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I’ve gone 30 days without tuning into news, so I missed this report when it originally aired on 60 minutes. Proponents of minimum and living wage increases often point to the fact that the cost of living is high in many cities, so that the “low” level of the minimum wage (currently $7.25 per hour) is not binding, and therefore cannot be a cause of major unemployment. However, that argument also has another side – that just as there are very high cost of living areas, in some places, the $7.25 represents a relatively large wage – and therefore applying one size fits all labor legislation across the entire United States is going to disproportionately hurt the poorest sections of the U.S. How’s that for compassion!

Here is an excerpt:

But then, in 2007, Washington came to the “rescue.” As part of its efforts to provide a “living wage” for all Americans, Congress passed a law to step up the minimum wage to $7.25 per hour across all U.S. states and territories by 2009.[iii] Understanding that such a law would devastate American Samoa by raising canning costs past the point where the companies could maintain profitability, the non-voting Samoan member of the U.S. House of Representatives convinced Congress to allow an exemption for the islands. However, Republicans raised allegations that Speaker of the House Nancy Pelosi, in whose district both Chicken of the Sea and StarKist had corporate offices, had caved to pressure from big donors and was allowing the continued “exploitation” of Samoan workers. Facing a sticky political situation, the exemption was removed.

The Samoan representative desperately sought to fend off what he was sure would be an economic calamity. He asked the Department of Labor to issue a report examining the potential consequences of the law upon the islands’ economy. The report explained that “nearly 80 percent of workers covered by the FLSA earned under $7.25 per hour. By comparison, if the U.S. minimum wage were increased to the level of the 75th percentile of hourly-paid U.S. workers, it would be raised to $16.50 per hour.” Therefore, the study continued, “there is concern that [the tuna canneries] will be closed prior to the escalation of the minimum wage … and that production will be shifted to facilities outside the U.S.” Ultimately, the Department of Labor concluded that “closure of the tuna canneries will cause a total loss of 8,118 jobs – 45.6 percent of total employment.” (emphasis mine) [iv]

Despite this dire forecast, the law went through. Two years later, the results could not be clearer: Chicken of the Sea closed its cannery and moved its production to a largely automated plant in Georgia,[iv] while StarKist has reduced its workforce and is threatening to leave as well.[v]

If that were to occur, which seems likely, American Samoa would be left with no functioning industry.

And it goes on:

In the case of American Samoa, tuna canners simply could not deliver $7.25 cents per hour of productivity, so their jobs were eliminated. Rather than being employed at $3.26 per hour (the level prior to the minimum wage hike), they are now unemployed at $7.25 per hour. Which do you think is better?

Some would argue that life is better for the few that were able to keep jobs at $7.25 per hour. But that is fallacious – raising wages so far above market clearing rates will require that some other cost be imposed on workers in order to ration away the labor surplus – and that cost will rise so much that the effective wage workers receive is not only lower than the minimum wage, but lower than the wage they were getting before the minimum wage law was passed!.

Here’s a little of what is going on:

Among the unintended consequences of congressional “benevolence” are rapidly rising consumer prices, due to the higher shipping costs now necessary to bring consumer goods to the islands. Before the minimum wage hikes destroyed most of the canning jobs, lots of canned tuna were shipped from American Samoa to the U.S. (over 50% of the canned tuna in American markets came from American Samoa). One benefit of all the shipping traffic was a low cost of imports, as ships were coming to the islands anyway to pick up the tuna.

HT to my friend John B.

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