Upcoming minimum wage hike may doom tuna-canning operations in American Samoa
American Samoa continues to depend on the tuna-canning industry as a key pillar of its economy, according to a new United States Government Accountability Office (GAO) report released last week, but the government of American Samoa is worried that a planned minimum wage increase for 2021 will have a negative impact to the economy.
The report is the fifth iteration in a series of U.S. Government Accountability Office reviews to examine economic trends, including changes in employment and earnings since the minimum wage increases in American Samoa began in 2007. The reports also look into the status of the tuna canning industry and report on stakeholder views on the minimum wage increases.
As of 2017, the tuna-canning industry continues to be the largest private sector employer in American Samoa, employing about 14 percent of the territory’s workers. In 2017, the sector was responsible for 42 percent of American Samoa’s total GDP, the report said. Because of its outsized contribution, the tuna-canning industry’s performance has a big impact on the American Samoa’s economy overall.
American Samoa’s economy largely contracted during the past decade, posting a decline of 18.2 percent from 2007 to 2017, though it increased by 2.2 percent in 2018. The decreased activity in the tuna-canning sector was reflected in the territory’s negative real GDP growth in 2009, 2016, and 2017.
“Changes in American Samoa’s tuna-canning industry have also impacted American Samoa’s economy,” the report said. “From 2007 through 2017, American Samoa’s manufacturing sector (primarily composed of the tuna canning industry) has experienced the largest downturns in real value added – a measure of a sector or industry’s contribution to GDP – compared to government and non-manufacturing sectors.”
In the past decade, the tuna-canning industry has faced challenges ranging from increased competition and minimum wage increases beginning in 2015, which led to the cannery closures from 2007 to 2018. From 2007 to 2018, cannery employment in American Samoa fell from about 4,500 in 2007 to 2,469 in 2018, a 45 percent decline. Most of the decline occurred in the period between 2007 and 2010, with the 2010 closure of the Chicken of the Sea cannery in Pago Pago. Tri Marine Group’s Samoa Tuna Processors (STP) plant closure in 2016 also hurt American Samoa’s economy, but was partially offset by StarKist taking over the plant.
The companies that experienced the closures said minimum wage increases , though not a main factor, still have an impact.
“With the closures, employment of cannery workers decreased but inflation adjusted earnings of cannery workers who maintained their jobs increased," the report said.
Earnings of cannery workers in American Samoa who have maintained their jobs during this period have increased their earnings by more than inflation, though a majority of cannery workers earn close to the minimum wage. The hourly wage of minimum wage cannery workers has increased by more than inflation since 2007. Specifically, during this period, the minimum wage has risen by 70 percent, from USD 3.26 (EUR 2.90) to USD 5.56 (EUR 4.94).
Under the 2015 Fair Labor Standards Act, the minimum wage increases by USD 0.40 (EUR 0.36) every three years, with the next increase scheduled for 31 September, 2021. As a result of that increase, labor costs could increase by about USD 2 million (EUR 1.8 million) based on 2018 levels of employment, according to the report. The report said the American Samoan government and the territory’s Chamber of Commerce see minimum wage increases as “conflicting with sustainable economic development.”
“Both expressed concerns about the reliance of American Samoa’s economy on the tuna-canning industry and the potential negative impact of minimum wage increases on the remaining cannery in American Samoa,” the report said.
As a result, canneries might end up moving operations somewhere because of lower labor costs, the report said. Over the past 15 years, tuna canneries have moved operations away from American Samoa to Thailand, Peru, and the Solomon Islands in search of lower labor costs, the report said, citing tuna-canning industry officials.
StarKist Samoa is the only remaining cannery on the island, employing 2,439 hourly wage workers. A full-time worker in 2020 at the cannery in American Samoa earning minimum wage makes over USD 44.00 (EUR 39.08) per day, while in other nations, wages can be as low as USD 10.00 (EUR 8.87) per day, according to the report.
StarKist CEO Andrew Choe has called a U.S. tax credit for economic development efforts in the territory “vital” for its future operations there.
“It is becoming increasingly difficult for American Samoa to compete with other manufacturing locations where labor costs and other expenses are substantially lower and subsidized,” he said. “Our competition is doing a bulk of its production in countries like China and Thailand and reaps the financial benefits of cheap labor and subsidized costs. StarKist, on the other hand, is trying to sustain a business on U.S. soil and is being penalized with increased costs and short-term fixes.”
The American Samoan government is in favor of a minimum wage “that its economy can support,” the report said – but that definition might not include a lift of wages for cannery employees.
“While the American Samoa government noted that it is committed to ensuring that the people of American Samoa can meet the basic cost of living, it stated that the impact of upcoming minimum wage increases on StarKist Co. would be extensive,” the report noted.
Image courtesy of U.S. Government Accountability Office