Gov. Lolo Matalasi Moliga has recommended the creation of a US Department of Labor-constituted committee to set minimum wages appropriate for American Samoa, based on prevailing economic conditions, which also takes into account local cultural practices.

Federally mandated law set minimum wages for American Samoa in 2007 but prior to that, it was through a special industry committee (or SIC), whose members — both local and off island — were appointed by USDOL.

However, the US Government Accountability Office, in a report released last Friday, 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. (See yesterday’s edition for details).

Responding to the 110-page report, the governor — on behalf of the people of American Samoa — expressed appreciation to the US Congress’s commitment to ensure that workers in the territory receive a salary that would allow them to address the minimum costs of living.

“While this paternal sentiment is amply lauded, setting minimum wage for the territory’s workers without fixing it to the prevailing economic conditions and future economic outlook predicts countervailing impact on Congress’s vision for the people of American Samoa,” the governor wrote in his Nov. 4th letter to GAO.

Lolo then took issue with the report’s findings that American Samoa “has historically had higher levels of poverty than the US” — with the territory’s poverty rate at 57.8% in 2009 compared to the US rate of 15.1%.

The governor countered that the method used to determine the US poverty rate “might not capture the cultural idiosyncrasies that significantly differentiate factors causing poverty in the US.” For example, the governor claims that “we do not have homeless” in the territory “nor do we have anyone starving.”

The governor said residents in American Samoa have direct ties to extended families, which assume the responsibility for his or her case. “The family might not have cash but they can live off the land or go fishing,” he declared.

“For years, unsuccessful attempts have been made to dispel the misnomer associated with comparing American Samoa” to states in the US, he said.

“Had we been successful in doing that, the SIC would not have been eliminated because all cultural issues and their impact on the minimum wage determination for American Samoa would have been thoroughly considered,” the governor wrote. “The fact that we have not been able to attract other large American companies to locate facilities to build other industries bears testament to the significant difference between the economy of the states and American Samoa.”

Lolo went on to commend GAO’s report including efforts to highlight federal incentives, which improved competitive advantage of the local canneries along with the documentation of the erosion of the effectiveness of these federal incentives because of international bilateral trade agreements.

However, the governor noted his “disappointment” that the GAO didn’t extend its examination to cover other federal programs and policies that could supplement the incomes of low-wage workers or possible adjustments in US trade and tax policies that might help offset the negative impact of minimum wage increases on employers.

Lolo did say that the report “rightly acknowledges the severe adverse effect of continuing minimum wage hikes” given other challenges faced by the tuna industry such as decreased access to fishing grounds, erosion in the preferential trade status, increasing cost of fish due to the escalating costs of EEZ fishing days and termination of federal incentives.

“Realistically, we don’t foresee the American Samoa minimum wage will ever [reach] the federal minimum [of $7.75 per hour] because as long as existing federal policies preempts the ability of... American Samoa to build its economy, the result will be instant termination of employment consequential to the high level in the local minimum wage,” he pointed out.

Lolo then offered a summary of ASG’s overall review of the report.

Firstly, he said, “We had hoped that GAO would examine other programs and policies which continue to cripple our efforts to diversify our economy.” For example, tourism development is the most natural and the most feasible industry with significant diversification potentials.

However, federal cabotage law has “effectively decimated” any attempts to develop this economic development potential, Lolo said, who noted that Samoa Tuna Processors Inc.’s cannery has announced the closure of its cannery operation by Dec. 11, curtailing 700 jobs.

“It makes no sense to us for the federal government to prohibit us from capitalizing on the development of our tourism industry and then proceeds to kill the only industry which has sustained our economy and the lives of our people all these years,” the governor said, adding that GAO’s examination should focus on highlighting the adverse impact of these opposing federal policies and programs.

ASG, therefore, recommends that “we would rather see that a pre and post data collection method and analysis provide an actual impact or effect of minimum wage increase on workers and industries in American Samoa rather than an assumption based study.”

Responding to the governor’s concern that the report didn’t examine US trade and tax policies as well as other federal programs and policies — such as the cabotage law — impacting local economic development, the GAO said it recognizes that adjustments in other federal policies or programs could mitigate possible negative effects of minimum wage increases, and acknowledges the government’s concern about air service regulations. “However, in-depth examination of these topics was outside the scope of our work,” said GAO.

One of the “two basic approaches” suggested in the GAO report for increasing local minimum wages to keep pace with the cost of living in the territory and eventually equal the federal minimum wage, relies on adjustments indexed to changes in the cost of living. GAO recommended, among other things, using the American Samoa consumer price index (CPI) to achieve adjustments indexed.

However, Lolo says that since the local minimum wage is fixed based on federal minimum wage, “it is inappropriate to use the cost of living adjustment based on American Samoa CPI.”

According to the governor, “American Samoa’s gross domestic product, population structure, other economic indicators, economic activities, spending patterns, median family income, family structure, expenditure pattern, etc. are not only dissimilar but are completely incomparable from the... mainland states.”

Lolo said GAO needs to use US CPI to adjust the cost of living adjustments; and if GAO can suggest cost of living adjustments based on the US CPI, this procedure may allow more time span for government and businesses on island to reach federal minimum level, he said.

In closing, Lolo recommends a USDOL-constituted committee that includes equal membership from both employer and employee, to review local minimum wages based on the territory’s economic conditions.

Samoa News will report in tomorrow's edition what four external reviewers had to say about American Samoa’s minimum wage.