Minimum Wage Debate: Payback for Northern Mariana Islands

I wish to revisit this issue in two ways. The first is the politics – followed by a discussion of wages under laissez faire versus minimum wages when there are only a couple of employers on the island.

I was wondering why a bunch of conservative Republicans were advocating a higher minimum wage for American Samoa. It turns out that this is not about some new found concern for the working poor but simply payback to Nancy Pelosi and George Miller for positions like this:

Several news articles today reveal deeper and more serious potential violations in the relationship between lobbyist Jack Abramoff and his associates and Congress, including Majority Leader Tom Delay. This story is about a lot more than ‘congressional travel,’ although that is still part of it. Congressman George Miller reiterated today his earlier call for a thorough congressional investigation into activities related to its jurisdiction over the U.S. Commonwealth of the Northern Mariana Islands – part of the United States. Miller said the activities involving the Islands and the lobbyists and Congress are beginning to look more like ‘criminal activity.’ Miller, the former chairman of the House Resources Committee and a long-time advocate of immigration and labor reform in Islands, issued the following statement today. “Even after years of trying to bring reform to the U.S. Marianas Islands, I am shocked by the new revelations of corrupt practices, including several important news stories today. It is equally disturbing to read the justifications: the Marianas sweatshops, and their protectors in past CNMI governments, ‘got what they paid for.’ “Let’s remember what they paid for: a protection racket that sheltered a sweatshop industry that systematically exploited tens of thousands of impoverished foreign workers – mostly Asian women – who were little better than indentured servants; a sweatshop industry that earned some of the heaviest fines in U.S. history for violating labor laws; an industry repeatedly cited by the Departments of Justice, Interior and other federal agencies. They were defending a corrupt immigration system that regularly approved visas for non-existent jobs, resulting in hundreds of women being forced into the sex trade, including prostitution. “They killed my reform bills year after year. And even when an immigration reform by Senator Frank Murkowski, a Republican, was approved by the full Senate, they blocked it repeatedly in the House. Abramoff took credit and was paid handsomely for that, too. “This corrupt system existed because the CNMI slipped under federal labor and immigration laws. Abramoff, his lobbying colleagues, and some powerful friends in Congress are proud they prevented bipartisan reforms from being implemented.

Liberal pundit Mark Shields also piled on:

DeLay traveled with his family and staff over New Year’s of 1997 on an Abramoff scholarship endowed by his client, the government of the territory, to the Marianas, where golf and snorkeling were enjoyed. DeLay fully approved of the working and living conditions. The Texan’s salute to the owners and Abramoff’s government clients was recorded by ABC-TV News: “You are a shining light for what is happening to the Republican Party, and you represent everything that is good about what we are trying to do in America and leading the world in the free-market system”. Later, DeLay would tell The Washington Post’s Juliet Eilperin that the low-wage, anti-union conditions of the Marianas constituted “a perfect petri dish of capitalism. It’s like my Galapagos Island.” Contrast that with what then-Sen. Murkowski told me in a 1998 interview: “The last time we heard a justification that economic advances would be jeopardized if workers were treated properly was shortly before Appomattox.” The “Made in the USA” label means standards of quality and standards of conduct. But more important than how a product is made is how the people who make that product are treated – as human beings with innate dignity – who are free to organize and entitled to a living wage. Did somebody say something about moral values?

Steve Pizzo wrote:

As Tom DeLay preached his pro-business/anti-regulation theology in the US, his model of perfection was far from the mainland. The U.S. protectorate of the Northern Mariana Islands – 14 islands in the North Pacific – have become something of a free-enterprise petting zoo for DeLay and those he wishes to convert to his way of thinking. At the end of World War II, the U.S. acquired the islands, which are located off the coast of booming Asia. To encourage development and self-sufficiency Congress exempted the islands from the very kinds of U.S. business regulations and oversight DeLay despised. Even today the island’s minimum wage is only $3.05. Other work and safety regulations either do not apply at all or are rarely enforced. In short, the Marianas embodied many of the key ideals DeLay and other House Republicans were pushing in their 1994 Contract With America. For Asian sweatshop operators, the Marianas became the Promised Land incarnate. Since the islands were officially U.S. territory, garment factories there were able to tag their products with the coveted “Made in the USA” label. No rules, no regulators, no inspectors, no health and safety laws. What more could a sweatshop operator ask for? The opportunity was quickly recognized by Asian sweatshop operators like Hong Kong’s Tan Holdings, run by garment mogul Willie Tan. Deep in the lush jungles, far from the island’s white beaches and luxury hotels, garment factories quickly set up shop. They staffed their factories with workers from China and the Philippines with promises of work in the US. But, workers soon discovered that the work contracts they signed consigned them to near-indentured servitude deep in the Marianas steamy jungles. Wages were low, hours were long. The companies docked workers’ pay for housing, food, medical treatments and other charges. The low wages and high deductions made it nearly impossible for workers to save enough money to return home. None of this was a secret back home in the U.S. In 1998, ABC, CNN, the BBC and the New York Times each confirmed reports of forced labor, sex slaves and domestic forced servitude among the Marianas’ so-called “guest workers. According to the US Department of Labor, the indigenous US population of Marianas have an unemployment rate that hovers continuously around 14%. The unemployment rate of the island’s 40,000 so-called guest workers on the other hand is only 5%. Human rights groups, long up in arms over the work conditions on the islands, charged that sweatshop operators did not appreciate it when their female employees got pregnant. Numerous allegations of forced abortions surfaced over the years. The protests began to reach the ears of Congress. Rep. George Miller, (D-Ca) and others began to demand that US labor and environmental laws be applied to the Marianas. Tom DeLay and his friend Jack Abramoff swung into action and fashioned a vigorous and largely successful counter-attack. Denying the reports that workers were being mistreated, Abramoff said the Marianas’ unregulated environment was in fact a success story and a model for economic development. He said that efforts to regulate the islands’ garment factories by some members of Congress like Miller were nothing less than immoral. “These are immoral laws designed to destroy the economic lives of a people,” Abramoff said. He went on to compare the proposed laws with the Nuremberg laws that restricted German Jews under the Nazis. The Marianas became a pedal-to-the-metal cause for DeLay and another cash cow for Abramoff. Abramoff and his team, which now included DeLay’s former chief of staff Bill Jarrell, swung into action. They arranged junkets to the islands for scores of Republicans on The Hill. DeLay himself spent New Years Day 1998 in the Marianas with his wife and daughter and his then Chief of Staff, Ed Buckham. Another of Abramoff’s Mariana lobbyists was Patrick Pizzella who, believe it or not, is now serving in the Bush Administration as assistant secretary of Labor. It was Pizzella’s job to organize Abramoff’s political junkets to the islands.

These 15 islands in the North Pacific Ocean – about three-quarters of the way from Hawaii to the Philippines – are home to about 82,000 people with a labor force consisting of almost 45,000 indigenous workers and almost 29,000 guest workers. As the CIA World FactBook notes, per capita income is $12,500 per year and:

The economy benefits substantially from financial assistance from the US. The rate of funding has declined as locally generated government revenues have grown. The key tourist industry employs about 50% of the work force and accounts for roughly one-fourth of GDP. Japanese tourists predominate. Annual tourist entries have exceeded one-half million in recent years, but financial difficulties in Japan have caused a temporary slowdown. The agricultural sector is made up of cattle ranches and small farms producing coconuts, breadfruit, tomatoes, and melons. Garment production is by far the most important industry with the employment of 17,500 mostly Chinese workers and sizable shipments to the US under duty and quota exemptions.

Besides aid from the U.S. government, the economy relies heavily on tourism from Japan and the garment sector. GOP members of Congress succeeded keep regulation out of this economy stating it was “a shining light for what is happening in the Republican Party, and you represent everything that is good about what we’re trying to do in America in leading the world in the free-market system.” He also called the islands ““perfect Petri dish of capitalism”. The islands enjoy free trade with the U.S. and a minimum wage of $3.05 an hour. Other worker protections tend to be low, which prompts many liberals to argue its garments can be labeled “Made in USA” without having to comply with all U.S. labor laws. This lack of labor regulation is invites controversy. The inapplicability of Federal labor regulations has resulted in some extreme labor practices, not common elsewhere in the United States. Some of these labor practices include forcing workers to have abortions.

So what is the agenda of these conservative Republicans? Is to extend the $7.25 per hour minimum wage to American Samoa or to preserve the free market approach to the Northern Mariana Islands? On the other hand, noting certain abuses of firms or former members of Congress do not imply increasing the minimum wage from $3.05 an hour to $7.25 an hour will be an appropriate policy for these islands.

But let’s look at the possibility that the employers on either one of these islands are exercising monopsony power (even though I know a certain AB reader will likely scream that I’m a hack for even considering such a possibility). As the comments to my previous post noted (thanks Cactus), the model suggests that the spread between the wage rate under monopsony versus the competitive market wage rate depends on the elasticity of supply. Let’s assume for a second that the competitive market rate equals $5 an hour and the elasticity of supply is 1.5. Then the laissez faire wage rate with monopsony behavior would be $3 an hour. For both of these island economies, the current minimum wage is just above $3 an hour. Under my admittedly hypothetical example, raising the minimum wage from the current level to any level equal to or less than $5 would increase employment. But raising the minimum wage beyond $5 would create excess supply. One might argue that migration of workers from other nations to the Northern Mariana Islands has made the labor supply curve more elastic. By then – has this migration taken place under full information – or were these guest workers duped by false promises?