Monday, July 30, 2012

Obama Opposes Min. Wage Increase in Samoa Due to Harmful Effects, Will He Do the Same for U.S.?

Both of these events took place last Thursday:

1.  PAGO PAGO, American Samoa — "President Obama has signed into law legislation to freeze American Samoa's minimum wage until 2015. The president signed the bill Thursday, which delays a 50-cent increase that would have gone into effect in September.

Minimum wage in American Samoa varies from $4.18 to $5.59 per hour, depending on the industry. The Fair Minimum Wage Act of 2007 provided for annual 50-cents per hour increases until the rate matched the rest of the U.S., where the minimum pay is $7.25 per hour.

Employers and a government financial report have suggested automatic increases were harming the U.S. territory's economy."

2. The Hill -- "Rep. George Miller (D-Calif.) and more than 100 of his House Democratic colleagues proposed legislation last Thursday that would boost the minimum wage over three years from $7.25 to just under $10 an hour.

Miller's Fair Minimum Wage Act, H.R. 6211, would increase the minimum wage by 85 cents a year for the next three years, then allow the final $9.80 an hour wage to rise with inflation."

MP: Just wondering, wouldn't the same economic reasoning, evidence, and analysis that motivated President Obama to sign legislation freezing the minimum wage because of its harmful effects on Samoa's economy also apply to the U.S.?  Can we count on President Obama to veto the "Minimum Wage Act" for the harmful effects it would have on the American economy?

Update:  From an AP report, "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local Chamber of Commerce Chairman David Robinson."

Let me revise that just slightly:

 "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local national Chamber of Commerce Chairman David Robinson Tom Donohue.

99 Comments:

At 7/30/2012 3:18 PM, Blogger PeakTrader said...

American Samoa - Wikipedia

"The 2010 census showed a total population of 55,519 people. The total land area is 76.1 square miles.

Employment on the island falls into three relatively equal-sized categories of approximately 5,000 workers each: the public sector, the single remaining tuna cannery, and the rest of the private sector.

The one tuna cannery, StarKist, exports several hundred million dollars worth of canned tuna to the United States each year. The other tuna cannery, Samoa Packing, a Chicken of the Sea subsidiary, closed in 2009 due to American Samoans being granted minimum wage.

From 2002 to 2007, real GDP of American Samoa increased at an average annual rate of 0.4 percent. The annual growth rates of real GDP ranged from -2.9 percent to +2.1 percent."

My comment: Wages, and the economy, seem to be determined by tuna prices.

 
At 7/30/2012 3:20 PM, Blogger Jon Murphy said...

If I may postulate an argument (keep in mind this is what I suppose the argument is. The following argument does not necessarily represent my own views on the subject):

The Minimum Wage in the US is too low and been rising at a rate less than inflation. The Minimum Wage in American Samoa is too high and rising at a rate above inflation. Therefore, it must be frozen until such a point that inflation is sufficient to keep up with the $.50 year increase.

 
At 7/30/2012 4:02 PM, Blogger Scott Drum said...

"economic reasoning"?
I think you've answered your own question, haven't you?

 
At 7/30/2012 4:14 PM, Blogger PeakTrader said...

Raising the minimum wage may have increased quality, because StarKist is better than Chicken of the Sea.

 
At 7/30/2012 4:17 PM, Blogger Mike said...

Jon,
Is that actually the case? from 1990-2010, the minimum wage has gone from 3.35-7.25 (more than 100%).
I'll admit to being a dimwit, but I don't think inflation rates match that.

 
At 7/30/2012 4:48 PM, Blogger PeakTrader said...

It's not only the minimum wage that's too low.

Chart:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

 
At 7/30/2012 4:58 PM, Blogger Its GSATT said...

Wholly crap, I cant believe those people had to suffer through working for less than minimum wage for that long. They are way better off now that tuna canning left them alone. Way better. You cant afford an iPhone on those wages. Mandate those. White power.

 
At 7/30/2012 5:35 PM, Blogger morganovich said...

"Raising the minimum wage may have increased quality, because StarKist is better than Chicken of the Sea."

and likely also increased price, as now there is less competition and as well as higher costs.

(oh, and fewer jobs of course)

 
At 7/30/2012 5:39 PM, Blogger morganovich said...

and what does that have to do with tuna prices?

presumably, they fluctuated in the past, and the factories adapted.

based on what you posted, it was not tuna prices that closed the plant, it was labor prices.

very little of the price of a can of tuna at the store is the fish. the stuff that goes into the cans is just the junk left over from making them into steaks etc.

it's the hamburger (or chicken mcnuggets) of the sea.

 
At 7/30/2012 5:52 PM, Blogger Paul Stagg said...

I wonder how much money Starkist contributed to President Obama's re-election campaign.

Or is Economics just different on Samoa?

 
At 7/30/2012 7:37 PM, Blogger geoih said...

Quote from Jon Murphy: "The Minimum Wage in the US is too low and been rising at a rate less than inflation. The Minimum Wage in American Samoa is too high and rising at a rate above inflation."

Yes, because wages are only dependent on meaningless aggregates and have nothing to do with productivity and profitability. And of course, all workers are equally interchangable.

 
At 7/31/2012 1:57 AM, Blogger PeakTrader said...

Morganovich says: "and likely also increased price, as now there is less competition and as well as higher costs...(oh, and fewer jobs of course)."

Why would the price rise? StarKist survived, because it's a more efficient producer of tuna than "Samoa Packing, a Chicken of the Sea subsidiary."

So, it's possible, more tuna is being produced. Also, the higher wage attracted more productive workers (or the higher wage allowed StarKist to exchange less productive workers for more productive workers).

If the price did rise, so did wages and perhaps profits, which boosted economic growth on the island, ceteris paribus, including through a multiplier effect.

Anyway, is the goal to produce tuna or jobs?

 
At 7/31/2012 2:12 AM, Blogger Ron H. said...

"Raising the minimum wage may have increased quality, because StarKist is better than Chicken of the Sea."

Yeah. I'm sure that's the reason. How did the tuna know?

That's a good one Peak. You get funnier all the time.

 
At 7/31/2012 2:20 AM, Blogger PeakTrader said...

Ron, I buy albacore cans of tuna only when it's on sale (e.g. $1 or $1.25).

I've noticed Chicken of the Sea tuna is soggy or watered-down compared to StarKist.

 
At 7/31/2012 2:35 AM, Blogger Ron H. said...

Peak:

"So, it's possible, more tuna is being produced. Also, the higher wage attracted more productive workers..."

I'm sure that's the case, that there were plenty of more productive workers in American Samoa who preferred remaining unemployed to working at a lower min wage for the only major employer in town.

LOL

Please stop. I need to catch my breathe.

"...(or the higher wage allowed StarKist to exchange less productive workers for more productive workers)."

So let me write that down. I finally have you on recording *admitting* that minimum wage hurts lower skilled workers.

Did I misread anything? I don't want you to weasel out of it later.

Of course if StarKist was interested in attracting more productive workers they could have raised their pay rate at any time without waiting for government to force them.

Maybe that's just something you pulled out of your ass.

 
At 7/31/2012 2:38 AM, Blogger Ron H. said...

"I've noticed Chicken of the Sea tuna is soggy or watered-down compared to StarKist."

I can't imagine what would cause that difference other than the higher min wage paid to StarKist workers. There's just nothing else it could be.

 
At 7/31/2012 2:42 AM, Blogger Ron H. said...

"Or is Economics just different on Samoa?"

No matter what else, it's for sure much easier to see the disasterous effects of bad government policy in the form of minimum wage.

 
At 7/31/2012 8:59 AM, Blogger Bill Gore said...

Liberals love to give other people's money away. Wonder how many of them pay taxes?

 
At 7/31/2012 11:07 AM, Blogger morganovich said...

peak-

"Why would the price rise? StarKist survived, because it's a more efficient producer of tuna than "Samoa Packing, a Chicken of the Sea subsidiary."

you really do not believe in supply and demand, do you?

you have a producer go away. supply drops. what happens to price when supply drops?

"it's possible more tuna was produced"?

how so with less canning capacity?

even if COTS just moved and reposeful, that had costs and they are now likely paying more for labor.

you seem to be making a pile of assumptions that seem to be based on nothing.

and this;

"
If the price did rise, so did wages and perhaps profits, which boosted economic growth on the island, ceteris paribus, including through a multiplier effect."

is just gibberish.

so half the jobs disappear, half get a small raise, and you think that boosts growth?

there is no multiplier effect, it's an economic catastrophe. a double digit % of workers lost their jobs in one shot.

 
At 7/31/2012 12:54 PM, Blogger spotteddog said...

"MP: Just wondering, wouldn't the same economic reasoning, evidence, and analysis that motivated President Obama to sign legislation freezing the minimum wage because of its harmful effects on Samoa's economy also apply to the U.S.? Can we count on President Obama to veto the "Minimum Wage Act" for the harmful effects it would have on the American economy?"

Dr. Perry, come on! President Obama knows much more about economics than you and the rest of us. He knows the right time and amount to raise the minimum wage in the US and America Samoa. It might not make sense to us but he has it covered.

 
At 7/31/2012 12:54 PM, Blogger spotteddog said...

"MP: Just wondering, wouldn't the same economic reasoning, evidence, and analysis that motivated President Obama to sign legislation freezing the minimum wage because of its harmful effects on Samoa's economy also apply to the U.S.? Can we count on President Obama to veto the "Minimum Wage Act" for the harmful effects it would have on the American economy?"

Dr. Perry, come on! President Obama knows much more about economics than you and the rest of us. He knows the right time and amount to raise the minimum wage in the US and America Samoa. It might not make sense to us but he has it covered.

 
At 7/31/2012 1:02 PM, Blogger Mike said...

Peak,
"Anyway, is the goal to produce tuna or jobs?"


You need to delete this comment so there will be no future proof that, while discussing minimum wage, your point was quality/productivity over jobs/wages.

 
At 7/31/2012 1:05 PM, Blogger juandos said...

Well there's nothing new in this story...

Note the following from the UT San Diego newspaper dated Jan. 28, '07: Republicans are pushing for Congress to dramatically increase American Samoa's wages to be in line with minimums that apply to the states.

The Democratic-controlled House recently voted to raise the minimum wage in the Northern Marianas Islands but not American Samoa. The Northern Marianas are dominated by Republicans, while American Samoa leans Democratic. GOP lawmakers said the House exemption for American Samoa reflected favoritism for the American Samoa House delegate, Eni F.H. Faleomavaega, a Democrat, who opposes the higher minimums
...

 
At 7/31/2012 1:06 PM, Blogger Mike said...

"so half the jobs disappear, half get a small raise, and you think that boosts growth?"

One more thing of note: Chicken of the Sea makes less expensive tuna. They are a major supplier of private (store) label tuna. Not only do half the jobs vanish, (maybe) some get a raise, but a supplier of cheaper food for the masses closes doors down the street and would now have to be re-imported.

 
At 7/31/2012 1:26 PM, Blogger Jet Beagle said...

Ron H: "Of course if StarKist was interested in attracting more productive workers they could have raised their pay rate at any time without waiting for government to force them."

Why do those who write about minimum wages and productivity not realize this before they write a sentence?

 
At 7/31/2012 1:26 PM, Blogger juandos said...

"I can't imagine what would cause that difference other than the higher min wage paid to StarKist workers. There's just nothing else it could be"...

ron h! ron h!

Now that was an excellent riposte...

I'm still chuckling...

 
At 7/31/2012 2:11 PM, Blogger PeakTrader said...

Morganovich, it seems, you have no understanding of economics beyond a standard and static model.

At least Ron comes up with creative, although crazy, ideas.

Have you ever heard of "investment" or "expansion?"

So, when U.S. automakers fell from 20 to three firms, fewer autos were produced?

Or when the same or more output was produced with fewer inputs, living standards fell?

 
At 7/31/2012 2:20 PM, Blogger PeakTrader said...

Jet Beagle says: "Why do those who write about minimum wages and productivity not realize this before they write a sentence?"

Raising the minimum wage, to create a level playing field, forced a poor firm out of business and that business was replaced by a better firm.

Isn't that how Reagan won the Cold War?

 
At 7/31/2012 2:28 PM, Blogger PeakTrader said...

Mike, why would I want to delete my comment.

I stated before, raising the minimum wage can raise real GDP.

My statements have been consistent.

However, it seems, some people don't understand my comments, and don't even understand their own comments.

 
At 7/31/2012 2:47 PM, Blogger Jet Beagle said...

So, peak, If I understand your argument:

1. raising the minimum wage caused Samoa packing to go out of business

2. with one cannery out of business, the other cannery was able to raise prices

3. because of the increased price, the real GDP of Samoa increased

So why go through all that minimum wage rigamarole. Why doesn't government just order half of all businesses in Samoa to close? By your logic, wouldn't that boost Samoa's GDP to sky-high levels?

Or perhaps the government should just hire thugs to break all the windows in half the businesses?

 
At 7/31/2012 2:56 PM, Blogger PeakTrader said...

Jet Beagle, it has nothing to do with prices. It's about a winner beating a loser. It happens all the time.

 
At 7/31/2012 3:04 PM, Blogger PeakTrader said...

Both firms had the same government standards.

 
At 7/31/2012 3:19 PM, Blogger Jet Beagle said...

This comment has been removed by the author.

 
At 7/31/2012 3:20 PM, Blogger morganovich said...

peak-

"Morganovich, it seems, you have no understanding of economics beyond a standard and static model.

At least Ron comes up with creative, although crazy, ideas.

Have you ever heard of "investment" or "expansion?"

So, when U.S. automakers fell from 20 to three firms, fewer autos were produced?"

oh come on. that's such a wildly bad example you must know you are lying.

where does "investment and expansion" come from when costs rise?

those things come from productivity.

that was some of the worst logic i have ever seen you use.

you seem to be tryign to pretend that increased costs work like increased productivity when the converse is true.

by your logic, all we need to do is crank up wages and an industry soars. how would that work?

you seem to be the one unable to think in multiple dimensions and trying to use cheap rhetorical devices to hide it.

a wage increase without a productivity increase does NOT generate prosperity nor have any kind of positive multiplier.

have you ever even studied economics? you seem to have some really confused ideas about it and denial of basic supply and demand laws.

(like your claim that increasing wages increases demand for workers)

 
At 7/31/2012 3:22 PM, Blogger Jet Beagle said...

PeakTrader, 3:18 pm yesterday: "My comment: Wages, and the economy, seem to be determined by tuna prices."

Peak Trader, 1:57 AM: "If the price did rise, so did wages and perhaps profits, which boosted economic growth on the island, ceteris paribus, including through a multiplier effect."

PeakTrader, 2:56 PM: "Jet Beagle, it has nothing to do with prices. It's about a winner beating a loser. It happens all the time."


OK, your argument is definitely getting more confusing. At least to me.

 
At 7/31/2012 3:24 PM, Blogger PeakTrader said...

Jet Beagle, my first comment relates to the two tuna firms. The second and third comments were responses to Morganovich's comment.

 
At 7/31/2012 3:27 PM, Blogger morganovich said...

peak-

"Jet Beagle, it has nothing to do with prices. It's about a winner beating a loser. It happens all the time."

boy, that's a change in tune.

"The other tuna cannery, Samoa Packing, a Chicken of the Sea subsidiary, closed in 2009 due to American Samoans being granted minimum wage."

so yes, that was prices, labor prices, at least according to your original source.

and, of course:

"
My comment: Wages, and the economy, seem to be determined by tuna prices."

you seem unable to even keep your own comments, much less the economic theory straight.

price increases do not cause real gdp growth. that's the whole point of a real gdp figure: taking out price moves.

i can't even find the thread of sense here to try to unravel your thinking peak.

it's literally so tangled and self contradictory that no one even has any idea what you are saying (least of all you from the look of things).

 
At 7/31/2012 3:29 PM, Blogger PeakTrader said...

Ok, you deleted your original comment and now there's a new one.

The first comment is about the two tuna firms (in the article). The second comment is a response to Morganovich's comment, and the third comment is we don't know if prices will rise, i.e. will one tuna cannery failing cause the price to rise? It may rise initially and then fall to an even lower price, or wages and profits may be higher.

 
At 7/31/2012 3:37 PM, Blogger PeakTrader said...

Morganovich says: "it's literally so tangled and self contradictory that no one even has any idea what you are saying (least of all you from the look of things)."

There are no contradictions in my statments, except the ones you made up. You don't understand it, because it all fits.

 
At 7/31/2012 3:44 PM, Blogger Jet Beagle said...

Peak Trader: Ok, you deleted your original comment and now there's a new one.

Sorry if that confused you. All I did was correct my error by changing "You're" to "Your"

 
At 7/31/2012 3:45 PM, Blogger morganovich said...

"There are no contradictions in my statments, except the ones you made up. You don't understand it, because it all fits."

ok, then lay it out simply and succintly. what is it you are trying to say? despite your claims, none of the rest of us have any idea.

it seems to me that you are trying to argue that requiring that all workers increase their reservation wage to a level that drives a major component of the economy out of business somehow creates jobs and prosperity and even more products.

if you think that fits, then i'm dying to hear why.

enough empty claims. tell us how that fits or explain what you are actually trying to say instead of repeatedly contradicting yourself and ducking questions.

 
At 7/31/2012 3:46 PM, Blogger Jet Beagle said...

Well, Peak Trader, explain one more time - in just one comment - why you believe the closing of one of its two canneries would increase Samoa's GDP. Just help me understand your logic by stating it in simple steps.

 
At 7/31/2012 4:01 PM, Blogger PeakTrader said...

The minimum wage is raised for both firms.

One survives, the other fails.

The implication is the surviving firm operates its business better.

The surviving firm expands and takes over the failed firm's business.

The surviving firm produces the same or more output with fewer inputs, although wages are higher.

Resources are freed-up, because it uses resources more efficiently.

So, the economy can expand through higher wages and more resources.

 
At 7/31/2012 4:09 PM, Blogger morganovich said...

peak-

so your argument is that driving a good and profitable business out of an industry by arbitrarily increasing input prices is creative destruction?

by your logic, we should increase the minimum wage in every industry until only the very best firm can survive and that would cause us to prosper.

can you not see how absurd that is?

 
At 7/31/2012 4:10 PM, Blogger PeakTrader said...

If the price of tuna rises (e.g. StarKist is higher quality than Chicken of the Sea), then fewer cans of tuna can be exchanged for imports.

 
At 7/31/2012 4:12 PM, Blogger PeakTrader said...

Morganovich says: "driving a good and profitable business out of an industry."

You mean like a slum lord?

 
At 7/31/2012 4:14 PM, Blogger Mike said...

Peak,

"I stated before, raising the minimum wage can raise real GDP."

Not when raising the MW puts companies out of business or keeps them from ever starting.

You are correct that I don't understand your comments. There's a good reason for that. If you ever ran a small margin, small business you'd understand other's comments.

 
At 7/31/2012 4:18 PM, Blogger PeakTrader said...

Mike, how low do wages need to be to run "a small margin, small business?"

 
At 7/31/2012 4:21 PM, Blogger Mike said...

It depends on volume.

 
At 7/31/2012 4:23 PM, Blogger morganovich said...

i've thought about this some more.

your whole argument is based on an unfounded assumption and a slight of hand that leaves a key term out of the equation.

you speak of productivity rising if workers move from a to b.

that might even be true.

but the productivity of all the workers at b drops due to a wage rise. you are leaving that out of your thinking.

you look only at what might happen to employees from a, but not at what definitely happens to employees at b.

further you assume that the increase in productivity from moving from a to b exceeds the loss in productivity that drove a of of business and that productivity at a with the new higher wages is higher than it was at b before with the old wages.

none of that need be true and all of it (which seems highly unlikely) needs to be true for you to be right.

let's take a simple example.

workers at sk can can 20 cans an hour and at cs they can 18. all make min wage of 2. let's say each has 10 employees.

total p is 380hr/40wgs = 9.5

productivity at sk is clearly higher. if all the workers had it, they would do better.

but if we increase wages to 3, drive cs under and sk takes all 10 workers and magically, costlessly manages to up their production to 20, look what happened to productivity.

production rose. you now get 400 cans/hr. but costs are now 60.

productivity is 6.67, down 30%. prices are going to rise as a result decreasing the real buying power of tuna consumers or profits are going to drop, inflicting the pain on shareholders and those dependent on tuna investment.

 
At 7/31/2012 4:24 PM, Blogger morganovich said...

"Morganovich says: "driving a good and profitable business out of an industry."

You mean like a slum lord?"

huh?

so you are saying the way to teach slum lords a lesson to to force them to charge higher rent?

 
At 7/31/2012 4:37 PM, Blogger morganovich said...

peak-

also note:

samoa has an unemployment rate over 30%. (29.8% in 2005)

if starkist wanted more employees, they were already available.

here's a report that covers their cannery industry:

http://www.spc.int/prism/country/as/stats/canneries.pdf

"Even if the federal government
continues its current level of financial support, a doubling of American Samoa’s minimum wage
in a seven-year period could spell the end of the fish processing industry and a calamity for the
economy. The economic devastation would be exacerbated by rising prices and costs from
arbitrary increases in the minimum wage in other industries. Transportation, energy and utility
costs would rise because the canneries would no longer be available to share those costs.
Important as they are, these costs would pale in comparison with the job and income losses"

p 13.

it appears they do not agree with you.

 
At 7/31/2012 4:47 PM, Blogger PeakTrader said...

Morganovich, here's another simple example.

Say StarKist produces 100 cans at $2 and Chicken of the Sea produces 100 cans at $3.

Assume Starkist makes $2 profit on 100 cans and Chicken of the Sea makes $1 profit on 100 cans.

Also assume a rise in the minimum wage lowers Starkist profit from $2 to $1 and Chicken of the Sea profit from $1 to zero.

All the workers can now work at StarKist (because they can't work at Chicken of the Sea).

StarKist workers can produce 100 cans of tuna at $3 instead of $4 at Chicken of the Sea.

 
At 7/31/2012 4:50 PM, Blogger Jet Beagle said...

Peak Trader: "The implication is the surviving firm operates its business better."

How did you come to that conclusion? How do you know that Chicken of the Sea closed because they could not compete with StarKist at the new wage rate? Isn't it possible that Chicken of the Sea had better canning opportunities elsewhere - where they could pay the wage rate they wanted to pay?

 
At 7/31/2012 4:52 PM, Blogger PeakTrader said...

American Samoa - Wikipedia

"The Unemployment rate was 29.8% (2005), but has been improved to 23.8% as of (2010)."

 
At 7/31/2012 4:56 PM, Blogger PeakTrader said...

Jet Beagle, that may be as unlikely as people from other islands swimming to Samoa when the minimum wage was raised :)

 
At 7/31/2012 4:56 PM, Blogger morganovich said...

peak-

you are still not getting this.

productivity and profit still dropped in your scenario.

even if every worker moves, you now get only $200 in profit on 200 cans of tuna where you used to get $300.

that's a huge drop in profit or will lead to an increase in price which will reduce demand for tuna.

increasing the cost of an input without an increase in productivity does not result in growth or prosperity.

by your logic, a jump in the price of tuna that drove c of the s under would be good for the industry too.

read the report on their industry.

you are making factual assumptions that are neither realistic nor true.

 
At 7/31/2012 5:02 PM, Blogger morganovich said...

"
"The Unemployment rate was 29.8% (2005), but has been improved to 23.8% as of (2010).""

and that demonstrates what?

that sure looks like plenty of available labor to me if starkist wanted to expand.

also note: 80% of workers in the samoan canning industry are foreigners.

p26 in the pdf

there has not been a labor shortage in samoa.

 
At 7/31/2012 5:04 PM, Blogger Jet Beagle said...

Peak Trader: "Jet Beagle, that may be as unlikely as people from other islands swimming to Samoa when the minimum wage was raised"

Why do you believe that?

 
At 7/31/2012 5:05 PM, Blogger PeakTrader said...

Morganovich says: "increasing the cost of an input without an increase in productivity does not result in growth or prosperity."

Both wages and productivity rose.

 
At 7/31/2012 5:06 PM, Blogger morganovich said...

"Jet Beagle, that may be as unlikely as people from other islands swimming to Samoa when the minimum wage was raised :)"

why? what makes it at all unlikely that they could put the plant somewhere else?

80% of workers there were foreigners anyhow (mostly from non american samoa). so they move the plant to where those workers came from and it's just another example of an increased minimum wage driving jobs elsewhere.

 
At 7/31/2012 5:10 PM, Blogger Mike said...

Peak,

Leaving aside your rather bizarre profit assumptions...
"All the workers can now work at StarKist"

Really? So, Starkist would immediately double their factory size and output to take on the C.O.T.S employees....and, since C.O.T.S. is not out of business (only out of business in that cannery) hope that demand for their product doubles over the still-existing competition?? Or did Starkist just decide to buy that cannery?
I'll give you an assumption of my own: None of that happened and very few C.O.T.S. employees found a home at Starkist.

WTF?
This just keeps getting weirder and weirder.

 
At 7/31/2012 5:18 PM, Blogger Jet Beagle said...

From Peter Schiff's 2010 article Congress sacks Samoan economy:

"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, while StarKist has reduced its workforce and is threatening to leave as well.

Peak Trader, explain again, why do you believe it unlikely Chicken of the Sea would move its canning operation elsewhere? I think that's exactly what they did.

 
At 7/31/2012 5:21 PM, Blogger morganovich said...

peak-

"Both wages and productivity rose."

no, they didn't.

production remained the same in your example. wages rose, thus, by definition, worker productivity dropped.

you seem not to grasp that all else equal, increasing wages drops worker productivity.

you are not even including the relevant numbers in your example.

you are also ignoring the actual facts from the cannery report which contradict what you are saying as well.

i don't think you understand how labor productivity works.

 
At 7/31/2012 5:22 PM, Blogger Jet Beagle said...

If Peter Schiff's article is correct, what Chicken of the Sea did is exactly what happens to low-skilled workers when government tries to "help" them. Their jobs get automated out of existence.

 
At 7/31/2012 5:29 PM, Blogger morganovich said...

so let's go to the scoreboard:

PT predictions:

chicken goes away but does not relocate.

starkist takes their employees and the samoan canning industry thrives as productivity rises.

real world:

chicken relocates and builds a fully automated plant.

starkist lays off part of it's work force and threatens to leave.

the samoan canning industry wobbles on its last legs and threatens to disappear entirely.

it sounds like you are 0-X at bat here peak.

so how much more evidence do you need to see that your theory has been completely wrong in explaining what happened?

 
At 7/31/2012 5:32 PM, Blogger morganovich said...

"If Peter Schiff's article is correct, what Chicken of the Sea did is exactly what happens to low-skilled workers when government tries to "help" them. Their jobs get automated out of existence."

exactly. when the price of labor rises, you substitute more capital.

my friend is building a lights out motorcycle factory in the US. it will literally have no production oriented employees at all, just a few guys that come in from time to time to oil the machines.

when the price of machinery is lower than the price of labor, why deal with the hassle of having employees?

 
At 7/31/2012 5:35 PM, Blogger Jet Beagle said...

It's even worse for Samoan and American workers than morganovich just laid out.

According to the website Outsaurus:

"In response to the minimum wage increase, one of the two major tuna canning plants in American Samoa, Chicken of the Sea, after doing business in American Samoa for some 50-years was shut down in 2009 and 2,041 employees were laid off in the process.

... every time you open up a can of tuna from Chicken of the Sea, you will find tuna that has been cooked and cleaned in Thailand where workers are paid $0.75 cents and less per hour

...In order to take advantage of U.S. duty-free laws, Chicken of the Sea then hired a skeletal crew of about 200 workers in Lyons, Georgia to put the pre-cleaned fish from Thailand into cans for final packaging.

... The other major tuna canning plant in American Samoa, StarKist, began laying off workers in August 2010, with plans to lay off a total of 800 workers due to the minimum wage increases and other rising operation costs."


PeakTrader, that's not at all the scenario you laid out, is it?

 
At 7/31/2012 5:36 PM, Blogger Jet Beagle said...

PeakTrader,

Please explain again how increasing the minimum wage increased Samoa's GDP.

 
At 7/31/2012 6:11 PM, Blogger morganovich said...

"every time you open up a can of tuna from Chicken of the Sea, you will find tuna that has been cooked and cleaned in Thailand where workers are paid $0.75 cents and less per hour

...In order to take advantage of U.S. duty-free laws, Chicken of the Sea then hired a skeletal crew of about 200 workers in Lyons, Georgia to put the pre-cleaned fish from Thailand into cans for final packaging."

not that i eat canned tuna, but i am wondering about something:

how do they transport it from thailand to georgia for canning?

someone expresses the opinion that chicken of the sea tuna tasted bad/was low quality or some such.

i wonder if being shipped halfway around the world between cooking and canning might have something to do with that?

 
At 7/31/2012 8:58 PM, Blogger juandos said...

"Raising the minimum wage, to create a level playing field, forced a poor firm out of business and that business was replaced by a better firm"...

Good one pt!

Best explanation you've offered to date for liberal logic crony capitalism...

Hilarious!

 
At 7/31/2012 11:12 PM, Blogger PeakTrader said...

The facts remain. Before the minimum wage increase in American Samoa, the economy was stagnant and more workers were needed to produce cans of tuna. Unemployment was substantially higher before the minimum wage increase than after.

Of course, weak firms operate in countries with low wages, like Thailand or Haiti, to make profits.

Some people refuse to accept any other mechanisms, beyond a simple supply-demand price-quantity two-dimensional model, that adjusting the minimum wage, e.g. raising it, can raise real GDP and employment.

 
At 8/01/2012 12:29 AM, Blogger PeakTrader said...

We know American Samoa's economy did poorly before the minimum wage increase (see chart of per capita real GDP):

http://www.bea.gov/newsreleases/general/terr/2010/asgdp_051010.htm

 
At 8/01/2012 5:09 AM, Blogger Jet Beagle said...

Peak Trader: "The facts remain. Before the minimum wage increase in American Samoa, the economy was stagnant and more workers were needed to produce cans of tuna. Unemployment was substantially higher before the minimum wage increase than after."

Really? Where did you get these facts?

The minimum wage increases started in 2007. In May, 2011, the Department of Commerce and teh Department of the Interior jointly released GDP estimates for American Samoa. Here's an excerpt:

"The estimates for American Samoa show that real GDP -- GDP adjusted to remove price changes -- decreased 4.7 percent in 2009 after decreasing 2.1 percent in 2008 (see Table 3). For comparison, real GDP for the U.S. (excluding the territories) decreased 2.6 percent in 2009 after remaining unchanged in 2008.

For 2008, the decrease in real GDP reflected a decrease in inventory investment that was partly offset by an increase in territorial government spending. For 2009, the main contributor to the decrease in real GDP was a decrease in exports of goods, primarily of canned tuna."


Well, yeah, PeakTrader, more workers were needed to produce canned tuna before the minimum wage was increased. That's because more tuna was canned in American Samoa before the minimum wage law was enacted.

 
At 8/01/2012 5:19 AM, Blogger Jet Beagle said...

Peak Trader: "Unemployment was substantially higher before the minimum wage increase than after."

Really? Where do you get your facts, PeakTrader?

According to a GAO report issued last year

"In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available. GAO questionnaire responses show that tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Average inflation-adjusted earnings fell by 5 percent from 2008 to 2009 and by 11 percent from 2006 to 2009; however, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation. Private sector officials said the minimum wage was one of a number of factors making business difficult. In the tuna canning industry, future minimum wage increases would affect the wages of 99 percent of hourly-wage workers employed by the two employers included in GAO's questionnaire. The employers reported taking cost-cutting actions from June 2009 to June 2010, including laying off workers and freezing hiring. The employers attributed most of these actions largely to the minimum wage increases."

 
At 8/01/2012 8:03 AM, Blogger PeakTrader said...

Jet Beagle, we don't know how much of an impact the 2008-09 recession, and slow recovery, had on demand for tuna.

However, we know in 2002-07, per capita real GDP declined substantially.

Some firms are so weak, that raising wages to $5 or $6 an hour was enough to bankrupt them.

 
At 8/01/2012 8:11 AM, Blogger PeakTrader said...

Perhaps, they made a higher profit on higher quality tuna, e.g. solid white albacore, than lower quality tuna, e.g. chunk light tuna.

 
At 8/01/2012 8:32 AM, Blogger PeakTrader said...

American Samoa - Wikipedia

"The Unemployment rate was 29.8% (2005), but has been improved to 23.8% as of (2010)."

 
At 8/01/2012 9:21 AM, Blogger Jet Beagle said...

Testimony of Togiola T.A. Tulafono Governor of American Samoa Before
The Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs, On The Impact of Minimum Wage Increases on American Samoa
September 23, 2011:

"After three increments of $.50 to the minimum wages in American Samoa, a cannery that once employed over 2,000 people closed; thousands of jobs had been lost at all levels of employment in American Samoa, and the economic conditions in the territory continue to decline."

The governor was not asking for assistance from Congress. he was simply asking Congress to stop the dangerous increases in minimum wage.

Peak Trader, I think the governor of American Samoa knows more about the employment situation there than does some anonymous contributor to Wikipedia. Wikipedia did not even provide a source for the alleged 23.8% unemployment figure.

 
At 8/01/2012 9:33 AM, Blogger PeakTrader said...

Jet Beagle, you don't believe the governor of American Samoa is a little biased and wants to help his people somehow?

 
At 8/01/2012 9:42 AM, Blogger morganovich said...

peak-

the fact remains:

one cannery closed, another had layoffs.

all the predictions of "beneficial cycle of wage hikes" were wrong.

you claimed productivity, output and job in the industry would rise. they fell.

then you try to pass of an unsubstantiated unemployment number that may well mean the opposite of what you claim it does.

don't forget, you fall out of u3 if you stop looking for work.

given that there is not work on somoa with one cannery closed and the other laying off, that's just what you would expect.

further, as 80% of the workers there were foreign, many likely went home.

you are trying to obfuscate and ignore what actually happened.

most of the jobs on american samaoa are just governmental sinecures. it's basically glorified welfare.

the one actual industry they had was destroyed by the min wage hikes.

you seem determined to ignore this fact, but that does not change it: minimum wage hikes gutted the one industry samoa had and nothing has replaced it.

 
At 8/01/2012 9:59 AM, Blogger PeakTrader said...

Morganovich, cans of tuna are still cheap. I buy albacore often at $1 or $1.25 a can. Overall production may have increased.

It seems, American Samoa unemployment rate has been around 25% for decades.

At least taxes went up:

Employer’s Responsibility
Two Percent Wage Tax

"(Utulei) On March 18, 2011 Governor Togiola T.A. Tulafono signed into law legislation for a 2% tax on wages. This is in addition to the current income tax. This Wage Tax is effective as of January 1, 2011.

Withholding: Employers should withhold an additional 2% on wages. Employees subject to the 4% minimum tax should have an additional 2% withheld for a total withholding of 6%."

http://americansamoa.gov/index.php?option=com_content&view=article&id=99

 
At 8/01/2012 10:18 AM, Blogger morganovich said...

peak-

that's ducking the issue.

cans of tuna may be cheap, but that are not coming from samoa anymore.

the argument was not that jacking up the minimum wage in samoa would destroy the tuna industry, it was that it would cause the tuna industry in samoa to shrink.

that is precisely what happened. the plants moved to thailand and georgia and switched to automation from manual labor. the remaining one laid people off.

the unemployment number you cite is meaningless unless we can see its components.

if 15% of samoans lose their jobs and then become discouraged workers not seeking a job, they do not show up in the figure.

face it peak, the evidence that min wage hikes destroyed the samoan tuna industry is overwhelming, and the predictions you made have been shown to be completely wrong.

jet has given you chapter and verse on this with tremendous specificity, and this report:

http://www.spc.int/prism/country/as/stats/canneries.pdf

predicted precisely what happened ahead of time.

when you up wages without an increase in productivity, jobs get lost and industries relocate.

price fixing cannot drive economic prosperity.

 
At 8/01/2012 10:31 AM, Blogger Jet Beagle said...

From Science Daily fact book:

Question: In 2010, what is/was American Samoa's unemployment rate?

Answer: The unemployment rate in American Samoa was 29.8% for 2010.

Source: United States Government Central Intelligence Agency

 
At 8/01/2012 10:34 AM, Blogger Jet Beagle said...

PeakTrader: "Jet Beagle, you don't believe the governor of American Samoa is a little biased and wants to help his people somehow?"

I am positive he wants to help his people. That's why he gave this testimony and pleaded with Congress to stop increasing the minimum wage in American Samoa. Unlike you, the governor of American Samoa understands exactly how harmful is the minimum wage law.

 
At 8/01/2012 10:45 AM, Blogger PeakTrader said...

Jet Beagle, so the unemployment rate was exactly the same in 2010 as 2005?

If the governor of American Samoa overstates a problem, he may get more help.

 
At 8/01/2012 10:51 AM, Blogger PeakTrader said...

Raising the minimum wage in American Samoa and in the U.S. may have increased overall production and productivity with no change in prices.

 
At 8/01/2012 10:54 AM, Blogger PeakTrader said...

And American Samoans who lost their jobs at the cannery may have received up to 99 weeks of unemployment benefits, while the remaining workers earned higher minimum wages.

 
At 8/01/2012 11:05 AM, Blogger morganovich said...

peak-

"Raising the minimum wage in American Samoa and in the U.S. may have increased overall production and productivity with no change in prices."

and just how would that have happened?

if chicken of the sea would have been better off in thailand and georgia, why were they in samoa in the first place?

you are just making wild, unsupported assumptions.

 
At 8/01/2012 11:16 AM, Blogger Jet Beagle said...

Peak Trader: 'And American Samoans who lost their jobs at the cannery may have received up to 99 weeks of unemployment benefits, while the remaining workers earned higher minimum wages."

And you think 99 weeks of unemployment bolsters your argument that American Samoa is better off after the minimum wage hike? Do you really believe that?

Look, it's pointless to continue this argument. I was only responding to you to make sure that others would not believe your arguments. I'm now confident that no one else will.

 
At 8/01/2012 11:24 AM, Blogger PeakTrader said...

Morganovich, perhaps, American Samoa didn't have a productive workforce.

A shift to a more productive workforce and more automation can increase production and productivity.

We've seen it in the past.

 
At 8/01/2012 11:52 AM, Blogger morganovich said...

peak-

they had unemployment in the high 20's.

if there were all these productive uses to which such labor could have been applied, it would already have happened.

it's not like you needed layoffs to free up scarce labor resources.

they were already lying around idle.

i am now going to side with jet.

it's clear that there is no convincing you and that you are not susceptible to evidence, so there is little point in continuing this.

like him, i too am now confident that anyone reading this will see that your arguments were baseless even if there is no way to get you do so.

 
At 8/01/2012 12:54 PM, Blogger PeakTrader said...

Morganovich, it's amazing how you and Jet Beagle think almost alike, even asking me the same question almost simultaneously.

You both can't seem to understand there are many economic forces and mechanisms beyond an Econ 101 two-dimensional model.

Also, you both either ignore or reject the literature in labor economics, most likely because it's Chinese to you.

It's too much to expect that you both can begin to understand how everything in economics fits together, and how economic changes have net positive or negative effects on the economy.

 
At 8/01/2012 1:08 PM, Blogger juandos said...

pt says: "You both can't seem to understand there are many economic forces and mechanisms beyond an Econ 101 two-dimensional model"...

Ahhh, the claim of those who don't understand or maybe don't want to understand the K.I.S.S. theory...

When you cut away all the BS and spin Econ 101 still comes shining through...

 
At 8/01/2012 1:16 PM, Blogger morganovich said...

no peak, we are disputing the model you propose because it does not make any sense and is disproven by the facts.


what you are calling complexity is just muddled thinking and leaving out variables and portions of the decision making process.

that's why you keep getting the wrong answer.

let's take one more stab:

you claim that samoa may not have had a productive workforce and that moving work might have made it so.

either you are arguing that increased wages and layoffs freed up labor resources in a country that had unemployment in the high 20's and that suddenly, new productive uses for these people emerged or that moving the production offshore yielded better results.

both are ridiculous.

in the former case, if there was nothing useful to do with 25% of the population at $2 an hour, moving it to $4 will not make that any better. it will make it worse, as things that used to makes sense at between $2 and 4 will no longer be profitable.

if your argument is that moving cooking and cleaning to Thailand and canning to georgia results in a better outcome, then you need to explain a crucial issue: why didn't they make that move before?

if it is a better and preferable option, then why did they keep operating in samoa? your whole argument is that chicken of the sea was too irrational to see such a benefit before a minimum wage hike, but suddenly became rational afterward.

that makes no sense at all.

you keep trying to accuse others of not seeing the complexity, but you are the one failing to see the picture and making up absurd assumptions and baseless claims.

 
At 8/01/2012 1:22 PM, Blogger Jet Beagle said...

PeakTrader: "Morganovich, it's amazing how you and Jet Beagle think almost alike"

I wasn't going to respond further, but that's too amusing an assertion to ignore. Morganovich and I have had strong disagreements. But I do respect his thinking even when it irritates me.

 
At 8/01/2012 1:23 PM, Blogger PeakTrader said...

Juandos, you may want to see Occam's razor: "One should proceed to simpler theories until simplicity can be traded for greater explanatory power. The simplest available theory need not be most accurate."

Morganovich, you're absolutely convinced always raising the minimum wage will reduce real GDP and employment. So, why attempt to show you otherwise?

 
At 8/01/2012 1:53 PM, Blogger juandos said...

pt says: "Juandos, you may want to see Occam's razor: "One should proceed to simpler theories until simplicity can be traded for greater explanatory power. The simplest available theory need not be most accurate.""...

Baloney sir!

Poor use of a known definition in order to rationalize the theft of private weath of others...

 
At 8/04/2012 11:45 AM, Blogger Jim said...

Ummm. These comments miss some important points.

1. Before American lawmakers came along Samoa was almost 100% employed.

2. The only reason Starkist is still there is because American lawmakers have subsidized and forced them to remain there. This is not a story of which company is more efficient. Good lord.

3. All other companies have long since fled.

Your basic Samoan hates American over reach which has destroyed their culture and economy.

 

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