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Thousands loose jobs to higher minumum wage (reuters)


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http://blogs.reuters.com/great-debate/2009/05/14/thousands-lose-jobs-due-to-higher-federal-minimum-wage/

By: Diana Furchtgott-Roth

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. —

As President Obama considers whether to fulfill his campaign promise to raise the minimum wage from $7.25 to $9.50 per hour by 2011, there’s no better illustration of the consequences of well-intentioned policy-making than recent events in American Samoa, a United States territory in the South Pacific that falls within the purview of Congress.

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.

American Samoa’s loss is Georgia’s gain. Chicken of the Sea will move to Lyons, Georgia, (2007 population 4,480) employing 200 people in a new $20 million plant on a more capital-intensive production line.

In January 2007 the legislation originally did not include American Samoa, perhaps because Del Monte, at the time the parent company of StarKist, was headquartered in Speaker Nancy Pelosi’s district.

Until then, the Labor Department had set wage rates in American Samoa every two years, following an extensive study on economic conditions on the island. But before final passage, Congress included American Samoa.

Back in 2007 American Samoa Governor Togiola Tulafono worried that increasing the minimum wage “would kill the economy” and Congressional Samoan Delegate Eni F.H. Faleomavaega forecast that it would devastate the local tuna industry.

They knew that industries would go elsewhere if they have to pay $7.25 an hour.

They were right. American Samoa will lose not only the 2,041 jobs at the Chicken of the Sea canning plant, but also secondary jobs from the ripple effect of loss of income—stores and eateries that cater to cannery workers, shops that mend fishing nets, shipyards, and buses that transport workers.

In a telephone conversation this week, Representative Vaito’a Hans A. Langkilde of the Ma’oputasi District #10, representing the villages of Leloaloa, Satala and Atu’u, described the prospective devastation of the community. His district is home to both StarKist and Chicken of the Sea.

Mr. Lankilde told me, “Over the past 50 years the industry provided massive job opportunities for unskilled labor. The 2007 law that increased the minimum wage was the beginning of the end for the tuna industry and the cause of massive job losses for our already fragile economy. The only way to resolve the trend towards total economic disaster is for Congress at its soonest opportunity to reverse its position.”

With the recent laying of fiber-optic cable linking American Samoa to the United States, Samoans could get jobs in call centers. Yet the higher minimum wage could discourage firms.

Raising the minimum wage to $9.50 an hour would drive even more jobs away from American Samoa. In the United States it would have the effect of shifting jobs from low-skill to high-skill workers, raising unemployment among those who are least equipped to handle it.

Rather than having to accept direction from a government thousands of miles away where they have no voting representation, residents of American Samoa should be given the power to decide on their own minimum wage. Congress should leave further minimum wage increases to individual states to choose as they see fit, because wage levels and the cost of living vary substantially between states such as Mississippi and New York.

The closure of the Chicken of the Sea cannery in American Samoa shows us that higher minimum wages cause low-skill workers to lose jobs. What’s true for American Samoa holds equally true for the United States.

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I don't get it. They are moving their plant to Georgia where they will have to pay at least minimum wage or more. Why not just stay where they were.

Technology vs labor

a more capital-intensive production line.

2,041 employees VS 200 @ $7.25 = scratching your unemployed ass everytime.

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The closure of the Chicken of the Sea cannery in American Samoa shows us that higher minimum wages cause low-skill workers to lose jobs. What’s true for American Samoa holds equally true for the United States.

Big leap of reasoning there. The fact that the 2007 minimum wage in American Samoa was $3.75 tells you that the circumstances are different. And the minimum wage wasn't just increased; it was DOUBLED. It's almost never accurate to apply lessons/ ideas from a small, discrete, isolated sample to a larger universe. The economic forces that take hold in small towns everywhere are not always (or often, even) applicable to the country as a whole.

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Big leap of reasoning there. The fact that the 2007 minimum wage in American Samoa was $3.75 tells you that the circumstances are different. And the minimum wage wasn't just increased; it was DOUBLED. It's almost never accurate to apply lessons/ ideas from a small, discrete, isolated sample to a larger universe. The economic forces that take hold in small towns everywhere are not always (or often, even) applicable to the country as a whole.
Funny. I always thought that small town America was the heart and soul of the country? So if the min wage increasing makes life more difficult for them. doesn't it "trickle up" to the rest?
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The economic forces that take hold in small towns everywhere are not always (or often, even) applicable to the country as a whole.

You're right. We should just make the minimum wage, say, 1000 BEEEYUN dollars. Then we'd be living a life like something out of Nas' "If I Ruled the World."

Sometimes local cases give you the historical and CURRENT (we have other examples from history if you need them to question basic economic facts) exemplar of the problem with a particular policy.

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The economic forces that take hold in small towns everywhere are not always (or often, even) applicable to the country as a whole.

All right, try this then: The Minimum Wage and the Labor Market is a study from the Cleveland Fed in May of 2007.

It does start with this:

New models of employment show that there are some cases in which a minimum wage can have positive effects on employment and social welfare. The effects depend ultimately on the prevailing market wage and the frictions in the market.

But the next sentence is this:

Evidence to date does not support the view that raising the minimum wage will lead to positive employment effects.

and the conclusion is this:

The analysis presented here omits several important elements of actual labor markets. Many empirical studies have sought to quantify the employment effects of a minimum wage. According to David Neumark and William Washer, who surveyed this literature thoroughly, most evidence suggests that a minimum wage leads to greater unemployment. And contrary to popular belief, most evidence suggests that the least-skilled workers are those most likely to be harmed the most.
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