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External reviewers of local min wage hikes raise concern over “negative” economic effects

The US Government Accountability Office sought and received comments from four “external reviewers” on the latest report by the investigative arm of the US Congress, dealing with minimum wages increases in American Samoa.

GAO released last Friday a 110-page report, which cites “two basic approaches” for increasing American Samoa’s minimum wages to keep pace with the cost of living in the territory and eventually equal the federal minimum wage.

The approach relies on indexing minimum wages to the cost of living and the second one relies on using a schedule of future adjustments. (See Tuesday’s Samoa News edition for details.)

According to GAO, it provided a draft copy of its report to four external reviewers for comments. The external reviewers of the report, with expertise encompassing labor economics, Pacific island economies, and fisheries, provided their perspectives on increasing minimum wages in American Samoa, said GAO, which provided a summary of their views.

On the issue of “Potential consequences of increasing minimum wages in American Samoa,” GAO says three reviewers expressed concern that increasing minimum wages in American Samoa may result in negative economic effects, given American Samoa’s current economic conditions.

Furthermore, one reviewer suggested that further study of minimum wage increases’ possible effects on American Samoa workers and industries — including a study to identify industries that might tolerate larger increases without adverse effects — is warranted.

Regarding the applicability of the federal minimum wage level to American Samoa, GAO says three reviewers noted that raising American Samoa minimum wages to equal the federal minimum wage might not be appropriate for the territory given the differences between its economy and that of the 50 U.S. states.

“One reviewer remarked that raising minimum wages to the federal level could be viewed as somewhat artificial in light of the territory’s economic conditions,” the GAO report says. (The current federal minimum wage level is $7.25 per hour.)

The reviewers were also asked for comment on the suitability and feasibility of linking minimum wages to American Samoa’s cost of living. GAO said one reviewer suggested that in small economies, such as American Samoa’s, increasing the minimum wage may in turn lead to increases in the cost of living.

Another pointed out that indexing to the cost of living might not be feasible in American Samoa.

“Given that a cost-of-living index is typically based on household expenses, one reviewer pointed out that the standard definition of ‘household’ used in the United States may not apply in American Samoa given the territory’s cultural ethos of sharing with extended family and fellow villagers,” GAO said.

On the issue of setting minimum wages in American Samoa commensurate with, not equal to, the federal minimum wage, GAO said one reviewer “suggested setting a minimum wage in American Samoa that is proportionate rather than equal to the federal minimum wage.”

For example, if a full-time minimum wage worker in the United States earns, on average, 35 percent of the U.S. median household income, the American Samoa minimum wage would be set at 35 percent of the median household income in American Samoa.

“The reviewer observed that this approach would link minimum wage increases in American Samoa to improvements in the territory’s median household income, relative to the U.S. median household income, thus reducing the potential for adverse economic effects,” GAO points out.

According to the report, the four reviewers are: Dr. Randall Akee, Assistant Professor of Public Policy at the University of California, Los Angeles; Dr. Gerard A. Finin, Director, Pacific Islands Development Program, East-West Center, Honolulu; Dr. Elizabeth Havice, Associate Professor at the University of North Carolina, Chapel Hill.

In his Nov. 4 comment letter to the GAO draft report, Gov. Lolo Matalasi Moliga said, “our concern and objection to increasing the American Samoa minimum wage to federal minimum wage are also echoed” by the four reviewers.

He cited some of those same concerns voiced by the reviewers, including the negative economic effects given the territory’s current economic condition. (See yesterday’s edition on the governor’s reaction to the full GAO report.)