Sparta Report

How US minimum wage laws ruined American Samoa’s economy

This is the third part in my series talking about the situation in the US territories and the Caribbean islands, both areas which are barely known to the American public due to lack of interest and distance from the US mainland. I’d recommend you read the first part of my series discussing the Caribbean debt crisis before proceeding. While American Samoa is obviously in the Pacific and not the Caribbean Sea, there are some similarities.

Like most other remote islands discussed in the series, the country was colonized by the European powers, though much later than the Caribbean. Samoa was not discovered until the 1700’s, and regular contact with the Europeans was not established until the 1800’s. Various Great Power nations contended for control of the region, until Germany and the United States divided Samoa up in 1899. At that time, the western islands fell under German control and eventually became what is the independent nation of Samoa today. The eastern islands were ceded to the United States and became the territory of American Samoa, with the capital at Pago Pago.

In World War 2, the United States stationed marines in Samoa, to the point where the total number of troops outnumbered the natives living there at the time. Many Samoans served with distinction in the armed forces in World War 2. Since this period, the island has a long tradition of support for the US military, supplying many recruits. American Samoa has the highest rate of enlistment of any US state or territory, and the US Army Recruiting station in Pago Pago is ranked first out of all United States recruiting stations. Unfortunately, as a consequence, the number of military deaths it suffers is also outsized. While there are cultural reasons for Samoans to join the US military, a military career also provides a way out of the islands, which have about a quarter of the population living in poverty.

Today, the islands have a population of 54,343 people. 15,000 on the island are employed. 5,000 work in the public sector, and 10,000 work in the private sector. There are very few federal employees on the island, and most of the public sector work is done for the local government. Of the private sector, the bulk of employment comes from the islands’ tuna canneries. I want to emphasize just how critical tuna canning is to the economy of American Samoa. This transcript of a reporter discussing the economy mentions that 80% of the island’s economic activity is tied to the tuna canneries, so the Samoan economy has serious vulnerabilities due to their heavy dependence on tuna canning.

To further emphasize the importance of the canneries, this 2006 article notes that Samoa’s GDP is $500 million, and the value of all products produced by the two canneries amount to $446 million.

This brings us to the last decade.

Let’s flash back to January, 2007 and the waning days of the George W. Bush presidency. The Democrats were flush with victory, having scored a huge wins in the 2006 Congressional elections, and taken control of both houses of Congress. At the time, Nancy Pelosi and the Democrats moved immediately to raise the minimum wage from $5.15 per hour to $7.25 per hour. In the initial version of the bill, it was discovered by the Republicans that American Samoa had been exempted from the minimum wage increase. At the time, rumors circulated that Pelosi or her husband had financial links to StarKist, which was the larger of the two tuna canners on the island. This was never proven one way or another as best as I can tell.

American Samoa itself argued strongly against the wage increases:

One person who is concerned about enforcing the federal minimum wage in American Samoa is non-voting Rep. Eni Faleomavaega, who echoed the arguments of many conservatives against raising the minimum wage in poorer regions of the U.S. mainland.

A “decrease in production or departure of one or both of the two canneries in American Samoa could devastate the local economy, resulting in massive layoffs and insurmountable financial difficulties,” he said in a statement provided to The Times.

The truth is the global tuna industry is so competitive that it is no longer possible for the federal government to demand mainland minimum wage rates for American Samoa without causing the collapse of our economy and making us welfare wards of the federal government.”

It turned out Representative Faleomavaega was correct in his assessment. In 2009, the minimum wage increase forced the closure of the Chicken of the Sea cannery and its relocation to Georgia.

Chicken of the Sea, the tuna company, announced this month that it will close its canning plant in American Samoa in September. The culprit is 2007 legislation in Washington that gradually increased the islands’ minimum wage until it reaches $7.25 an hour in July 2009, almost double the 2007 levels.

In 2007, the hourly minimum wage in American Samoa for fish canning and processing was $3.76 and the minimum wage for government employees was $3.41. Shipping had the highest minimum wage, at $4.59. Garment manufacturers got the lowest, at $3.18 an hour. A $7.25 wage is a substantial increase for most residents.

Chicken of the Sea will lay off 2,041 employees—12 percent of total employment, almost half of all cannery workers. And the 2,700 workers at StarKist, the other American Samoa tuna canning company and Chicken of the Sea’s rival, are probably concerned that their jobs are the next to go.

At this point, it is perhaps worthwhile to point out the CIA World Factbook measured the country’s unemployment rate at nearly 30% in 2005. This is before the closure of Chicken of the Sea. A 2014 article assessed the effects of the closure of the cannery:

Since 2007, the minimum wage in American Samoa has increased three times across 18 individual work sectors, ranging from $4.18 to $5.59 per hour. The GAO reported that average earnings in American Samoa rose by 27 percent, but local prices increased by 34 percent. The employment rate in American Samoa declined by 11 percent from 2007 to 2012, and average inflation-adjusted earnings fell by 5 percent. In the tuna canning industry alone, the employment rate fell by 58 percent from 2007 to 2013.

The wage increases prompted the closure of the Chicken of the Sea tuna cannery in American Samoa, the only cannery on the island competing with StarKist. The tuna canning industry is the largest source of private-sector employment on the island.

The situation has improved since the closure of the Chicken of the Sea cannery. Samoa received a big break when Tri-Marine International decided to invest in Samoa and reopened the closed cannery, hiring 1,500 workers and providing badly needed relief for the economy. However, the former Samoan canner, Chicken of the Sea, which moved to Georgia in 2009 due to the wage hikes, is now ironically lobbying Congress to force further minimum wage increases on Samoa in order to cripple their canning industry and gain a competitive edge for themselves. The lobbying succeeded and forced a further wage increase on the territory.

The prospects for Samoa do not seem very promising going forward. The remoteness of the islands has made it difficult for them to obtain foreign investment or even develop a tourist industry.

Reagan really knew what he was talking about when he said “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”

Have Sparta Report Delivered Right to Your Inbox!

Join 3,663 other subscribers