GAO presents local min wage alternatives to U.S. Congress
The US Government Accountability Office (GAO) has suggested to the US Congress “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 investigative arm of the US Congress provided the two alternatives in a 110-page report released last Friday in order to comply with a provision of the October 2015 federal law, which raises American Samoa’s minimum wage by 40 cents every three years beginning Sept. 30 of last year.
According to the GAO, the first approach relies on adjustments indexed to changes in the cost of living, and the second relies on a schedule of adjustments within a specified timeframe.
“In addition, aspects of each approach may be combined with respect to the amount and timing of future increases to minimum wages,” the report says. It notes that other factors would also warrant consideration, including design options to safeguard against any negative effects that increasing minimum wages might have on American Samoa’s economy.
INDEXING MINIMUM WAGE
The first approach deals with adjusting American Samoa’s minimum wages on the basis of changes in a cost-of-living index, according to GAO, which notes that as of September this year, 17 states and the District of Columbia indexed, or planned to index, their minimum wages using cost-of-living measures.
For example, Colorado annually adjusts its minimum wage on the basis of changes in consumer prices in the state. In most years since 2008, Colorado’s minimum wage has increased, except in 2010 when it dropped by 4 cents in response to deflation.
“If an indexing approach were used to increase American Samoa’s minimum wages, the primary consideration would be the selection of an economic index that best reflects changes in American Samoa’s cost of living,” GAO said and lists several indices that would be considered for this purpose.
For example, Honolulu’s consumer price index (CPI), the GAO suggests may be best suited as an index for American Samoa given that Hawai’i is also geographically isolated in the Pacific.
It points out that the US Bureau of Labor Statistics (BLS) publishes the US city average CPI as well as 26 metropolitan areas and regions; however, GAO quotes BLS officials saying that none of the metropolitan or regional CPIs is ideally applicable to American Samoa, because the territory is an isolated market where transportation of commodities is relatively more expensive.
Another example is the American Samoa CPI, which is developed by ASG as a measure of changes in the territory’s cost of living. ASG generates its index on a quarterly basis using price data for commodities, such as food, housing, clothing, and medical care collected in the territory. The government notes that collecting data for its CPI can be challenging because of the inconsistent flow of consumer goods to the islands.
“Increases in the cost of living recorded by these indices have varied over time and at different rates,” says GAO, which notes that the increases shown by the indices for Honolulu and American Samoa suggest greater annual growth in the cost of living in those locations, on average, than is shown by the U.S. national indices.
The second approach — applying scheduled increases to American Samoa minimum wages — would establish a timeframe for ensuring that American Samoa’s minimum wages eventually equal the federal minimum wage.
According to GAO, the current schedule of increases would raise all American Samoa minimum wages to the current federal hourly rate of $7.25 by 2036. However, any new increase in the federal rate will lengthen the time required to achieve convergence, it says.
American Samoa has 17 different minimum wages, depending on the industry — with the lowest at $4.68 for garment manufacturing and the highest at $6.09 for stevedoring, and maritime shipping agency activities.
GAO says that if a new schedule-based approach were selected, the primary considerations would be the frequency and amount of future increases. It suggests that increases could occur at relatively short intervals (e.g., annually) or longer intervals (e.g., every 5 years).
Additionally, the scheduled increases could be set as a nominal amount (e.g., $0.20 each year), as a proportion of the prevailing federal minimum wage (e.g., 10 percent each year) or in any manner that results in convergence with the federal minimum wage in a specified timeframe.
“While a schedule-based approach would ensure that American Samoa minimum wages will reach the federal minimum wage within a given period of time, it would not guarantee that minimum wages will keep pace with the territory’s cost of living,” the GAO report says.
For example, under the current schedule, wages for the tuna cannery employment sector will rise, on average, by approximately 2 percent annually from 2017 to 2033, when they will converge with the federal minimum wage.
By contrast, the index developed by ASG indicates that the territory’s cost of living rose, on average, by just under 4 percent annually from 2006 to 2015. And if scheduled minimum wage increases were determined to be lagging behind increases in the cost of living, such as during a period of relatively high inflation, they could be adjusted upward.
“This would require monitoring a cost-of-living index over time and comparing scheduled-based and indexed minimum wages at the time of each scheduled increase,” the report says.
“Combining a schedule, as the primary driver of future minimum wage increases, with changes in the cost of living, as a secondary mechanism, would ensure that American Samoa minimum wages reach the federal minimum wage within a targeted timeframe and also keep pace with the cost of living,” the report says.
GAO also suggested to Congress factors to take into account when assessing approaches for increasing the territory’s minimum wage. For example, the need for administrative resources to apply and oversee changes in American Samoa’s minimum wage could largely depend on the complexity of the adjustment mechanism selected.
Because future minimum wage increases under either an indexed or a schedule-based approach would be automatic, “either approach could potentially require minimal administrative activity,” GAO says.
However, an indexed approach would likely require somewhat more ongoing administrative activity because of the need to monitor the cost-of-living index, it says and noted that selection of the most appropriate administrator, whether in the federal government, the American Samoa government, or another entity, also warrants consideration.
See tomorrow’s Samoa News edition on the governor’s response. Later this week Samoa News will report on other issues cited in the GAO report.