers in the tourism 
industry by 2016. 

2) Employment fell 13 percent from 2008 to 2009. 

3) Inflation adjusted earnings rose by 3 percent from 2008 to 2009 and 
remained largely unchanged from 2006 to 2009. 

4) Hotels generally absorbed minimum wage costs rather than raise room 
rates. 

5) In discussion groups, private sector employers said minimum wage 
increases imposed additional costs during a time in which multiple 
factors made it difficult to operate. 

6) Workers in discussion groups expressed mixed views regarding the 
minimum wage increases and said they would like pay increases but were 
concerned about losing jobs and work hours. 

7) Tourism employers reported that they took cost-cutting actions from 
June 2009 to June 2010 and planned to take additional actions, 
including laying off workers. 

Although the draft report fairly presents the current condition in the 
CNMI, we feel that factors from the previous report remained 
relatively the same with the exception of the ongoing uncertainties of 
the U.S. Immigration Law application, the already anticipated delay in 
minimum wage increase for year 2011, and the effect of the severe 
austerity measures implemented by the government. 

We wish to highlight the report's limitations, interview responses, 
and the concluding observations and our input, below: 

Methods, Scope, and Limitations: 

We agree with the limitations and challenges posed by the report: 

"...it is difficult to distinguish between the effects of minimum wage 
increases and the effects of other factors, including the global 
recession beginning in 2009, fluctuations in energy prices, global 
trade liberalization, and the application of U.S: immigration law to 
the CNMI." (pg. 6) 

Planning for the minimum wage increase is not the only factor 
affecting businesses on island. As an isolated island economy, global 
events significantly affect the CNMI in comparison to other U.S. 
States. Not only do CNMI businesses try to brace themselves with a 
minimum wage increase, they are constantly in a survival mode as they 
thread through the contracting economy, the uncertainties surrounding 
the U.S. immigration application, rising energy cost, and global 
recession. 

We recommend addition of the recent statement release by Marianas 
Visitors Authority, reporting a 26% drop of tourist arrival from 
Japan, and an overall drop of 18% for all arrivals for the month of 
April 2011. In addition, as we previously discussed in our 
teleconference, the projected drop may have been attributed to the 
Japan tsunami and radiation crisis. We feel this addition will add 
value to the report. [See comment 1] 

Employers Interview/Questionnaire (Pg. 81-81): 

We do question the responses from employers. The draft report 
mentioned responses did not attribute the below actions as effects of 
the minimum wage increases. See below actions: 

a) Cutting of regular hours (87% of respondents; none attributed to 
minimum wage); 

b) Freeze hiring (83% of respondents; none attributed to minimum wage); 

c) Decrease benefit (63% of respondents; none attributed to minimum 
wage); 

d) Lay off workers (62% of respondents; none attributed to minimum 
wage). [See comment 2] 

We find these high responses interesting that they are not attributed 
to the minimum wage. Although the reports mentions that the 
information and data obtained are reasonable basis for the product 
(pg. 6), we believe that disclaimers within the report as stated below 
(pg. 26) counters the logic: [See comment 3] 

* The questionnaire cannot be used to make inferences about all 
employers and workers in each insular area. 

* It is possible that some employers' views of the minimum wage 
increases may have influenced their responses. 

We recommend that the reporting method be improved to gather a much 
clearer picture on the minimum wage issue and improve the data 
integrity. 

Draft report Concluding Observations (Pg. 17): 

* The economic declines in American Samoa and the CNMI are 
substantial, and both areas face budget shortfalls that may threaten 
their ability to fund public services and make investments in support 
of future economic development. 

* Identifying new growth opportunities and maintaining needed 
infrastructure and services in the meantime will require substantial 
effort by the private sector and by both the local and federal 
governments. 

Inference from the report indicates that living standards, employment, 
earnings and other industries will continue to decline substantially. 
Except for CNMI residents' living standards, the other areas were 
fairly quantified in the report. 

We recommend all future studies to report on current living standards 
of the residents of the CNMI, as required by congressional mandate, 
since the implementation of the minimum wage, as well as report on the 
outlook of such living standards in the future. Page 91 of the report 
presents quotes observed from discussion groups on workers' opinions 
on price increases, job security, poverty and crime, and immigration. 
These are essential parts of this report and in order to satisfy or 
comply with the congressional mandate, such must be quantified. For 
instance, the report should include findings on whether minimum wage 
increases have improved people's lives above the poverty line, made no 
significant changes, or actually pushed living standards below the 
poverty line. [See comment 4] 

Conclusion: 

In five years or by 2016, US Public Law No. 110-28, as amended by PL 
No. 111-117, mandates that the CNMI must meet the US minimum wage of 
$7.25. The delay by the amendment is a welcome reprieve but what 
remains largely unchanged will worsen if the other factors outside of 
the minimum wage remain as they are or continue to deteriorate.
Although we welcome and applaud the efforts of this GAO report #11-
427, we highly recommend that a more comprehensive survey and 
discussion be added to future reports. 

Finally, we agree that substantial effort is needed by both the local 
and federal governments to identify new growth opportunities, and we 
highly recommend that this and future reports provide further 
recommendations to the US Congress, federal agencies, and the local 
government on how to support efforts to manage these challenges. 

The following are GAO's comments on the CNMI government's letter, 
dated May 26, 2011. 

GAO Comments: 

1. The CNMI government provided information on decreases in CNMI 
visitor arrivals from Japan following the earthquake and tsunami in 
Japan. We have added this information to the existing statements on 
this topic in our report. 

2. The CNMI government questioned that for some key past and future 
actions, such as reducing regular work hours and freezing hiring, no 
CNMI employers attributed the actions to the minimum wage increases. 
We note that, as stated in the report, we present the weighted 
percentage of employers who attributed each action to the minimum wage 
increases "to a large extent" (not those who attributed the action to 
the minimum wage increases "to a small extent" or "to a moderate 
extent"). 

3. The CNMI government cited several limitations of the tourism 
industry questionnaire, as we described in this report, and 
recommended that the reporting method be improved to gather a clearer 
picture regarding minimum wage increases and to improve data 
integrity. However, for any questionnaire based on self-reported data, 
we cannot eliminate the possibility that some employers' views of the 
minimum wage increases may have influenced their responses. 

4. The CNMI government stated that the analyses of CNMI residents' 
living standards should be strengthened, as required by congressional 
mandate. Although the original mandate (Pub. L. No. 111-5, § 802, 123 
Stat. 115, 186, Feb. 17, 2009) specifically required us to study 
minimum wage effects on living standards, the current mandate (Pub. L. 
No. 111-244, 124 Stat. 2618, Sep. 30, 2010) does not. However, the 
report includes qualitative findings related to living standards based 
on discussion groups with employers and with workers, as well as 
quantitative findings on the inflation-adjusted earnings of average 
and minimum wage workers. 

[End of section] 

Appendix IX: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

David Gootnick, (202) 512-3149 or gootnickd@gao.gov Tom McCool, (202) 
512-2642 or mccoolt@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Emil Friberg, Assistant 
Director; Mark Speight, Assistant General Counsel; Marissa Jones, 
analyst-in-charge; Ashley Alley; Pedro Almoguera; Benjamin Bolitzer; 
David Dayton; Etana Finkler; Jill Lacey; Luann Moy; Nalylee Padilla; 
and Vanessa Taylor made key contributions to this report. Technical 
assistance was provided by Holly Dye, Patrick Dudley, Kay Halpern, 
Dave Hancock, Michael Hoffman, Rhonda Horried, Michael Kendix, 
Courtney LaFountain, John Mingus, Jena Sinkfield, and Wayne Turowski. 

[End of section] 

Footnotes: 

[1] U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq 
Accountability Appropriations Act, 2007, Pub. L. No. 110-28, § 8103, 
121 Stat. 188 (May 25, 2007), as amended by Pub. L. No. 111-244, 124 
Stat. 2618 (Sep. 30, 2010), codified at 29 U.S.C. § 206 note. Under 
the law, any future changes to the minimum wage enacted under U.S. law 
for the 50 states, District of Columbia, U.S. Virgin Islands, Guam, 
and Puerto Rico also will apply to American Samoa and the CNMI. For 
changes enacted before American Samoa and the CNMI would have reached 
the current U.S. minimum wage, the minimum wages in the two areas 
would continue to increase in $.50 increments until they reach the 
federal minimum wage, extending beyond the current time frames. After 
each area reaches the U.S. minimum wage, any additional increase in 
the U.S. minimum wage would apply to American Samoa and the CNMI on 
the same schedule as for the 50 U.S. states. 

[2] Pub. L. No. 110-28, § 8103, 121 Stat. 188 (May 25, 2007). The 2007 
law required minimum wage increases in May of 2008 and in May each 
year thereafter, until the American Samoa and CNMI minimum wages 
converged with the U.S. minimum wage in 2016 and 2015, respectively. 
However, the Consolidated Appropriations Act, 2010, included a 
provision delaying the minimum wage increases until September 30th of 
each year, beginning in 2010. Pub. L. No. 111-117, Div. D, Title V, § 
520, 123 Stat. 3034, 3283 (Dec. 16. 2009). 

[3] Pub. L. No. 111-244, 124 Stat. 2618 (September 30, 2010). 

[4] The Fair Labor Standards Act of 1938, Pub. L. No. 75-718, ch. 676, 
52 Stat. 1060 (June 25, 1938), codified at 29 U.S.C. § 202. 

[5] GAO, American Samoa and Commonwealth of the Northern Mariana 
Islands: Wages, Employment, Employer Actions, Earnings, and Worker 
Views Since Minimum Wage Increases Began, [hyperlink, 
http://www.gao.gov/products/GAO-10-333] (Washington, D.C.: April 8, 
2010). 

[6] Malcolm D. McPhee & Associates with Dick Conway and Lewis Wolman, 
American Samoa's Economic Future and the Cannery Industry, prepared 
for the American Samoa Department of Commerce under a grant award from 
the U.S. Department of the Interior, Office of Insular Affairs 
(February 2008); and Malcolm D. McPhee & Associates and Dick Conway, 
Economic Impact of Federal Laws on the Commonwealth of the Northern 
Mariana Islands, prepared for the CNMI Office of the Governor under a 
grant from the U.S. Department of the Interior, Office of Insular 
Affairs (October 2008). 

[7] Consolidated Natural Resources Act of 2008, Pub. L. No. 110-229, 
Title VII, 122 Stat. 754, 853 (May 8, 2008). 

[8] The Secretary of Homeland Security elected to delay the transition 
period start date from June 1, 2009, to November 28, 2009, as 
permitted by the law. U.S. immigration law was applied to the CNMI 
November 28, 2009, as scheduled; however, implementation of the CNMI 
transitional worker program was delayed following a federal court 
injunction just before the transition period start date that required 
the Department of Homeland Security to allow more time for public 
comment on the proposed program regulations. As of May 2011, the 
department had not yet issued final regulations for the transitional 
worker program. 

[9] In 2008, we reported on the factors that would affect the impact 
of the law's implementation on the CNMI economy, in particular the 
CNMI's (1) labor market, including foreign workers; (2) tourism 
sector; and (3) foreign investment. See GAO, Commonwealth of the 
Northern Mariana Islands: Managing Potential Economic Impact of 
Applying U.S. Immigration Law Requires Coordinated Federal Decisions 
and Additional Data, [hyperlink, 
http://www.gao.gov/products/GAO-08-791] (Washington, D.C.: Aug. 4, 
2008). Also see GAO, Commonwealth of the Northern Mariana Islands: 
Pending Legislation Would Apply U.S. Immigration Law to the CNMI with 
a Transition Period, [hyperlink, 
http://www.gao.gov/products/GAO-08-466] (Washington, D.C.: Mar. 28, 
2008); Commonwealth of the Northern Mariana Islands: Coordinated 
Federal Decisions and Additional Data Are Needed to Manage Potential 
Economic Impact of Applying U.S. Immigration Law, [hyperlink, 
http://www.gao.gov/products/GAO-09-426T] (Washington, D.C.: May 19, 
2009); CNMI Immigration and Border Control Databases, GAO-10-345R 
(Washington, D.C.: Feb. 16, 2010); and Commonwealth of the Northern 
Mariana Islands: DHS Should Conclude Negotiations and Finalize 
Regulations to Implement Federal Immigration Law, [hyperlink, 
http://www.gao.gov/products/GAO-10-553] (Washington, D.C.: May 7, 
2010). 

[10] Under the Act, GAO was required to report on the minimum wage 
increases between March 15 and April 15 of 2010 and each year 
thereafter until the minimum wages reach the U.S. minimum wage. Pub. 
L. No. 111-5, § 802, 123 Stat. 115, 186 (Feb. 17, 2009). A subsequent 
law changed the GAO reporting requirement to not later than September 
1, 2011; April 1, 2013; and every 2 years thereafter until the minimum 
wage in the respective territory meets the federal minimum wage. Pub. 
L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010). 

[11] [hyperlink, http://www.gao.gov/products/GAO-10-333]. 

[12] In GAO-10-333 and in this report, we use the term "directly 
affected by the minimum wage increase" to refer to workers who 
received pay increases because they were paid at or below the new 
minimum wage. The term does not include workers who may be indirectly 
affected by the minimum wage increases, such as those who lost jobs or 
work hours, or those who were above the minimum wage but received pay 
increases in order to preserve parity in the pay scale. 

[13] If many foreign workers left American Samoa, the impact on the 
unemployment rate would be smaller than if those workers remained. 
Although the U.S. Decennial Census collects data on employment status 
in American Samoa and the CNMI, Decennial Census data from 2010 were 
not available for our review. 

[14] Temporary federal jobs included those funded by the Recovery Act, 
by the U.S. Census Bureau for the Decennial Census, and by recovery 
efforts after the 2009 tsunami. 

[15] The Governor shared these views in a 2011 letter and in the 
American Samoa government's comments on this report. 

[16] The analysis excluded nonwage labor costs due to the minimum wage 
increases, such as increases in employer payroll tax contributions 
under the Federal Insurance Contributions Act. For 2011, employers 
must contribute the equivalent of 6.2 percent of employee wages to 
Social Security and 1.45 percent to Medicare, up to $106,800 in 
employee wages. 

[17] If many foreign workers left the CNMI, the impact on the 
unemployment rate would be smaller than if those workers remained. 
Although the U.S. Decennial Census collects data on employment status 
in American Samoa and the CNMI, Decennial Census data from 2010 were 
not available for our review. 

[18] Temporary federal jobs included those funded by the Recovery Act 
and by the U.S. Census Bureau for the Decennial Census. 

[19] The analysis excluded nonwage labor costs due to the minimum wage 
increases, such as increases in employer payroll tax contributions 
under the Federal Insurance Contributions Act. For 2011, employers 
must contribute the equivalent of 6.2 percent of employee wages to 
Social Security and 1.45 percent to Medicare, up to $106,800 in 
employee wages. 

[20] GAO, American Samoa and Commonwealth of the Northern Mariana 
Islands: Wages, Employment, Employer Actions, Earnings, and Worker 
Views Since Minimum Wage Increases Began, [hyperlink, 
http://www.gao.gov/products/GAO-10-333] (Washington, D.C.: Apr. 8, 
2010). 

[21] The underground economy would include any employers that may not 
comply with laws, including tax, minimum wage, immigration, and other 
laws. We did not review compliance with laws as part of this study. 

[22] The Office of Insular Affairs of DOI has provided technical 
assistance to American Samoa and the CNMI to help with data 
collection, including funding for the 2005 Household, Income, and 
Expenditures Survey (HIES) and past surveys. However, this assistance 
has not generated the scope of data collected by federal sources for 
the United States more generally. In addition, the 2005 HIES for 
American Samoa was not completed and is available only in draft form. 
Although the U.S. Decennial Census collects data on employment status 
in American Samoa and the CNMI, Decennial Census data from 2010 were 
not available for our review. 

[23] For GAO-10-333, we visited the island of Tinian in September 2009 
and the island of Rota in January 2010. 

[24] In 2009, for American Samoa, we used local tax return data to 
identify employers that filed 50 or more employee wage and tax 
statements (i.e., Form W-2) in either 2007 or 2008, and we verified 
this list with the American Samoa government and Chamber of Commerce. 
We sent questionnaires to 40 employers in American Samoa, covering 
approximately 84 percent of the American Samoa public and private 
sector workforce. For the CNMI in 2009, we did not receive local tax 
return data in time to develop our list. We generated our original 
list from 2007 Labor and Immigration Identification and Documentation 
System data from the CNMI government. Because the data include only 
foreign workers, the CNMI government and Saipan Chamber of Commerce 
identified additional employers that likely had more than 50 
employees. We sent questionnaires to 63 employers in the CNMI, 
covering approximately 37 percent of the CNMI public and private 
sector workforce, with greater coverage among public sector workers. 
The percentage of the workforce covered by our large-employer 
questionnaire was later calculated by the CNMI government's Department 
of Finance. 

[25] Pretest participants included business owners or general managers 
and, where applicable, financial personnel responsible for maintaining 
the payroll system. The questionnaire was also reviewed by members of 
the American Samoa, Saipan, and Tinian Chambers of Commerce, which 
also provided their endorsements, and an independent GAO reviewer. We 
made appropriate changes to the content and format of the 
questionnaire after the pretests and independent reviews. 

[26] At the time of our questionnaire, the new owners of the 
previously closed tuna canning facility had not yet acquired the 
facility and so were not included in the questionnaire. 

[27] These included the American Samoa Chamber of Commerce and the 
Saipan Chamber of Commerce. 

[28] We received CPI data from the CNMI and American Samoa Departments 
of Commerce. The series were updated by a subcontractor funded through 
a grant from DOI's Office of Insular Affairs. 

[29] American Samoa Government, Department of Commerce, Statistics 
Division, Report on the 2005 American Samoa Household, Income, and 
Expenditures Survey (HIES). Data is based on the 2005 HIES for 
American Samoa, which was not completed and is available only in draft 
form. 

[30] Joseph Kennedy, The Tropical Frontier: America's South Sea Colony 
(Mangilao, Guam: University of Guam Micronesian Area Research Center, 
2009) and J. Robert Shaffer, American Samoa: 100 Years under the 
United States Flag (Honolulu, Hawaii: Island Heritage Publishing, 
2000). 

[31] Two deeds of cession were initially completed between Samoan 
chiefs, or matai, and the United States in 1900 and 1904 and ratified 
by the federal government in 1929. In these deeds, the United States 
pledged to promote peace and welfare, to establish a good and sound 
government, and to preserve the rights and property of the people. See 
45 Stat. 1253, c. 281 (Feb. 20, 1929), codified at 48 U.S.C. §1661. 

[32] Transfer of Administration of American Samoa, Exec. Order No. 
10,264, 16 Fed. Reg. 6419 (1951). The Secretary exercised broad powers 
with regard to American Samoa, including "all civil, judicial, and 
military powers" of government in American Samoa. 48 U.S.C. § 1661(c). 

[33] 48 U.S.C. § 1662a. 

[34] American Samoa residents have many of the rights of citizens of 
the 50 states but cannot vote in U.S. national elections and do not 
have voting representation in the final approval of legislation by the 
full Congress. The Delegate from American Samoa has many of the same 
congressional privileges as other representatives, including a vote in 
committee, but cannot vote in the House of Representatives. Noncitizen 
nationals do not have the same preferences as U.S. citizens for 
sponsoring immediate family members for family-based immigration 
visas. In order to qualify for the same preference categories as 
citizens, noncitizen nationals must become naturalized citizens of the 
United States, which includes a requirement to reside in the United 
States for 3 months (8 C.F.R. §325.2). Additionally, individuals who 
are residents of the U.S. insular areas pay no federal income tax on 
income from sources within the insular areas; however, their wages are 
subject to Social Security and Medicare taxes. 

[35] American Samoa is the only insular area that operates both its 
own customs and immigration programs. The U.S. government operates the 
immigration functions in other insular areas, such as Guam, the 
Commonwealth of the Northern Mariana Islands, and the U.S. Virgin 
Islands; however, each of these insular areas operates under its own 
customs laws. 

[36] Under the Internal Revenue Code, qualifying American Samoa tuna 
canneries have received a tax credit for U.S. corporate income taxes. 
See 26 U.S.C. §936, 26 U.S.C. §30A note. 

[37] From 1997 through 2007, U.S. trade laws and agreements helped 
American Samoa's tuna canning industry remain viable in spite of 
competition. As tuna exports from other countries into the U.S. market 
increased, exports from American Samoa remained constant. In August 
2002, tariffs decreased on pouched tuna exported from countries 
covered by the Andean Trade Preference Act. The authority to extend 
duty-free treatment to Andean Trade Preference Act beneficiary 
countries expired on February 12, 2011, and has not been renewed. In 
January 2008, provisions of the North American Free Trade Agreement 
lifted tariffs imposed on canned tuna and other tuna products exported 
from Canada and Mexico. Nevertheless, some of American Samoa's foreign 
competitors still did not qualify for tariff-free access to the U.S. 
market. 

[38] The tax credits under section 936 of the Internal Revenue Code 
expired for taxable years beginning after December 31, 2005. Section 
30A of the Internal Revenue Code extends the Section 936 credits for 
American Samoa until January 1, 2012, subject to certain limitations. 
Corporations that were actively conducting business in American Samoa 
by 1995 who elected Section 936 status in the last taxable year before 
January 1, 2006, can claim a section 30A tax credit for taxable years 
that begin before January 1, 2012. See 26 U.S.C. §30A note, as amended 
by Pub. L. No. 111-312, §756, 124 Stat. 3296, 3322 (Dec. 17, 2010). 
Canneries in American Samoa have also benefited from an exemption from 
local taxes, renewable annually, for employers maintaining payrolls at 
certain levels. On January 6, 2011, the American Samoa government 
extended StarKist's local tax exemption until December 31, 2012. The 
term of the certificate began on April 1, 2010. 

[39] R.C. Holsinger and Associates, P.C., Territory of American Samoa 
Single Audit Report, prepared at the request of the American Samoa 
Government, Department of Treasury, September 30, 2009 (June 2010). 
Additional federal funds go to component units of the American Samoa 
government not fully covered by the Single Audit Report's Schedule of 
Expenditures of Federal Awards, including the American Samoa 
Government Employees Retirement Fund, the American Samoa Economic 
Development Authority, the American Samoa Power Authority, the 
American Samoa Community College, Lyndon B. Johnson Tropical Medical 
Center, and the American Samoa Telecommunications Authority. In 
addition, the Schedule of Expenditures of Federal Awards does not 
include the fiduciary fund. In an effort to improve accountability for 
federal funds, DOI's Office of Insular Affairs has designated American 
Samoa as a "high-risk" grantee as provided in 43 C.F.R. §12.52, and as 
recommended by the Department's Inspector General and GAO. This 
designation allows the Office of Insular Affairs to require American 
Samoa grantees to comply with special conditions for future or 
existing grants. The office will remove this high-risk designation 
once the American Samoa Government demonstrates its compliance with 
certain fiscal and internal accounting requirements. See U.S. 
Department of the Interior, Office of Insular Affairs, Budget 
Justifications and Performance Information: Fiscal Year 2011. 

[40] The American Recovery and Reinvestment Act (Recovery Act) was 
enacted in February 2009. Among other provisions--including the 
mandate for this and subsequent GAO reports--the act appropriates 
roughly $787 billion in fiscal stimulus to the U.S. economy. By March 
2011, federal agencies had reported the availability of Recovery Act 
funds for American Samoa totaling $240.8 million and the disbursement 
of $61.6 million. 

[41] In early 2009, BEA began work on the Statistical Improvement 
Program--funded by the Department of the Interior's Office of Insular 
Affairs--to develop the first official GDP estimates for American 
Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the 
U.S. Virgin Islands. In 2010, BEA released its first set of GDP 
estimates, for 2002 to 2007, and it plans to release 2008 and 2009 GDP 
estimates in 2011. BEA's GDP estimates are based on limited source 
data and are subject to revision. 

[42] According to the U.S. Economic Census 2007, American Samoa's 
private sector economy included 812 establishments; 11,247 workers; 
total annual payroll of $132.25 million; and transactions (sales, 
receipts, revenue, shipments) totaling $1.278 billion. In particular, 
44 percent of employees worked in manufacturing, the largest share of 
employment for any single industry. Establishments that are not 
covered by the Economic Census include agricultural establishments, 
some schools, and some government establishments, among others. 

[43] U.S. Department of Labor, Employment Standards Administration, 
Wage and Hour Division, Economic Report: The Minimum Wage in American 
Samoa, 2007 (Washington, D.C., May 2007). 

[44] Tri-Union Samoa Packing was the American Samoa facility of Tri- 
Union Seafood LLC (doing business as Chicken of the Sea 
International), which is a subsidiary of the Thailand-based Thai Union 
Group. 

[45] In November 2006, Chicken of the Sea's Samoa Packing operation 
employed 40 percent (1,906 workers) of the island's fish canning and 
processing workers. 

[46] StarKist Co. is a subsidiary of the South Korean-based Dongwon 
Group. Dongwon acquired StarKist in 2008 from Del Monte Foods, which 
had acquired StarKist from the H.J. Heinz Company in 2002. 

[47] Samoa Tuna Processors, Inc. is part of Tri Marine, a privately 
owned group of companies primarily engaged in fishing, procurement, 
processing, and trading of tuna and other seafood products, and in 
supplying tuna and tuna products to various brands. Tri Marine does 
not own or supply its own brand of canned tuna. Tri Marine is 
headquartered in Bellevue, Washington, and was founded in Singapore. 

[48] Tri Marine's local tax exemption certificate requires that the 
company invest a minimum of $5 million and employ 600 people within 5 
years in order to retain local tax benefits. 

[49] To expand disaster assistance available to American Samoa, on 
January 16, 2010, the President increased federal funding to American 
Samoa to cover 90 percent of costs resulting from public assistance, 
hazard mitigation, and other specified needs. The order also increased 
the federal share for debris removal and emergency protective 
measures, including increasing direct federal assistance under the 
public assistance program to 100 percent of total eligible costs for 
30 consecutive days. Under the President's major disaster declaration 
of September 29, 2009, the federal government had assumed 75 percent 
of these costs. To be eligible for Federal Emergency Management Agency 
cash-assistance programs, an individual must be a U.S. citizen, 
noncitizen national, or a qualified alien with legal permanent 
residence. Other individuals may apply on behalf of their U.S. citizen 
child, or another adult household member may qualify the household. 
Individuals not meeting these requirements may qualify for short-term, 
noncash, emergency aid. 

[50] Resort Consulting Associates, LLC, Kiner Design Group, and Studio 
81 International, American Samoa Tourism Master Plan, prepared for the 
American Samoa Government, Department of Commerce (June 2010). 

[51] American Samoa Government, Department of Commerce, Statistics 
Division, Report on the 2005 American Samoa HIES (draft). 

[52] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, 
U.S. Census Bureau, Current Population Reports, Income, Poverty, and 
Health Insurance Coverage in the United States: 2009 (Washington, 
D.C.: U.S. Government Printing Office, 2010). 

[53] American Samoa Government, Department of Commerce, Statistics 
Division, Report on the 2005 American Samoa HIES (draft). 

[54] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, 
U.S. Census Bureau, Current Population Reports, Income, Poverty, and 
Health Insurance Coverage in the United States: 2009 (Washington, 
D.C.: U.S. Government Printing Office, 2010). 

[55] This population estimate includes 60,608 residents of Saipan; 
2,829 residents of Tinian; and 2,490 residents of Rota. See 
Commonwealth of the Northern Mariana Islands, Department of Commerce, 
Central Statistics Division, Report on the 2005 Household, Income, and 
Expenditures Survey (HIES) (April 1, 2008). For recent estimates, see 
figure 9. 

[56] In 1947, the United Nations gave the United States authority to 
administer the Trust Territory of the Pacific Islands, which included 
the Northern Mariana Islands. The trusteeship over the Northern 
Mariana Islands was formally dissolved in 1986. 

[57] Covenant to Establish a Commonwealth of the Northern Mariana 
Islands in Political Union with the United States of America, Pub. L. 
No. 94-241, § 1, 90 Stat. 263 (Mar. 24, 1976), 48 U.S.C. § 1801 note. 
See also Howard P. Willens and Deanne C. Siemer, An Honorable Accord: 
The Covenant between the Northern Mariana Islands and the United 
States (Honolulu, Hawaii: University of Hawaii Press, 2002). 

[58] Under the covenant, the U.S. government may enact legislation in 
accordance with its constitutional processes that will be applicable 
to the CNMI. To respect the CNMI's right of self-government under the 
covenant, certain provisions of the covenant may be modified only with 
the consent of both the federal government and the CNMI government. 
These provisions include those relating to the political relationship 
between the United States and the CNMI; the CNMI constitution, 
citizenship, and nationality; the application of the U.S. constitution 
to the CNMI; and the land ownership rights of CNMI citizens. Most 
other provisions of the CNMI covenant may be modified by the federal 
government without the consent of the CNMI government, and local CNMI 
laws that were not inconsistent with federal laws or treaties of the 
United States when the covenant was enacted remained in effect. In 
addition, international treaty obligations between the United States 
and other countries apply to the CNMI through the covenant. 

[59] The covenant also made certain provisions of the Social Security 
Act, the Public Health Service Act, and the Micronesian Claims Act 
applicable to the CNMI. 

[60] Prior to November 2009, Section 506 of the covenant applied to 
the CNMI certain provisions of the Immigration and Nationality Act of 
1952 (INA) relating to citizenship and family-based permanent 
immigration. Certain other nonimmigrant provisions of the act, related 
to victims of human trafficking and other crimes, also applied to the 
CNMI. See 8 U.S.C. § 1101(a)(15)(T)-(U). In addition, the covenant 
provided U.S. citizenship to legally qualified CNMI residents. 

[61] The Consolidated Natural Resources Act of 2008 created a 
nonvoting delegate seat in the U.S. House of Representatives for the 
CNMI (48 U.S.C. § 1751). In January 2009, the CNMI elected its first 
representative to the United States Congress. The Delegate from the 
CNMI has many of the same congressional privileges as other 
representatives, including a vote in committee, but cannot vote in the 
House of Representatives. 

[62] Consolidated Natural Resources Act of 2008, Pub. L. No. 110-229, 
Title VII, 122 Stat. 754, 853 (May 8, 2008). Certain provisions may be 
extended past 2014. The legislation's stated intent is to ensure 
effective border control procedures and to protect national and 
homeland security, while minimizing the potential adverse economic and 
fiscal effects of phasing out the CNMI's foreign worker permit program 
and while maximizing the CNMI's potential for economic and business 
growth. CNMI immigration law was in effect until the start of the 
transition period under the federal legislation; however, federal 
restrictions on the total number of foreign workers in the CNMI 
applied immediately. 

[63] [hyperlink, http://www.gao.gov/products/GAO-08-791]. 

[64] Under the regulations issued by DHS in December 2010, previous 
long-term business investors with a minimum of $50,000 in investments 
and foreign investors with a minimum of $100,000 in an aggregate 
approved investment in excess of $2,000,000, or a minimum of $250,000 
in a single approved investment can remain in the CNMI through the 
transition period that is scheduled to end in 2014. See 8 C.F.R. § 
214.2(e)(23)(iii)(A)(2). 

[65] Deloitte and Touche LLC, Commonwealth of the Northern Mariana 
Islands: Report on the Audit of Financial Statements in Accordance 
with OMB Circular A-133, Year Ended September 30, 2009 (June 2010). 
Additional federal funds go to component units of the CNMI government 
not fully covered by the audit report's Schedule of Expenditures of 
Federal Awards, including the Public School System, the Northern 
Mariana Islands Retirement Fund, the Northern Mariana Islands 
Government Health and Life Insurance Trust Fund, the CNMI Workers' 
Compensation Commission, the Commonwealth Ports Authority, the 
Commonwealth Development Authority, the Commonwealth Utilities 
Corporation, the Marianas Public Land Trust, the Northern Marianas 
College, and the Marianas Visitors Authority. 

[66] On November 10, 2009, the CNMI Governor certified the 
commonwealth's intent to request and use federal funds under the act. 
By March 2011, federal agencies had reported the availability of 
Recovery Act funds for the CNMI totaling $135.7 million, and the 
disbursement of $61.9 million. Among other initiatives, these federal 
funds supported infrastructure projects under the Commonwealth Ports 
Authority and augmented resources for nutrition assistance in the 
Department of Community and Cultural Affairs. 

[67] In August 2006, the CNMI government also enacted biweekly 
furloughs, along with other measures, during which government 
employees were not paid--through fiscal year 2007. 

[68] Government accounting standards define "unfunded liability" as 
the excess, if any, of government liabilities over government assets. 
Unfunded liabilities indicate formal commitments by a government to 
expend funds for which the government has set aside no assets. 

[69] As noted earlier, in 2010, BEA released its first set of GDP 
estimates, for 2002 to 2007, and it plans to release 2008 and 2009 GDP 
estimates in 2011. BEA's GDP estimates are based on limited source 
data. In presenting the increase in per capita real GDP, BEA stated 
that the population of the CNMI decreased rapidly as foreign workers 
left the territory. 

[70] According to the U.S. Economic Census 2007, the CNMI's private 
sector economy included 1,191 establishments; 22,622 workers; total 
annual payroll of $246.1 million; and transactions (sales, receipts, 
revenue, shipments) totaling $1.284 billion. Manufacturing employed 
the largest share of the total workforce, with 31 percent. Twenty-one 
percent of employees worked in accommodation and food services, the 
second-largest share of employment for any single industry. 
Establishments that are not covered by the Economic Census include 
agricultural establishments, some schools, and some government 
establishments, among others. 

[71] Northern Marianas College, Business Development Center, An 
Economic Study for the Commonwealth of the Northern Mariana Islands, 
with funding provided by the U.S. Department of the Interior, Office 
of Insular Affairs (Saipan, Commonwealth of the Northern Mariana 
Islands, October 1999). See also GAO-08-791. 

[72] The apparel industry in the CNMI grew and expanded during a time 
when international rules governing apparel and textile trade were 
being renegotiated. Beginning in the 1960s, exporting and importing 
nations established the Multifiber Arrangement as a multilateral trade 
agreement to govern trade restrictions in textiles. Under the 
Multifiber Arrangement, importing countries could negotiate and 
implement quota restrictions. The Uruguay Round of Multinational Trade 
Negotiations, initiated in September 1986, agreed to an objective of 
integrating the textile sector into the General Agreement on Tariffs 
and Trade, thereby contributing to further trade liberalization. 
Negotiations on textiles began in 1987, and by December 1991 the 
proposed final agreement brought the sector into conformity with the 
General Agreement on Tariffs and Trade over a 10-year period; this 
would be accomplished through several stages by which imports could 
increase until all quota restrictions were ended after 10 years. In 
1994, the United States agreed to the World Trade Organization 
Agreement on Textiles and Clothing to remove quota restrictions in a 
series of stages beginning on January 1, 1995, and ending with the 
removal of all remaining quotas on January 1, 2005. See Agreement on 
Textiles and Clothing, Apr. 15, 1994, Marrakesh Agreement Establishing 
the World Trade Organization, Annex 1A, Multilateral Agreement on 
Trade in Goods - Results of the Uruguay Round, 33 I.L.M. 28. The end 
of U.S. quotas on apparel imports in 2005 negated the value of quota-
free status for Guam and the CNMI. CNMI textile exports to the United 
States began to fall in advance of the final quota removal. 

[73] U.S. Department of Commerce, Economic and Statistics 
Administration, Foreign Trade Division, U.S. Trade with Puerto Rico 
and U.S. Possessions. 

[74] The Consolidated Natural Resources Act of 2008 required the 
establishment of a joint visa waiver program for the CNMI and Guam by 
amending the authority for an existing visa waiver program for Guam 
visitors. The Guam-CNMI Visa Waiver Program exempts tourism and 
business visitors from certain countries who are traveling to the CNMI 
and Guam for up to 45 days from the standard U.S. visa documentation 
requirements. 8 C.F.R. § 212.1(q). 

[75] Northern Marianas College, Business Development Center, An 
Economic Study for the Commonwealth of the Northern Mariana Islands, 
with funding provided by the U.S. Department of the Interior, Office 
of Insular Affairs (Saipan, Commonwealth of the Northern Mariana 
Islands, October 1999). The study did not distinguish between U.S. 
citizens and U.S. lawful permanent residents, referring to the 
combined group as permanent residents. 

[76] We reported in May 2008 that the Department of Defense was in the 
process of conducting a training study covering both Guam and the CNMI 
to identify options for training in the region. GAO, Defense 
Infrastructure: Planning Efforts for the Proposed Military Buildup on 
Guam Are in Their Initial Stages, with Many Challenges Yet to Be 
Addressed, [hyperlink, http://www.gao.gov/products/GAO-08-722T] 
(Washington, D.C.: May 1, 2008). Also see GAO, High-Level Leadership 
Needed to Help Guam Address Challenges Caused by DOD-Related Growth, 
[hyperlink, http://www.gao.gov/products/GAO-09-500R] (Washington, 
D.C.: Apr.l 9, 2009) and Defense Infrastructure: The Navy Needs Better 
Documentation to Support Its Proposed Military Treatment Facilities on 
Guam, [hyperlink, http://www.gao.gov/products/GAO-11-206] (Washington, 
DC: Apr. 5, 2011). 

[77] CNMI Government, Department of Commerce, Commonwealth Economic 
Development Strategic Planning Commission, Comprehensive Economic 
Development Strategic Plan 2009-2014 for the U.S. Commonwealth of the 
Northern Mariana Islands, prepared under an award from the U.S. 
Department of Commerce Economic Development Administration (November 
2009). 

[78] Commonwealth of the Northern Mariana Islands, Department of 
Commerce, Central Statistics Division, Report on the 2005 CNMI HIES 
(April 1, 2008). 

[79] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, 
U.S. Census Bureau, Current Population Reports, Income, Poverty, and 
Health Insurance Coverage in the United States: 2009 (Washington, 
D.C.: U.S. Government Printing Office, 2010). 

[80] Commonwealth of the Northern Mariana Islands, Department of 
Commerce, Central Statistics Division, Report on the 2005 CNMI HIES 
(April 1, 2008). 

[81] Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, 
U.S. Census Bureau, Current Population Reports, Income, Poverty, and 
Health Insurance Coverage in the United States: 2009 (Washington, 
D.C.: U.S. Government Printing Office, 2010). 

[82] 29 U.S.C. § 206(a)(1)(C). 

[83] The federal minimum wage laws apply to employees engaged in 
commerce or the production of goods for commerce and to employees who 
work for enterprises engaged in commerce or the production of 
commerce. 29 U.S.C. § 206(a). An enterprise is deemed to be engaged in 
commerce or the production of goods for commerce only if it is an 
activity of a public agency, if its annual gross volume of business is 
at least $500,000, or if it is engaged in the operation of a hospital, 
health facility, or school. 29 U.S.C. § 203(s). Businesses in which 
the only regular employees are immediate family members of the owner 
are not considered to be enterprises engaged in commerce. 

[84] 29 U.S.C. § 213(a)(5). The exemption only applies to these 
activities when performed at sea, so employees engaged in these 
activities on shore would not qualify for the exemption. See 29 C.F.R. 
§ 784.130. 

[85] The original FLSA allowed special industry committees to 
recommend wages for certain industries to DOL, within specified 
minimum and maximum limits, to move lower-wage industries gradually 
toward statutory minimums. In 1986, Special Industry Committee 17 
mandated raising the minimum wage across several industries in 
American Samoa to the nationwide rate of $3.35 per hour. This change 
was nullified by Congress in a subsequent law (Pub. L. No. 99-396, § 
11, 100 Stat. 837 (Aug. 27, 1986)), which required that the minimum 
wage in American Samoa be reset to the rates that existed for each 
industry prior to the Special Industry Committee 17 rates; this 
returned the rate for cannery workers to $2.82 per hour, until it was 
raised to $2.87 in March 1991. 

[86] Pub. L. No. 110-28, § 8103(b)(2), 121 Stat. 112, 188 (May 25, 
2007). 

[87] Pub. L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010). 

[88] Covenant to Establish a Commonwealth of the Northern Mariana 
Islands in Political Union with the United States of America, §503(b). 
See 48 U.S.C. §1801 note. 

[89] Pub. L. No. 110-28, § 8103(b)(1), 121 Stat. 112, 188 (May 25, 
2007). For delay in increases until September 2010, see H.R. Rep. No. 
111-366 (Dec. 8, 2009) (Conf Rep.). 

[90] Pub. L. No. 111-244, 124 Stat. 2618 (Sep. 30, 2010). 

[91] U.S. Department of Labor, Employment Standards Administration, 
Wage and Hour Division, Economic Report: The Minimum Wage in American 
Samoa, 2007 (May 2007). DOL issued similar reports for previous 
industry committees. DOL did not issue a similar report for the CNMI 
because the CNMI set its own minimum wage until July 2007. 

[92] U.S. Department of Labor, Office of the Assistant Secretary for 
Policy, Impact of Increased Minimum Wages on the Economies of American 
Samoa and the Commonwealth of the Northern Mariana Islands (January 
2008). The report noted that data and time limitations constrained the 
study. 

[93] U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq 
Accountability Appropriations Act, 2007, Pub. L. No. 110-28, § 8104, 
121 Stat. 112, 189 (May 25, 2007). 

[94] We did not assess the methodologies or assumptions used in these 
studies. 

[95] Malcolm D. McPhee & Associates with Dick Conway and Lewis Wolman, 
American Samoa's Economic Future and the Cannery Industry, prepared 
for the American Samoa Government Department of Commerce under a grant 
award from the U.S. Department of the Interior, Office of Insular 
Affairs (February 2008). 

[96] Malcolm D. McPhee & Associates and Dick Conway, Economic Impact 
of Federal Laws on the Commonwealth of the Northern Mariana Islands, 
prepared for the CNMI Office of the Governor under a grant from the 
U.S. Department of the Interior, Office of Insular Affairs (October 
2008). For the previous report, see Northern Marianas College, 
Business Development Center, An Economic Study for the Commonwealth of 
the Northern Mariana Islands, with funding provided by the U.S. 
Department of the Interior, Office of Insular Affairs (Saipan, 
Commonwealth of the Northern Mariana Islands, October 1999). 

[97] Because new people may enter the workforce, the decrease in 
employment between 2008 and 2009 (3,727) is not necessarily the same 
as the number of people who stopped working from one year to the next. 
Based on SSA data on individual workers in American Samoa, we 
estimated that 6,047 of those employed in 2008 were not employed in 
2009, representing about one-third of the employed population. These 
may include workers who lost their jobs, who voluntarily chose to 
leave their jobs, or who stopped working for other reasons. 

[98] Because SSA data reflect the number of people with any earnings 
during the year, workers who lost their jobs when the cannery closed 
or who were laid off from the remaining cannery in 2009 are included 
in the number employed in 2009. The remaining cannery reduced its 
staff by about 350 workers between calendar years 2009 and 2010, based 
on the GAO questionnaire and additional information received from the 
remaining cannery. According to the additional information received, 
about 200 of the reductions resulted from layoffs. The remaining 
cannery reported that it increased employment by 500 in 2011. The 
company attributed the employment increase to a new contract it was 
awarded, the delays in the minimum wage increases in 2010 and 2011, 
the extension of federal tax credits, and local tax exemptions. 
However, the company said that the additional positions are not 
necessarily permanent or long-term, and it expects employment to 
continue to fluctuate. 

[99] If many foreign workers left American Samoa, the impact on the 
unemployment rate would be smaller than if those workers remained. 
Although the U.S. Decennial Census collects data on employment status 
in American Samoa and the CNMI, Decennial Census data from 2010 were 
not available for our review. 

[100] GAO based this estimate on Recovery Act recipient reports and on 
information received from the American Samoa government. Much of this 
employment was not full-time and only covered part of the year. 

[101] American Samoa government officials said that because 
contributions to Social Security, Medicare, workers' compensation, and 
retirement benefits are based on pay, the total costs of the minimum 
wage increases would be about $10.5 million over the period. In GAO-10-
333, we found that, based on questionnaire responses, at most 30 
percent of government workers earned wages no more than $1.50 over the 
minimum in 2007 and therefore were directly affected by the first 
three minimum wage increases. The median government salary might have 
changed within the $10,000 to $20,000 range, but our data do not allow 
us to measure such variation. 

[102] In the January 2011 letter, the Governor also suggested 
considering some form of negotiated minimum wage involving the public 
and private sectors; a process permitting some variation in minimum 
wage rates by industry and gross receipts levels; or other methods 
used in state minimum wage programs or those of other countries. In 
its written comments on this report, the American Samoa government 
asked that GAO or other federal entities consider the following 
recommendations: terminate increases in the minimum wage immediately 
in American Samoa; conduct a thorough analysis of why adverse economic 
effects of the minimum wage increases were greater in American Samoa 
than in the United States; and determine procedures for addressing 
minimum wage in American Samoa in a way that avoids future economic 
disasters. 

[103] The American Samoa Consumer Price Index increased 4 percent from 
2006 to 2007, 11 percent from 2007 to 2008, and 3 percent from to 2008 
to 2009. The U.S. Consumer Price Index increased 2.9 percent from 2006 
to 2007 and 3.8 percent from 2007 to 2008, and it declined by .3 
percent from 2008 to 2009. 

[104] Our tuna industry questionnaire asked respondents about the 
extent to which they attributed each action they took or planned to 
take to the minimum wage increases, regardless of whether other 
factors also contributed. We separately asked about other contributing 
factors. In interviews, officials provided more information about 
contributing factors. 

[105] Global trade liberalization has reduced trade barriers on some 
tuna products from certain countries, which leads to the erosion of 
the tariff-free benefits for American Samoa exports. For example, 
tariffs have declined on pouched tuna from beneficiary countries under 
the Andean Trade Preference Act, the benefits of which expired in 
February 2011. According to cannery officials, trade liberalization 
also made it easier for domestic competitors to outsource labor-
intensive work away from American Samoa and into low-wage countries. 

[106] Local governments have provided various forms of incentives to 
attract manufacturing, such as tuna canning. American Samoa has 
provided various tax exemptions and benefits to the tuna canning 
industry, such as a graduated tax exemption on corporate income taxes, 
employee tax benefits, and tax exemptions for owners and operators of 
vessels that supply the canneries. The cannery that moved its canning 
operations to the U.S. state of Georgia has received local and state 
incentives, including county and city tax exemptions and contributions 
from the state to cover part of the build-up cost. According to 
cannery officials, the Thai government also provides incentives to 
attract businesses, such as a tax rebate on investment in new 
manufacturing facilities. 

[107] For additional factors affecting the tuna processing industry, 
see Hamilton A., Lewis A., McCoy M.A., Havice E., Campling L., 
forthcoming, Impact of Industry and Market Drivers on the Global Tuna 
Supply Chain, Pacific Islands Forum Fisheries Agency, Honiara; and 
Campling, L., E. Havice and V. Ram-Bidesi 2007, Pacific Island 
Countries, the Global Tuna Industry and the International Trade Regime 
- a Guidebook, Pacific Islands Forum Fisheries Agency, Honiara. 

[108] In GAO-10-333, we found that a model relying on frozen fish 
loins sourced from outside the United States and canned in the U.S. 50 
states, as compared to a model of loining and canning in American 
Samoa, would have annual labor savings of $12 million in 2009 that 
would more than offset annual tariff costs of $320,000. In 2006, 
before the minimum wage increases began, labor costs were estimated at 
$13 million under the American Samoa model and $5.6 million under the 
frozen loins model. 

[109] For example, for 2011, employers in the U.S. must contribute the 
equivalent of 6.2 percent of employee wages to Social Security and 
1.45 percent to Medicare, up to $106,800 in employee wages. 

[110] We chose Thailand because a significant portion of tuna 
processing currently takes place in the country. 

[111] Model B estimates differ somewhat from those in our last report 
(GAO-10-333), because the current analysis is based on the decreased 
number of workers employed in the American Samoa tuna canning facility. 

[112] We assume U.S. workers are paid $14.00 per hour, based on 
statements from industry officials. 

[113] U.S. government contracts for meal programs under the U.S. 
Department of Agriculture and for the U.S. military currently require 
that the canned tuna be processed in the United States using fish 
caught by U.S. flag vessels. For the purposes of these contracts, 
"United States" refers to the U.S. 50 states, the U.S. territories-- 
including American Samoa--and the freely associated states of the 
Federated States of Micronesia, Republic of the Marshall Islands, and 
Republic of Palau. Some military purchases are exempt from the above 
requirements, including ships that need certain items when they are 
docked in foreign waters. 

[114] For example, independent Samoa is near American Samoa and, 
through December 31, 2010, was allowed to export tuna to the United 
States tariff-free under trade agreements with the United States. 

[115] Tuna industry officials stated that 20 percent of production is 
not sufficient to cover overhead costs and operate a cannery in 
American Samoa. We assume that another 30 percent of production 
remains in American Samoa in order to illustrate a hybrid production 
model. The actual minimum production threshold for canning in American 
Samoa is not publicly available. 

[116] Estimates of job loss include only workers directly employed in 
tuna canning. If we included workers employed by the company 
manufacturing cans, who would lose their jobs without the cannery, the 
estimates of job loss would be higher. Additionally, actions taken by 
American Samoa's tuna canning industry are likely to have ripple 
effects on other businesses. 

[117] The lease of the remaining cannery expires in February 2013. In 
addition, the American Samoa Power Authority has regained land 
formerly leased to the cannery. 

[118] If many foreign workers left the CNMI, the impact on the 
unemployment rate would be smaller than if those workers remained. 
Although the U.S. Decennial Census collects data on employment status 
in American Samoa and the CNMI, Decennial Census data from 2010 were 
not available for our review. 

[119] GAO based this estimate on Recovery Act recipient reports and 
information received from the CNMI government. Much of this employment 
was not full-time and only covered part of the year. 

[120] The CNMI Consumer Price Index increased 8.1 percent from 2006 to 
2007, 6.8 percent from 2007 to 2008, and 3.5 percent from 2008 to 
2009. The U.S. CPI increased 2.9 percent from 2006 to 2007 and 3.8 
percent from 2007 to 2008, and it declined by .3 percent from 2008 to 
2009. 

[121] Ninety-two percent of CNMI questionnaire recipients (12 of 13, 
with one additional recipient having closed) responded, and 
respondents included hotels and other employers in the tourism sector, 
such as tour operators. 

[122] Employers representing 3 percent of workers employed by 
questionnaire respondents laid off hourly and salaried workers. Of 
those, none attributed layoffs largely to the minimum wage increases. 

[123] Our questionnaire did not distinguish between the price of hotel 
rooms versus the price of other goods or services. For example, prices 
may include those for hotel services such as restaurants and 
concessions, in addition to hotel rooms. 

[124] In addition, employers noted that other factors such as 
increased costs of materials, maintenance costs, transportation and 
shipping costs, and utility costs, as well as changes in business 
taxes and fees, contributed to their past and planned actions to a 
moderate extent. 

[125] The data provided do not allow us to draw conclusions about the 
causal relationship between visitor arrivals and flight seats. 

[126] The financial incentives program has not yet been funded, and 
the government is working to change the related regulations to extend 
the incentives to countries other than Japan, after the March 2011 
earthquake and tsunami. 

[127] In addition, CNMI government officials said that many Japanese 
visitors had canceled their hotel reservations and tour packages after 
the earthquake and tsunami in Japan, and they expressed concern about 
the impact on the CNMI's tourism industry. In May 2011, the Marianas 
Visitors Authority reported that from April 2010 to April 2011, 
Japanese visitor arrivals to the CNMI had dropped 26 percent and 
overall visitor arrivals had dropped 18 percent, following the tsunami 
crisis in Japan. 

[128] In GAO-10-333, we found that raising room rates to cover higher 
wage costs could cause a 2.6 to 13.7 percent decline in visits to the 
CNMI. 

[129] Our questionnaire covers the tourism industry and includes 
hourly wage data on 8 CNMI hotels. CNMI hotel and other tourism 
employers told us in the questionnaire and in discussion groups that 
they had not laid off workers but had taken other steps to cut costs, 
such as implementing hiring freezes. The decreases in hotel employment 
may reflect these hiring freezes. 

[130] They also said the CNMI competes with Guam, which they said has 
lower prices for power, water, commodities, and other expenses. Given 
high utility costs, most CNMI hotels generate their own power and 
water. 

[131] [hyperlink, http://www.gao.gov/products/GAO-10-333]. 

[132] In GAO-10-333 and in this report, we use the term "directly 
affected by the minimum wage increase" to refer to workers who 
received pay increases because they were paid at or below the new 
minimum wage. The term does not include workers who may be indirectly 
affected by the minimum wage increases, such as those who lost jobs or 
work hours, or those who were above the minimum wage but received pay 
increases in order to preserve parity in the pay scale. 

[End of section] 

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