American Samoa: Economic Trends, Status of the Tuna Canning Industry, and Stakeholders' Views on Minimum Wage Increases

In 2007, Congress passed legislation that established a schedule of periodic increases that would have raised all minimum wages in American Samoa to the current federal level ($7.25 per hour) by 2016. However, subsequent legislation has postponed or reduced scheduled minimum wage increases. The most recent minimum wage increase in American Samoa occurred on September 30, 2018, but all minimum wages in American Samoa are not scheduled to converge with the current federal level until 2036.

Pub. L. No. 111-5, enacted in February 2009, included a provision for GAO to report periodically on the economic impact of minimum wage increases in American Samoa. This report examines (1) economic trends including changes in employment and earnings since the minimum wage increases in American Samoa began in 2007, (2) the status of the tuna canning industry, and (3) stakeholder views on the minimum wage increases. GAO analyzed federal and American Samoa data for 2016 through 2018, and interviewed employers and workers in American Samoa selected on the basis of employment levels, among other criteria.

Commenting on a draft of this report, the American Samoa government suggested creating a committee to set minimum wages in the territory and a moratorium on minimum wage increases until the committee is formed. The Department of the Interior suggested GAO conduct further study, including on the use of a committee to set minimum wages. The suggested further study was beyond the scope of this report.

American Samoa's economy largely contracted during the past decade. Adjusted for inflation, gross domestic product declined by 18.2 percent from 2007 to 2017, and increased by 2.2 percent in 2018 (see fig.). While American Samoa employment varied by year from 2007 to 2018, workers' inflation-adjusted earnings generally declined. American Samoa's economy continues to depend on the territorial government and tuna canning industry as key sectors. Changes in government spending and the tuna canning industry, including cannery closures, have impacted American Samoa's economy. To reduce the territory's dependence on the government and the tuna canning industry, the American Samoa government continues its efforts to diversify the economy.

American Samoa's tuna canning industry faces multiple challenges, including increased competition and minimum wage increases, which led to cannery closures from 2007 to 2018. The companies that experienced the closures explained that minimum wage increases were a factor in the closures, but not a main factor. With the closures, employment of cannery workers decreased but inflation-adjusted earnings of cannery workers who maintained their jobs increased. StarKist Co. now operates the single remaining cannery in American Samoa, StarKist Samoa, but faces financial challenges. In addition to increased competition and labor market challenges, the industry faces other challenges, such as lower wages relative to those in American Samoa for cannery workers in other countries. However, American Samoa offers the tuna canning industry advantages relative to the U.S. mainland and other countries, including lower wages compared to those in the U.S. mainland as well as duty-free access to the U.S. canned tuna market, according to StarKist Samoa officials.

The American Samoa government and the American Samoa Chamber of Commerce (the Chamber) view the minimum wage increases as conflicting with sustainable economic development, but employers and workers GAO interviewed noted benefits and challenges presented by minimum wage increases. The government supports setting a minimum wage that the economy can support, while the Chamber supports delaying minimum wage increases for the cannery. Employers and workers GAO interviewed noted a potential positive impact on the livelihood of workers but a potential negative impact on the remaining cannery, among other things.

For decades, American Samoa, a U.S. territory, has had minimum wages  below the statutory minimum wage in the United States and in other U.S.  territories. In 2007, Congress passed legislation that established a  schedule of periodic increases that would have raised minimum wages in  American Samoa to the current federal minimum wage ($7.25 per hour)  by 2016. While some incremental minimum wage increases have  occurred, subsequent legislation has postponed or reduced scheduled  minimum wage increases. The most recent minimum wage increase in  American Samoa occurred on September 30, 2018.

Pub. L. No. 111-5, enacted in February 2009, included a provision for  GAO to report periodically on the economic impact of minimum wage  increases in American Samoa. GAO previously reported in response to  this mandate in 2010, 2011, 2014, and 2016. This report updates our  previous reports and examines (1) economic trends including changes in  employment and earnings since the minimum wage increases in  American Samoa began in 2007, (2) the status of the tuna canning  industry, and (3) stakeholder views on the minimum wage increases.

To examine economic trends including changes in employment and  earnings, we analyzed gross domestic product data from the U.S.  Department of Commerce’s Bureau of Economic Analysis (BEA); tax and  administrative data from the American Samoa government; and  employment, earnings, and wage data gathered through an employer  questionnaire that we submitted to American Samoa’s tuna canning  industry.

To examine the status of the territory’s key private sector industry—tuna  canning—we estimated changes in employment and earnings by  submitting an employer questionnaire to American Samoa’s tuna canning  industry in accordance with the methodology of prior reports, and  analyzed tuna trade data using U.S. Census Bureau data. Using  employer questionnaire data, we determined both the median wage rate  and the number of workers that would be affected by future minimum  wage increases because their wages were at or below future scheduled  minimum wage rates. We estimated the cost of future scheduled  minimum wage increases by calculating the cost to the cannery of  increasing each worker’s wages to scheduled levels. In addition, we  interviewed cannery representatives to obtain their views on challenges  facing the industry, including minimum wage increases.

To examine stakeholder views on the minimum wage increases, we  conducted interviews with officials from the American Samoa government  and American Samoa Chamber of Commerce, and employers and  workers from the public and private sectors. We interviewed a  nongeneralizable sample of employers and workers selected on the basis  of key industry information from prior GAO reports and employment data  from the American Samoa government. Specifically, we interviewed the  following employers and their workers: (1) the American Samoa  government and three of its component units, and (2) StarKist Samoa.  To supplement these employers and their workers, we requested that the  American Samoa Chamber of Commerce select additional employers and  their workers on the basis of criteria related to the tuna canning,  construction, and retail industries, among other things. For more details  on our scope and methodology, see appendix I.

We conducted this performance audit from June 2019 to May 2020 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

American Samoa’s Geography and Demographics

American Samoa consists of five volcanic islands and two coral atolls in  the South Pacific, about 2,600 miles southwest of Hawaii (see fig. 1).  American Samoa has a combined land area of 76 square miles, slightly  larger than Washington, D.C.

Approximately 98 percent of the population of American Samoa lives on  the main island of Tutuila, and most economic activity (including tuna  canning) and government operations take place in and around the harbor  of the capital city, Pago Pago, on Tutuila (see fig. 2). Most of Tutuila  consists of rugged terrain with little level land. With a significant portion of  its population and infrastructure located in low-lying coastal areas,  American Samoa faces the risk of tsunamis and other coastal hazards.

In September 2009, a tsunami following a magnitude 8.1 earthquake  left 34 people dead in American Samoa, and caused severe damage  to homes, businesses, and water and electrical infrastructure.

In February 2018, Tropical Storm Gita struck the territory, causing  damage with at least 50 percent of American Samoan residents facing  some level of loss to property, according to American Samoa  Department of Commerce estimates. The American Samoa  government estimates that the disaster caused nearly $200 million in  damages to public and private property.

In response to both natural disasters, the federal government issued  major disaster declarations and assisted with recovery efforts.

The 2010 U.S. Census found American Samoa’s population to be 55,519,  a decrease of 3 percent from its 2000 population. Individuals who are  neither U.S. citizens nor U.S. nationals, most of them from the  Independent State of Samoa, constituted approximately 35 percent of the  territory’s population in that year. BEA most recently estimated  American Samoa’s 2018 population to be approximately 58,000.

The 2010 census also reported that American Samoa’s median  household income remained well below, and its poverty rate well above,  that of the United States. In 2009, American Samoa’s median household  income was $23,892, 47 percent of the U.S. median household income,  while its poverty rate was 57.8 percent, nearly four times the U.S. rate of  15.1 percent.

American Samoa’s Relations with the United States

U.S. interest in the Samoan islands began in 1872 with efforts by the U.S.  Navy to establish a naval station in Pago Pago Harbor. A U.S.-British- German protectorate over all Samoan islands ended in 1899, when the  islands that constitute American Samoa were placed under U.S. control.  The U.S. Naval Station in the territory was established in 1900. From  1900 through 1904, the U.S. government negotiated control over  American Samoa, and the U.S. Navy subsequently took responsibility  for federal governance of the territory. In 1951, governance was  transferred to the Secretary of the Interior. In 1960, American Samoa  residents adopted their own constitution, but amendments to the  constitution may be made only by an act of Congress.

Persons born to non-U.S. citizen parents in American Samoa are U.S.  nationals but may apply to become naturalized U.S. citizens. In addition,  U.S. non-citizen nationals from American Samoa have the right to travel  freely, live, and work throughout the United States. American Samoa  exercises authority over its immigration system and customs through  locally adopted laws. While American Samoans may serve in the U.S.  military, they do not have voting representation for legislation passed  before the full U.S. Congress, including legislation setting the minimum  wage in American Samoa.

The United States provides assistance to the American Samoa  government, including funding the majority of its revenue. In fiscal year  2018, the American Samoa government’s financial audit reported that  U.S. federal grants provided approximately $150 million of $246 million in  total American Samoa government revenue. Ranked by approximate  grant expenditures, the largest federal grantors were the Departments of  Health and Human Services ($43 million), Agriculture ($33 million),  Interior ($30 million), Education ($28 million), Transportation ($18 million),  and Homeland Security ($5 million).

The federal minimum wage was first enacted as part of the Fair Labor  Standards Act of 1938 (FLSA). The FLSA specified that for industries  engaged in commerce or in the production of goods for commerce, its  policy was to correct and, as rapidly as practicable, to eliminate labor  conditions detrimental to the maintenance of the minimum standard of  living necessary for health, efficiency, and general well-being of workers  without substantially curtailing employment or earning power. Since  1938, there have been nine amendments to the FLSA establishing new  minimum wages and usually raising the rate through a series of steps  over 2 to 4 years.

The FLSA was amended in 1956 to provide for American Samoa  minimum wages to be established through a special industry committee  (SIC) process similar to that used in Puerto Rico and the U.S. Virgin  Islands. Federal policy called for the minimum wage rates for industries  in American Samoa to reach the federal level as rapidly as was  economically feasible without substantially curtailing employment. The  final SIC, which recommended minimum wages to be applied in 2005 and  2006, recommended minimum wages for 18 industry categories. These  18 industry categories remain in existence for present-day minimum  wages in American Samoa.

Since 2007, U.S. federal law has determined minimum wages in  American Samoa. In 2007, Congress passed the Fair Minimum Wage Act  of 2007, which eliminated the SICs and created a schedule of increases  to American Samoa minimum wages that has since been revised and  applied over a number of years. The Fair Minimum Wage Act of 2007  amended the FLSA, raising the federal minimum wage in a series of three  steps from $5.15 to, effective July 2009, $7.25 per hour. The amended  provision also eliminated the SICs in American Samoa and introduced a  schedule for raising the minimum wages, by equal amounts, until all 18  minimum wage categories in American Samoa reached the federal  level. According to the U.S. Department of Labor, when the law was  enacted, nearly 80 percent of eligible American Samoa workers earned  less than $7.25 per hour. The initial Fair Minimum Wage Act of 2007  schedule, which called for $0.50 annual increases, would have increased  all American Samoa minimum wages to the current federal level by May  2016.

After the initial (2007) schedule, each subsequent law revising the  schedule of minimum wage increases for American Samoa extended the  projected dates for American Samoa minimum wages to reach the federal  level.

Measures adopted in 2009 and 2010 retained the $0.50 increases  but delayed their application, so that convergence between the  American Samoa minimum wages and the federal level would have  occurred in 2018 rather than 2016.

Subsequent measures—applying increases every third year and  reducing each increase from $0.50 to $0.40—delayed convergence  of American Samoa minimum wages with the federal level by more  substantial intervals.

The current schedule establishes increases of $0.40 every 3 years for all  18 industry categories in American Samoa, with the most recent increase  in September 2018 and the next increase scheduled for September  2021. If American Samoa minimum wages continue to increase by  $0.40 every 3 years as scheduled, and if the current federal level does  not increase, the highest minimum wage in American Samoa, for the  stevedoring industry, will reach the federal level in 2027, while the lowest  minimum wage, for the garment manufacturing industry, will reach the  federal level in 2036. Minimum wages for the largest employer overall,  government, and the largest private-sector employer, the fish canning and  processing industry, will reach the federal level by 2036 and 2033,  respectively. Table 1 shows past and projected minimum wages in  American Samoa for these industries. (App. III shows the current federal  minimum wage in American Samoa by industry.)

Since 1957, American Samoa minimum wages have risen, first as  recommended by SICs and then in accordance with schedules set by  legislation. However, with the exception of 1986, when the highest  American Samoa minimum wages—for fish canning and processing,  petroleum marketing, and stevedoring—converged with the federal level  of $3.35, American Samoa minimum wages have remained below the  federal level (see fig. 3).

From 2007 to 2018, American Samoa’s Economy Contracted and American Samoa Employment Varied, While Workers’ Earnings Generally Declined

American Samoa’s economy largely contracted during the past decade.  Adjusted for inflation, gross domestic product declined by 18.2 percent  from 2007 to 2017, though it increased by 2.2 percent in 2018. According  to the American Samoa Department of Commerce, the 2018 uptick is  likely to be temporary, partly reflecting reconstruction activity for Tropical  Storm Gita. Changes in government spending and the tuna canning  industry, including disaster-related federal funding and cannery closures,  have impacted American Samoa’s economy. From 2007 to 2018,  American Samoa employment varied by year without a clear trend, while  workers’ inflation-adjusted earnings generally declined. American Samoa  continues to depend on the territorial government and tuna canning  industry as key sectors. The American Samoa government continues  efforts to diversify the economy, and in recent years, these efforts have  centered on the development of a new industry, telecommunications.

American Samoa Employment Varied by Year from 2007 to 2018 While Workers’ Inflation- Adjusted Earnings Generally Declined

Employment did not exhibit a clear trend, but varied from year to year  from 2007 to 2018. Specifically, it ranged from about 16,000 to about  20,000 with a peak year in 2009. In 2018, employment was at the same  level as it was in 2007, at about 17,000. Figure 5 shows the trend in  employment in American Samoa over this period.

In addition, we analyzed data from alternative sources, which also  showed that employment lacked a clear trend from year to year.  According to American Samoa Statistical Year Book data, employment  ranged from about 14,000 to 19,000 from 2007 to 2017 with a peak in  2010. According to the U.S. Census Bureau’s County Business Pattern  data, which mostly excludes certain groups such as the public sector,  private sector employment ranged from about 7,000 to 10,000 from 2008  to 2017, with a peak in 2009. For more information, see appendix IV.

Average earnings of employed workers contracted from 2007 to 2018  when adjusted for inflation. For the overall period from 2007 to 2018,  average inflation-adjusted earnings fell by about 11 percent (from about  $11,000 to about $10,000), reflecting an increase in average annual  earnings of about 29 percent and an increase in prices of about 44  percent. For the most recent year available, 2017 to 2018, average  inflation-adjusted earnings was almost unchanged—growing by about 1  percent.

Figure 6 shows the trend in earnings in American Samoa from 2007 to  2018. For more information, see appendix IV.

Government and Tuna Canning Remain Key Sectors of American Samoa’s Economy

The territorial government and tuna canning industry are important  sectors of American Samoa’s economy, contributing almost half of  American Samoa’s employment and GDP.

The American Samoa government and the tuna canning industry have  historically employed the largest numbers of workers in American  Samoa. In 2018, the government sector employed about 42 percent of  the American Samoa’s workforce and the tuna cannery employed  about 14 percent (see fig. 7). The territorial government continues to  be the largest employer, while the tuna canning industry continues to  be the largest private sector employer.

The government and the tuna canning industry also remain large  contributors to GDP in American Samoa. In 2017, government and  manufacturing (primarily composed of tuna canning) contributed 42  percent of American Samoa’s total GDP (see fig. 7).

The tuna canning industry plays a key role contributing to the territory’s  trade, primarily through exports. According to U.S. Census Bureau data,  processed tuna annually accounted for over 88 percent of exports from  American Samoa to the United States from 1995 to 2018.

According to American Samoa government officials, government and the  tuna canning industry are the two main pillars of the economy and sustain  other industries across the territory.

The territory’s component units, including the Lyndon B. Johnson  Tropical Medical Center, American Samoa Community College,  American Samoa Power Authority, and American Samoa  Telecommunications Authority, provide healthcare, higher education,  utility, and telecommunications services, respectively.

The tuna canning industry provides direct and indirect benefits to  other industries. American Samoa Department of Commerce officials  stated that the remaining cannery generates demand for support  industries such as transportation and warehousing, retail and  wholesale, and construction. American Samoa government officials  also noted that the cannery’s large demand for shipping,  transportation, and energy might reduce the cost of these services for  the entire territory. In 2017, canned tuna constituted over 90 percent  of American Samoa’s exports, and fish for processing constituted over  35 percent of American Samoa’s imports (see fig. 8).

The American Samoa Government Continues Efforts to Diversify the Economy

To reduce the territory’s dependence on its government and the tuna  canning industry, the American Samoa government continues its efforts  to diversify the economy. According to the American Samoa government,  the territory’s dependence on the government and the tuna canning  industry has exposed the economy to external risks, including changes in  federal grant funding and global competition in the tuna canning industry.  To reduce this dependence, the government has developed plans to  diversify the economy.

American Samoa’s economic development implementation plan for  fiscal years 2014 to 2017 and economic development strategy for  2018 to 2022 outline economic development goals for sectors such  as transportation and tourism, as well as action items to achieve these  goals. The American Samoa government has identified ecotourism as  an economic opportunity because the island’s mountains, tropical  rainforests, coral reefs, and National Park may be attractive to tourists  (see fig. 9). However, the American Samoa government has cited the  federal restrictions on competition in passenger air carrier service to  American Samoa as an impediment to developing the tourism sector.  The United States restricts foreign airlines from carrying U.S.  domestic passengers or cargo between U.S. locations, other than as  part of a through trip involving a foreign location (cabotage), unless  authorized by the U.S. Department of Transportation on the basis of  specific criteria. According to the American Samoa government, as  of August 2019, there are two passenger air flights per week between  American Samoa and the United States (via Hawaii), with a third  weekly flight added during peak travel seasons.

American Samoa’s 2016 Workforce Innovation and Opportunity Act  Unified Plan targets the development of five industries: fisheries and  agriculture, telecommunications and information technology,  manufacturing, visitors, and handicrafts. The plan notes that American  Samoa is experiencing emigration of workers to the United States,  countered in part by immigration of tuna cannery workers from  neighboring islands to American Samoa. The plan cites low wages as  a reason that high-skilled members of the labor force leave the  territory.

In recent years, the American Samoa government’s efforts to diversify the  economy have centered on the development of the telecommunications  industry. The government has made major investments in  telecommunications infrastructure over the past 5 years. American  Samoa Telecommunications Authority officials told us that they have  managed the development of the territory’s telecommunications  infrastructure projects.

Completed in 2015, the Broadband Linking the American Samoa  Territory (BLAST) project replaced the territory’s copper infrastructure  with a fiber optic network capable of delivering high-speed data, voice,  and cellular backhaul services. The U.S. Department of Agriculture’s  Rural Utility Service funded the over $90 million project with an  approximately $81 million grant and $10 million loan.

According to American Samoa Telecommunications Authority officials,  the Hawaiki cable project, completed and activated in 2018, added  bandwidth to the BLAST network by connecting the territory via an  underwater cable branch to the main Hawaiki cable trunk in Hawaii.  The officials stated that the Hawaiki cable is a 15,000 kilometer, high- capacity underwater cable connecting Australia and New Zealand to  the mainland United States, American Samoa, and Hawaii. The  American Samoa government invested approximately $30 million to  acquire its connection to the Hawaiki cable, using funding from  American Samoa’s 2018 general revenue bond series.

According to American Samoa Telecommunications Authority officials,  other ongoing, multi-million dollar projects to enhance the territory’s  telecommunications infrastructure include projects to upgrade BLAST  bandwidth distribution and replace the territory’s 2G network with LTE  technology.

The American Samoa government believes that the newly activated  Hawaiki cable and BLAST fiber optic network have raised the territory’s  potential to develop new industries tied to telecommunications, including  information communication technology and business process  outsourcing. According to an American Samoa Department of Commerce  survey of over 50 public and private stakeholders, 64 percent of  respondents—the largest share—identified information communication  technology as one of the most promising economic development  opportunities for the territory. The next four most promising opportunities  identified by approximate share of respondents (in parentheses) included  “Attracting investors for capital investment projects (58 percent), “General  Tourism” (47 percent), “Ecotourism” (47 percent), and “Federal Programs”  (47 percent).

American Samoa government officials acknowledge that despite progress  made, American Samoa’s telecommunications industry is still at an early  stage of development. The American Samoa government seeks to attract  new telecommunications businesses, including a proposed call center, by  identifying various competitive advantages for locating in American  Samoa. American Samoa Department of Commerce officials stated that  these advantages include an English-(American) speaking workforce with  the lowest labor costs in the United States, and the territory’s qualification  as an on-shoring location for call centers and other business process  outsourcing operators. American Samoa Department of Commerce and  American Samoa Telecommunications Authority officials stated that they  are currently developing a territorial broadband strategy and proof-of- concept for a call center industry, expected to be released in mid-2020.  Additionally, American Samoa Telecommunications Authority officials  expect the Territorial Bank of American Samoa, opened in October 2016,  to support the efforts to develop the telecommunications industry by  encouraging investment in financial technology businesses. American  Samoa Telecommunications Authority officials stated that the bank is  partnering with the authority to develop internet banking services, which  are expected to be offered in the next 2-3 years.

American Samoa’s Tuna Canning Industry Faces Multiple Challenges, Including Increased Competition and Minimum Wage Increases

American Samoa’s tuna canning industry faces multiple challenges,  including increased competition and minimum wage increases, which led  to cannery closures from 2007 to 2018. The companies that experienced  the closures explained that minimum wage increases were a factor in the  closures but not a main factor. With the closures, employment of cannery  workers decreased, but inflation-adjusted earnings of cannery workers  who maintained their jobs increased. StarKist Co. now operates the single  remaining cannery in American Samoa, StarKist Samoa, but faces  financial challenges. In addition to increased competition and labor  market challenges, the industry faces other challenges, such as lower  wages relative to those in American Samoa for cannery workers in other  tuna-exporting countries. However, American Samoa offers the tuna  canning industry advantages relative to the U.S. mainland and other  countries, including lower wages compared to those in the U.S. mainland  as well as duty-free access to the U.S. canned tuna market, according to  StarKist Samoa officials.

American Samoa’s Tuna Canning Industry Experienced Cannery Closures from 2007 to 2018

American Samoa’s tuna canning industry experienced cannery closures  from 2007 to 2018 that adversely impacted the economy in that time  period, as mentioned earlier. (For a timeline of selected events related to  American Samoa’s tuna canning industry, see app. V.) StarKist Co.,  Chicken of the Sea, and Samoa Tuna Processors, which is owned by Tri  Marine International (Tri Marine), have each operated or closed canneries  in American Samoa over the years, as follows.

StarKist Co. StarKist Co. (headquarters in Pittsburgh, Pennsylvania)  has operated a cannery, StarKist Samoa, in American Samoa since  1963. StarKist Samoa is the one remaining cannery on the island,  as mentioned earlier (see fig. 10). As of June 2018, StarKist Samoa  employed 2,439 hourly wage workers.

Chicken of the Sea. Chicken of the Sea (headquarters in El  Segundo, California) operated a cannery in American Samoa, which it  closed in September 2009. According to CRS, in the 1950s, the  Department of the Interior contracted with Van Camp Seafood  Company to move onto the island and develop a fish processing  plant. Thai Union closed the Chicken of the Sea Samoa Packing  cannery in American Samoa in September 2009. According to  Chicken of the Sea officials, limited tuna supply was a key factor in  the decision to close the cannery. The American Samoa minimum  wage increases were a minor factor, but not as significant as other  factors related to tuna supply, labor availability, logistics, and utility  costs in contributing to the cannery’s closure. The company relocated  its canning operations to the U.S. state of Georgia while outsourcing  the more labor-intensive processes, including cleaning and cooking  tuna loins (a low-tariff U.S. import), to countries with lower labor costs.  By relocating to Georgia, Chicken of the Sea noted that it improved  flexibility in sourcing and processing fish from multiple locations  depending on where supply was readily available.

Tri Marine International (Tri Marine). Tri Marine (headquarters in  Bellevue, Washington) acquired the former Chicken of the Sea  cannery in American Samoa in October 2010, undertook a multi- million dollar investment to renovate and expand it, and opened the  new facility under the name Samoa Tuna Processors in January  2015. However, Tri Marine suspended its canning operations in  American Samoa indefinitely in December 2016, primarily in response  to highly competitive price setting across the global tuna canning  industry, according to Tri Marine. Tri Marine explained that the  American Samoa minimum wage increases were a minor factor—not  as significant as rising price competition and high production costs,  such as for utilities—in contributing to Samoa Tuna Processors’  closure. The company subsequently transferred its canned tuna  sourcing operations from American Samoa to Thailand, Peru, and the  Solomon Islands to take advantage of decreased production costs.  According to a report by the Pacific Islands Forum Fisheries Agency,  in 2018, StarKist Co. signed a 10-year lease agreement to use Tri  Marine’s Samoa Tuna Processors facility for StarKist Samoa  operations. According to a Tri Marine official, in 2019, the Bolton  Group (Italy) completed its acquisition of Tri Marine. The acquisition  did not include Samoa Tuna Processors, and the Tri Marine  ownership change did not affect the 10-year lease agreement  between StarKist Co. and Samoa Tuna Processors, according to the  official.

Cannery Employment Level Decreased and Worker Inflation-Adjusted Earnings Increased 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 decline of 45 percent. Most of the  decline occurred in the period between 2007 and 2010, with the closure  of the Chicken of the Sea cannery. Figure 11 shows the trend in cannery  employment in American Samoa over this period.

The inflation-adjusted earnings of cannery workers in American Samoa  who have maintained their jobs during this period have increased by more  than inflation. In American Samoa, the vast majority of cannery workers  earn close to the minimum wage. Moreover, 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 $3.26 to $5.56, from the first half of 2007), while  prices have increased by 44 percent. However, this analysis does not  include those workers who have lost employment or have had hours cut.

StarKist Co. Faces Continuing Financial Challenges Because of Legal Issues

StarKist Co. faces continuing financial challenges because of legal  issues, as follows.

In 2019, StarKist Co. was sentenced to pay a criminal fine of $100  million, the statutory maximum, for its role in a conspiracy to fix prices  for canned tuna sold in the United States. This fine amounts to  almost three times StarKist Samoa’s cost of labor in 2018. According  to StarKist Co.’s General Counsel, the company will potentially have  to close the cannery in American Samoa and move operations to a  foreign country to afford to pay the fine for price-fixing. For its role in  price-fixing, StarKist Co. has faced—and may continue to face— lawsuits from wholesalers, food service companies and retailers, and  customers. For example, in January 2019, StarKist Co. announced  that its portion of a settlement with Walmart was $20.5 million, based  on a combination of cash payment and certain commercial terms.

In addition, in September 2017, StarKist Co. agreed to pay a $6.3  million penalty resulting from violations of federal environmental laws,  according to the U.S. Department of Justice. The U.S. Department of  Justice and the U.S. Environmental Protection Agency reached an  agreement with StarKist Co. and StarKist Samoa, requiring a series of  upgrades to reduce pollution, improve safety measures, and comply  with important federal environmental laws at their tuna processing  facility in American Samoa, the department reported.

American Samoa’s Tuna Canning Industry Faces Continuing Challenges in Addition to Minimum Wage Increases

American Samoa’s tuna canning industry faces multiple challenges in  addition to scheduled minimum wage increases. One challenge is rising  competition in the global tuna canning industry, as the value of foreign  processed tuna exports to the United States has increasingly exceeded  the value of American Samoa processed tuna exports to the United  States (see fig. 12). Specifically, tuna industry officials stated that firms in  the U.S. canned tuna market are highly competitive in price setting as  opposed to differentiating their product lines. A tuna canning industry  official stated that price competition and the financial pressures of the  recent anti-trust judgements have forced the U.S. canned tuna market  into a cost-cutting environment. According to the same tuna canning  industry official, firms must look to lower costs related to labor, energy  usage, and shipping to remain competitive in the U.S. market. The official  stated that firms implicated in the price-fixing scheme have agreed as part  of a legal settlement resulting from a lawsuit to supply their product at  lower prices. This puts more pressure on firms to implement cost-saving  measures to maintain their U.S. market shares. For example, StarKist  Samoa has implemented cost-saving measures to reduce labor and  energy costs and has also raised prices and relocated business off the  territory.

American Samoa’s tuna canning industry also faces other challenges, as  described below.

Competitors’ canning production strategies. According to StarKist Co.  officials, StarKist Co.’s main competitors implement a supply chain  production process that spans more than one country. Conversely,  StarKist Samoa’s full production process still occurs in American  Samoa (see fig. 13). According to StarKist Samoa officials, the cost  savings between a fully U.S.-based manufacturing process and an  outsourced manufacturing process is substantial and places American  Samoa at a distinct disadvantage. According to StarKist Samoa  officials, StarKist Co.’s main competitors use a model that outsources  the workforce-intensive process to extremely low-wage countries.  They explained that StarKist Co.’s competitors clean, cook, and  freeze the tuna before importing it—subject to an average tariff of $11  per metric ton—into the mainland United States, where it is then  thawed and packaged. Furthermore, our analysis of the global tuna  industry suggests that, under certain assumptions, this model can  improve cost savings and competitiveness. See appendix VI for the  results of our analysis of the global tuna industry and more details  about the assumptions we used. Tuna canning industry officials also  stated that a new production process combined with lower labor costs  for packaging tuna in foreign countries decreases American Samoa’s  competitiveness as a location of operation.

Lower wages for cannery workers in other countries, relative to those  in American Samoa. According to a tuna canning industry official, tuna  canneries have moved operations from American Samoa to Thailand,  Peru, and the Solomon Islands, in part because of the lower labor  costs. According to an industry official, one prominent tuna exporting  country offers wages as low as $10 dollars per day, whereas a full- time worker in 2020 at the cannery in American Samoa would earn  over $44 per day.

Upcoming minimum wage increases in American Samoa. Upcoming  minimum wage increases in American Samoa will increase labor  costs for the tuna canning industry. According to data provided by  StarKist Samoa, most cannery workers in American Samoa would be  impacted by a minimum wage increase. Specifically, over 90 percent  of StarKist Samoa’s employment (roughly 2,200 workers) could be  affected by the next minimum wage increase scheduled for  September 30, 2021. At 2018 levels of employment, labor costs could  increase by about $2 million at 2021 minimum wage levels.

Decreased direct access to tuna supply. A number of factors have  decreased direct access to tuna supply.

The Pacific Remote Islands Marine National Monument  regulations have had the biggest impact on tuna supply to the  cannery, according to StarKist Co. officials. Also according to  Starkist Co. officials, marine monuments in the region have closed  fishing grounds to U.S. purse seine vessels that historically  delivered tuna to local canneries in American Samoa, and the  Rose Atoll Marine National Monument reduced fishing grounds in  U.S. waters around American Samoa that were very important to  the American Samoa longline fleet.

In 2017, National Marine Fisheries Service removed a regulatory  exemption that had allowed certain large U.S. longline vessels to  fish in portions of the American Samoa Large Vessel Prohibited  Area.

Delivery volume from a Chinese tuna supplier that used to send  fishing boats to supply canneries in American Samoa directly has  decreased significantly as a result of China paying subsidies to  Chinese fishing vessels in the Pacific, according to StarKist Co.  officials. The subsidy draws potential tuna suppliers from the  American Samoa market to the Chinese market, the officials  stated.

American Samoa Offers the Tuna Canning Industry Advantages Relative to the U.S. Mainland and Other Countries

American Samoa offers the tuna canning industry certain competitive  advantages relative to the U.S. mainland and other countries, as follows.

Lower wages for cannery workers in American Samoa relative to  those on the U.S. mainland. American Samoa offers lower labor costs  relative to the U.S. mainland. For example, while the 2020 minimum  wage for fish canning and processing in American Samoa is $5.56 per  hour, Georgia’s wage for manufacturing is $15 per hour.

Tariff-free access to the U.S. canned tuna market. According to  StarKist Co. officials, U.S. trade policies provide tariff-free access to  the U.S. market for processed tuna from American Samoa, while  foreign suppliers generally are subject to tariffs for these goods. On  average, foreign suppliers’ canned or pouched tuna is subject to an  average tariff rate of 12 percent. However, U.S. trade agreements  with certain countries may provide those countries tariff-free or  reduced-tariff access to the United States.

Tax credits provided by the federal and local government. The  American Samoa tuna canning industry receives both federal and  local tax benefits. U.S. tax policies have reduced federal taxes on  income earned by qualifying U.S. corporations investing in American  Samoa. Under the Internal Revenue Code, qualifying American  Samoa tuna canneries have received an economic development  credit for U.S. corporate income taxes. StarKist Samoa reported  saving $5.9 million in 2016 through this tax credit. Canneries in  American Samoa have also benefited from exemptions from local  taxes. According to American Samoa government officials, the local  tax exemption has allowed StarKist Samoa to reduce its corporate tax  liability to the American Samoa government to 20–25 percent of the  amount owed. According to American Samoa government officials,  the total corporate and excise tax revenue loss to the American  Samoa government is estimated to be $15–20 million annually.

Federal procurement opportunities related to canned tuna. According  to StarKist Samoa officials, operating in American Samoa offers  access to certain U.S. government contracts that require U.S.-sourced  and -processed fish, and allows them to comply with Buy American  requirements. However, according to the officials, most school  districts that enter into such contracts waive the Buy American  requirements because StarKist Co. is the only tuna company that  qualifies, and as a result, competitive bids reveal that the cost of  domestic product is significantly higher than the cost of non-domestic  product. StarKist Samoa reported that $15.8 million or 4 percent of its  revenue in 2018 was from federal procurement that included contracts  with the U.S. Department of Agriculture and the U.S. military.

The American Samoa Government and Chamber of Commerce View the Minimum Wage Increases as Conflicting with Sustainable Economic Development; Employers and Workers Noted Benefits and Challenges

The American Samoa Government and Chamber of Commerce View Minimum Wage Increases as Conflicting with Sustainable Economic Development

The American Samoa government and Chamber of Commerce both view  the 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 American Samoa government stated that it supports a minimum  wage that its economy can support. 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 American Samoa government predicts that it would take  years for the economy to recover if StarKist Co. should cease operations  in American Samoa, and suggested that the burden of any economic  impact would be on the federal government. The American Samoa  government specified challenges that it believes StarKist Co. currently  faces, including recent federal fines, decreasing supply of tuna, higher  infrastructure costs in American Samoa compared to those of other  countries, and increased regulation costs by the U.S. Coast Guard and  U.S. Environment Protection Agency.

In October 2019, the American Samoa Minimum Wage Task Force,  commissioned by the Governor of American Samoa, provided us with its  findings and recommendations. It reported that American Samoa's  economy is unique and starkly different from the economies of all U.S.  states and territories, and that, aside from the American Samoa  government, the remaining and only pervasive economic driving force in  the territory is StarKist Samoa. It also noted that its main objective is to  express to the U.S. Congress the importance of involving the territory in  the process of determining the applicable minimum wage for American  Samoa. The task force identified various policy options and  recommended that a combination of a moratorium on minimum wage  increases and special industry classification or a special industry  committee would increase and maximize the opportunity for local  stakeholder participation. These have been long-standing positions of the  American Samoa government. In response to a prior report, the American  Samoa government requested we convey its position to the U.S.  Congress to postpone the minimum wage increases. In response to  another prior report, the American Samoa government recommended the  pursuit of a U.S. Department of Labor-constituted committee similar to a  special industry committee.

While the American Samoa Chamber of Commerce noted that its  employers support fair minimum wages for their workers, it stated that it  supports any delay in minimum wage increases for the cannery until  another economic option is feasible. The American Samoa Chamber of  Commerce explained that while data show a shift in employment away  from the cannery, StarKist Samoa still provides significant financial  benefits to American Samoa in the form of decreasing fuel and shipping  costs. The American Samoa Chamber of Commerce predicts that any  increase in minimum wage could force the closure of StarKist Samoa and  drive American Samoa into a recession.

Selected Employers and Workers Noted Benefits and Challenges Presented by Minimum Wage Increases

Public and private sector employers and workers we interviewed  commented on the impact of minimum wage increases, including  potential benefits and challenges.

Potential positive impact on the livelihood of workers. Multiple  employers and workers we met with stated that increasing the  minimum wage would have a positive impact on the livelihood of  workers. For example, a worker said that minimum wage increases  have helped offset the increasing prices of imported products and  excise tax products. Another worker stated that minimum wage  increases help people to meet their community and church financial  obligations. Some employers and workers noted that minimum wage  increases improve customers’ ability to pay bills and their likelihood of  using necessary services.

Potential negative impact on the remaining cannery. Multiple workers  and employers we met with generally stated that minimum wage  increases could lead to a potential negative impact on StarKist  Samoa. Multiple workers stated that such impact could result in a loss  of jobs and increases in shipping costs, among other things. Some  public employers were concerned that minimum wage increases could  lead to the closure of the remaining cannery, and one of them stated  that the potential closure was the main factor in the minimum wage  increase discussion. One public worker stated that StarKist Samoa  closing the remaining cannery is a major concern because the  company is the main source of tax revenue. Another public worker  added that having already seen a cannery close after minimum wage  increases has raised concerns that it might happen again with  StarKist Samoa. In addition, a private employer stated that after the  Samoa Tuna Processors cannery closed in 2016, the employer’s retail  sales decreased sharply and the economy now relies on the  remaining cannery, StarKist Samoa.

Increased recruitment and retention of workers. Some employers and  workers we met with noted that a higher minimum wage could lead to  increased recruitment and retention. For example, multiple employers  noted the challenges of recruiting and retaining skilled workers given  the low wages on the island, which often compel such workers to  leave the island for better opportunities. One employer said that it  could not recruit without minimum wage increases. Another employer  stated that even low-paid workers often leave the island to obtain  better pay in higher-paying countries. Some employers and workers  noted that the lack of staff, especially nurses and teachers, has led to  challenges, such as a negative impact on healthcare and education  on the island. One of these employers stated that the minimum wage  is too low and there is a lack of good teachers on the island. This  employer was upset that the local school did not have a math teacher,  noting that teachers leave or simply do not come to work because the  pay is too low. One of these workers stated that nurses have moved  off-island because their pay is too low and because overwork has  contributed to potential health hazards.

Keeping American Samoan youth on the island. Multiple employers  and workers we met with were concerned that the current minimum  wage was insufficient to keep younger American Samoans on the  island, especially those who are college-educated. For example, an  employer stated that there is a lack of young talent because there are  no jobs on the island and pay is low. Another employer stated that  some American Samoans earn degrees abroad and come back to  American Samoa, but find that they cannot advance their careers on  the island and leave again after 1-2 years. Some workers we met with  spoke as parents about their children leaving the island, and became  emotional upon sharing that they did not anticipate their children  returning.

Wage stagnation versus wage compression. While some workers we  met with said they believed that a lack of an increase would lead to  wage stagnation, other workers, as well as employers, we met with  said they believed that an increase would lead to wage  compression. Some workers noted not receiving pay increases  despite working for an employer for many years and obtaining  certifications. For example, a worker stated that if it were not for  minimum wage increases, the worker would not receive any pay  raises. However, another worker was upset that colleagues who had  just started working were receiving more money than those who had  been with the employer for many years.

Funding for minimum wage increases. Multiple employers and  workers said they were concerned about how future minimum wage  increases could be funded. For example, a public employer noted that  it did not oppose the minimum wage increases because the current  minimum wage was barely enough to survive on, but was concerned  about where the funding and revenue to sustain the increases would  come from. Another employer stated that identifying additional funds  for minimum wage increases is a major challenge. This employer  noted that the company had not yet laid off workers to fund minimum  wage increases, but might have to consider it.

Public and private sector employers and workers we interviewed also  commented on the following topics related to minimum wage increases:

Proposed alternatives. Multiple employers and workers suggested  alternative ways of increasing minimum wages in American Samoa.  For example, an employer stated that minimum wages should be set  based on the actual conditions of American Samoa rather than on  what it believed to be an arbitrary federal schedule, and a worker  stated that the U.S. Department of Labor reviewing the minimum  wage and making changes is preferred to scheduled changes.

Minimum wage levels. In addition, while cannery workers we met with  generally agreed that the current minimum wage was sufficient, other  workers, as well as some employers, stated that the current minimum  wage and the scheduled minimum wage increases were insufficient.  While cannery workers generally noted that they were happy to have  previous minimum wage increases, they were fearful that future  increases could lead to a loss of hours or complete job loss should the  cannery close. However, other workers disagreed. For example, one  worker explained that minimum wage increases did not keep pace  with the cost of living. Another worker stated that 40 cents every 3  years is only about 13 cents per year, which the worker considered  insufficient. Some employers and workers became emotional when  speaking about their own financial situations or those of their workers,  relatives, or fellow American Samoans.

Varying degrees of impact on the livelihood of workers. While public  employers generally stated that the impact of the minimum wage  increases on their workers was minimal, private employers noted  varying degrees of impact on their workers. Some public employers  stated that the majority of American Samoa government workers are  paid above the minimum wage, and noted that the minimal impact  was a result of the local government raising the minimum wage to $5  ahead of the 2018 minimum wage increase to $5.21.

Potential positive impact on the economy if the remaining cannery  closes. Some private employers stated that there could be a positive  impact on the economy if the remaining cannery closes. For example,  a private employer stated that the American Samoa economy is so  used to having the cannery as its pillar that it has not truly tried to  diversify the economy. This employer added that American Samoa  needed to continue shifting away from the cannery and toward the  rest of the private sector. Another private employer stated that the  American Samoa economy is better off without the remaining cannery  and that an economist’s analysis of the cannery’s true impact on the  rest of the economy is needed.

Cost of living. Multiple workers, as well as some employers, were  concerned that minimum wage increases could lead to increases in  the cost of living, with some noting that the cost of living in American  Samoa is already high because living on a remote island requires a  high amount of imported goods. While a public employer stated that  business owners pass the cost of minimum wage increases to  customers, a private employer stated that business owners are unable  to do so because of competition. Another employer noted concerns  about inflation, stating that minimum wage increases might drive up  prices and rent.

Cultural considerations. Multiple employers and workers cited the  importance of considering American Samoa’s unique culture when  setting minimum wage increases. While some workers and an  employer noted that the cost of living in American Samoa is unique in  that communal land and living off the land through fishing and  gardening could minimize housing and food costs, others noted that  community and church financial obligations are significant costs. One  employer stated that these costs could amount to up to a quarter of  worker’s paycheck. A worker stated that nonresidents, like many of  the cannery workers, pay much higher medical costs; and an  employer stated that foreign workers pay much higher housing costs.

Other economic challenges. Multiple public and private employers and workers cited an array of economic challenges other than minimum wage increases, including the high cost of living on the island and increased taxes and fees. For example, one employer stated that American Samoa government taxes and fee increases are more of a challenge than minimum wage increases.

Agency Comments, Third Party Views, and Our Evaluation

We provided a draft of this report to the U.S. Departments of Commerce,  the Interior, and Labor, and the American Samoa government for  comment. The Department of Commerce provided technical comments,  which we incorporated as appropriate. The Department of Labor informed  us that it had no comments.

In its comments, reproduced in appendix VII, the Department of the  Interior said it would be beneficial to the American Samoa government if  we provided information on all potential alternatives to setting minimum  wages, including the once-utilized special industry committees. Such a  study was beyond the scope of this report, which focused on (1)  economic trends including changes in employment and earnings since  the minimum wage increases in American Samoa began in 2007, (2) the  status of the tuna canning industry, and (3) stakeholder views on the  minimum wage increases.

In its comments, reproduced in appendix VIII, the American Samoa  government noted that the draft report did not reference findings and  recommendations of the American Samoa Minimum Wage Task Force,  commissioned by the Governor of American Samoa.  The task force  recommended the establishment of a special industry committee and a  moratorium on minimum wage increases to allow ample time for such a  special industry committee to form. We have added information on these  findings and recommendations.

We are sending copies of this report to the appropriate congressional  committees, the U.S. Secretaries of Commerce, the Interior, and Labor,  and the Governor of American Samoa. In addition, the report is available  at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  David Gootnick at (202) 512-3149, or gootnickd@gao.gov; or Oliver  Richard at (202) 512-8424, or richardo@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to  this report are listed in appendix IX.

Appendix I: Objectives, Scope, and Methodology

This report updates our previous reports on the impact of minimum wage  increases in American Samoa and examines (1) economic trends  including changes in employment and earnings since the minimum wage  increases in American Samoa began in 2007, (2) the status of the tuna  canning industry, and (3) stakeholder views on the minimum wage  increases.

To examine economic trends including changes in employment and  earnings, we analyzed gross domestic product data from the U.S. Bureau  of Economic Analysis; tax and administrative data from the American  Samoa government; and employment, earnings, and wage data gathered  through an employer questionnaire that we submitted to American  Samoa’s tuna canning industry. To examine the status of the tuna  canning industry, we estimated changes in employment and earnings  using the employer questionnaire, analyzed tuna trade data from the U.S.  Census Bureau, and interviewed tuna cannery industry representatives  and stakeholders. To examine stakeholder views on the minimum wage  increases, we conducted interviews with officials from the American  Samoa government and American Samoa Chamber of Commerce, and  employers and workers from the public and private sectors.

The federal sources generally used to generate data on employment and  earnings in the United States, including the Current Population Survey  and the Current Employment Statistics program, do not cover American  Samoa. Therefore, we collected our own data on employment and  earnings in American Samoa.

Consistent with our prior reports, we reported on employment and  earnings from 2007 to the most recent year available. Employment and  earnings figures are based on our analysis of combined worker data from  various sources. We used employer-level data that we obtained from the  American Samoa Department of Commerce and Department of Treasury  to measure the annual employment of the American Samoa government  and its component units: (1) American Samoa Community College, (2)  LBJ Tropical Medical Center Authority, (3) American Samoa Power  Authority, and (4) American Samoa Telecommunications Authority. We  used tuna canning industry employers’ responses to our employer  questionnaire to estimate cannery employment and earnings. We used  individual-level tax records that we received from the American Samoa  Department of Treasury to measure annual employment and earnings in  American Samoa’s private sector excluding the canneries. To adjust  earnings for inflation, we relied on the Consumer Price Index (CPI) as  provided by the American Samoa government.

To estimate employment and earnings for non-cannery workers in the  private sector, we relied on individual-level tax data that we obtained from  the American Samoa Departments of Commerce and Treasury. We  restricted the sample to tax records received for tax years 2005 through  2018. We excluded tax records that contained invalid values in the  variables that uniquely identify employers and workers. We also excluded  records that contained non-numeric values in Social Security  withholdings. Together, these records accounted for less than 2 percent  of all tax records in the sample between 2005 and 2018, and accounted  for less than 1 percent of total gross wages during this period. In addition,  we excluded a small number of tax records—26 out of over 130,000 total  records during this period—that reported zero annual earnings under  gross wages, Social Security, and Medicare wages. In addition, in less  than 100 cases, we adjusted the reported gross wages of workers if the  worker had reported Medicare or Social Security wages but had reported  gross wages that were very extreme in value (for example, zero or over  $300,000), under the assumption that these were data errors. We  estimated annual employment by summing the number of workers  reported by each employer, for employers for which there was at least  one tax record reporting positive wages for a given year. Under this  approach, it is important to note that if a worker had multiple employers,  the worker was counted more than once.

Because of data limitations, we did not include data for tax year 2015 in  our analysis of employment and earnings in American Samoa. We  excluded this year because, according to the American Samoa  government, individual-level tax records for that year are incomplete.  Consistent with this observation, we found that the data contained lower  counts of employers and workers in the private sector excluding the  canneries in tax year 2015 than in any other tax year between 2005 and  2018. With the exception of tax year 2015 data, we found the data on  employment and earnings sufficiently reliable for the purposes of our  reporting objectives. For more details on our methodology for estimating  employment and earnings in comparison to our methodology used in  previous reports, see appendix IV.

To examine the status of the territory’s key private sector industry—tuna  canning—we estimated changes in employment and earnings by  submitting an employer questionnaire to American Samoa’s tuna canning  industry. In accordance with other federal employment surveys and with  our employer questionnaires for our 2010, 2011, 2014, and 2016 reports  on the impact of minimum wage increases in American Samoa, our  employer questionnaire requested employment and wage data for mid- June pay periods in 2016, 2017, and 2018 from American Samoa’s tuna  canning industry—in this case, the territory’s one remaining cannery,  StarKist Samoa. In our 2016 report, we asked for employment in the mid- January 2016 pay period. We used the 2016, 2017, and 2018 data to  update and extend the time series of employment and earnings data  received from our prior employer questionnaires provided to American  Samoa’s tuna canning industry. We found the data collected through the  employer questionnaire for prior reports and this report sufficiently reliable  for the purposes of our reporting on changes in American Samoa  employment and earnings from 2007 to 2018.

Data based on employers’ questionnaire responses include the reported  numbers of hourly workers as well as their annual earnings at the  canneries as of June in the given year. The questionnaire asked  separately for data regarding workers paid an hourly wage and workers  paid an annual salary. For hourly wage workers, respondents were asked  to provide the number of workers paid at each wage rate. For salaried  workers, respondents were asked the number of full-time and part-time  workers paid at each salary level. In compiling the questionnaire-based  earnings data for a given year, we assumed that all hourly cannery  workers earned the minimum wage for that year and worked all year.  When the minimum wage changed midyear, we assumed that the original  wage applied for the first half of the year and the revised wage for the  second half of the year. To adjust earnings for inflation, we relied on the  American Samoa CPI.

Using employer questionnaire data, we determined the number of  workers that would be affected by future minimum wage increases  because their wages were at or below future scheduled minimum wage  increases. We estimated the cost of future scheduled minimum wage  increases by calculating the cost to the cannery of increasing each  worker’s wages to scheduled levels. This estimate assumed that workers  worked full-time and all year (i.e., 2,080 hours) and that the minimum- wage increase would not affect the wages of workers currently earning  more than the minimum wage.

In addition, we interviewed cannery representatives and industry experts  to obtain their views on competitive challenges facing the industry,  including changes in minimum wage rates, access to fishing grounds, and  preferential trade status. To illustrate other potential tuna production  scenarios, we developed a model where tuna production relocates from  the current status quo in American Samoa to one of two alternative  scenarios of loining or canning tuna, or both, in other locations. Changes  in labor and tariff costs are compared to the status quo scenario in  American Samoa. The model uses assumptions based on the tuna  canning industry employment count from the employer questionnaire  responses and information obtained during interviews with tuna cannery  employers. (See app. VI for the results of our analysis and more details  about the assumptions we used.) This model is an update of the model  we used for our December 2016 report.

To examine stakeholder views on the minimum wage increases, we  conducted interviews with officials from the American Samoa government  and American Samoa Chamber of Commerce, and employers and  workers from the public and private sectors. During our fieldwork trip to  American Samoa in October 2019, we conducted interviews with  government officials, employers, other private sector representatives, and  workers to obtain views and information on the minimum wage increases.  In total, we conducted 15 interviews: five employer interviews (the  American Samoa government and three of its component units, and  StarKist Samoa), two employer group interviews (private employers that  are American Samoa Chamber members and ethnic business  employers), and eight worker group interviews. For the primary American  Samoa government and StarKist Samoa, we conducted two worker group  interviews for each. In the group interviews, we followed a standard  protocol that asked for participants’ views on the impact of the minimum  wage increases.

We interviewed a nongeneralizable sample of employers and workers  selected on the basis of key industry information from prior GAO reports  and employment data from the American Samoa government.  Specifically, we selected the following employers and their workers: (1)  the American Samoa government, (2) StarKist Samoa, (3) American  Samoa Medical Center, (4) American Samoa Community College, and (5)  American Samoa Power Authority. To supplement these employers and  workers, we requested that the American Samoa Chamber of Commerce  identify additional employers and their workers on the basis of criteria  related to the tuna canning, construction, and retail industries, among  other things. The American Samoa Chamber of Commerce arranged a  group of 15 employers and their workers belonging to its membership and  related to the tuna canning, construction, and retail industries, as well as  a group of eight employers related to the territory’s ethnic (including  Filipino, Chinese, Korean) business community. Overall, the number of  participants in each group interview ranged from four to 20, for a total of  over 100 participants. The range in number of participants applies to all of  the interviews, regardless of their composition.

In addition, we reviewed data and interviewed officials from the U.S.  Departments of the Interior, Commerce, and Labor. We also reviewed  U.S. minimum wage laws and other relevant laws and regulations. We did  not review the extent to which laws were properly enforced or  implemented. The scope of our study also does not include workers in the  underground economy, which would include employers that may not  comply with laws, including tax, minimum wage, immigration, and other  laws. We did not review compliance with laws as part of this study.

We conducted this performance audit from June 2019 to May 2020 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Selected Federal Laws Related to Minimum Wages in American Samoa, 1938–2018

Table 2 summarizes key federal laws regarding minimum wages in  American Samoa.

Appendix III: American Samoa Minimum Wage Poster

Figure 14 shows a U.S. Department of Labor poster outlining federal  minimum wage requirements for American Samoa employers subject to  the Fair Labor Standards Act (FLSA). According to the department, all  such employers are required to post this information in conspicuous  places in every establishment where employees subject to the FLSA’s  minimum wage provisions are employed to permit them to readily observe  it.

Appendix IV: Alternative Estimates of American Samoa Employment and Earnings

Table 3 compares American Samoa employment data from 2007 to 2018  obtained on this review, data reported in GAO-17-83, and data from the  American Samoa Statistical Yearbook 2017, an annual report produced  by the American Samoa Department of Commerce. Data obtained on  this review were composed of American Samoa tax records, including  individual-level data, and responses from a questionnaire submitted to  StarKist. Data reported in GAO-17-83 relied on aggregate data and did  not include individual-level tax records. The data in the tables derived  from these different sources are broadly consistent, but there are  differences in certain years. The largest gaps between the alternate  sources are in 2009 and 2012. According to the American Samoa  Department of Commerce, some temporary government workers are not  reflected in the data reported in GAO-17-83.

We also compared American Samoa private sector employment data that  we obtained and analyzed to County Business Patterns private sector  employment data, collected by the U.S. Census Bureau. Private sector  employment data that we analyzed indicated 2,000 to 3,000 more  workers employed than County Business Patterns private sector  employment data, depending on the year. According to the U.S. Census  Bureau, this may largely be because the County Business Patterns data  capture employment during the week of March 12, while the tax data  include employment throughout the year. In addition, given that the  American Samoa manufacturing sector is largely composed of the tuna  canning industry, we also compared cannery data that we obtained on  this review to County Business Patterns manufacturing data, which  County Business Patterns reports in selected years. As table 4 shows,  cannery employment data are in a similar range as County Business  Patterns manufacturing data.

Table 5 compares American Samoa workers’ earnings data from 2007 to  2018 obtained on this review and data reported in GAO-17-83. As shown,  the data are broadly consistent.

We also compared American Samoa workers’ earnings data from 2007 to  2018 obtained on this review to County Business Patterns data. In  general, average earnings estimates in the County Business Patterns  data are somewhat higher than in the American Samoa tax data, as  shown in table 6. However, both series show growth in earnings over the  period of 2008 to 2017 of approximately 20 to 30 percent.

Additional Data Reliability Analysis of Individual-Level Earnings

As an additional test of the reliability of the individual-level tax data, we  examined trends in the distribution of worker-level earnings. A prior GAO  report found that the minimum wage increases narrowed the gap between  lower- and higher-paid workers in American Samoa from 2007 to  2009. We first examined whether the tax data also show that the gap  narrowed during this period and then examined trends through 2018. One  limitation of this analysis was that it was restricted to the private sector  excluding the canneries. Therefore, any patterns that we documented in  this sector may not reflect changes to the American Samoa workforce as  a whole. We began our analysis in 2006 to provide information before the  Fair Minimum Wage Act of 2007. To measure a worker’s annual earnings,  we summed all of the worker’s gross wages from his or her tax records in  a given tax year. According to the tax data, in 2006, workers at the 50th  percentile of annual earnings earned $6,031. This amount is only 8  percent higher than what full-time workers would have earned if they were  continuously employed at the lowest minimum wage that was in effect in  American Samoa in 2006 ($2.68 per hour). In comparison, in the same  year workers at the 90th percentile earned $18,747, or 3.1 times higher  than the 50th percentile. We found that earnings at the 50th percentile  experienced a larger increase than earnings at the 90th percentile from  2006 through 2009, and this ratio fell to 2.7.

Figure 15 depicts trends in the gap between lower- and higher-paid  workers in American Samoa from 2006 through 2018, as measured using  the tax data by the ratio between the 90th and 50th percentiles of  earnings. Overall, from 2006 through 2018, this gap fell by 17 percent,  from 3.1 to 2.6. The decline is attributable to a 48 percent increase in  earnings for workers at the 50th percentile, compared to only a 23  percent increase for workers at the 90th percentile.

Appendix V: Key Selected Events, 2007– 2019

The following events highlight changes in American Samoa’s minimum  wages and the status of the tuna canning industry from 2007 to 2019:

2007. Fair Minimum Wage Act includes a provision to incrementally  increase American Samoa minimum wages to the federal level ($7.25  per hour). Special industry committees that previously set minimum  wages in American Samoa are disbanded. Minimum wages in  American Samoa rise by $0.50 as federally mandated. Minimum wage  for fish canning and processing workers becomes $3.76.

May 2008. Minimum wages in American Samoa rise by $0.50 as  federally mandated. Minimum wage for fish canning and processing  workers becomes $4.26.

May 2009. Minimum wages in American Samoa rise by $0.50 as  federally mandated. Minimum wage for fish canning and processing  workers becomes $4.76.

September 2009. Chicken of the Sea closes its cannery in American  Samoa. The company relocates its canning facilities to the U.S. state  of Georgia while outsourcing labor-intensive processes to countries  with lower labor costs. The Samoa earthquake and tsunami cause  severe damage and leave 34 people dead in American Samoa. The  federal government issues a disaster declaration and assists with  tsunami recovery efforts.

October 2010. Tri Marine International acquires former Chicken of the  Sea facility in American Samoa, located adjacent to the StarKist  Samoa cannery. American Samoa government grants Tri Marine  International exemption from local taxes for 10 years.

December 2012. American Samoa government grants StarKist  Samoa exemption from local taxes for 10 years.

January 2015. Tri Marine International opens $70 million Samoa Tuna  Processors cannery after large capital investments in prior years to  renovate and expand the former Chicken of the Sea cannery.

September 2015. Minimum wages in American Samoa rise by $0.40  as federally mandated. Minimum wage for fish canning and  processing workers becomes $5.16.

December 2016. Tri Marine International indefinitely suspends  operations at its Samoa Tuna Processors cannery in American  Samoa.

September 2017. StarKist Co. agrees to pay a $6.3 million penalty  resulting from violations of federal environmental laws.

October 2017. StarKist Samoa temporarily halts operations for 5  weeks because of fish supply setbacks and equipment upgrades.

February 2018. According to American government estimates,  Tropical Storm Gita causes nearly $200 million in damages to public  and private property. The federal government issues a disaster  declaration and assists with disaster recovery efforts.

May 2018. According to a report by the Pacific Islands Forum  Fisheries Agency, StarKist Co. signs 10-year lease agreement with Tri  Marine International to sub-lease its Samoa Tuna Processors facility  for use in StarKist Samoa operations.

September 2018. Minimum wages in American Samoa rise by $0.40  as federally mandated. Minimum wage for fish canning and  processing workers becomes $5.56.

September 2019. StarKist Co. is sentenced to pay a criminal fine of  $100 million for its role in price fixing.

Appendix VI: Comparison of Labor and Tariff Costs for Three Potential Tuna Canning Business Models

Although American Samoa’s tuna canning industry faces multiple  challenges in addition to scheduled minimum wage increases, American  Samoa offers the tuna canning industry certain competitive advantages  relative to the U.S. mainland and other countries. To illustrate tuna  canning costs for other business models, we compared the labor and  tariff costs associated with three potential business models for the  cannery operations currently used by firms in the global tuna industry.  The following analysis provides cost estimates for the three possible  models, assuming constant total production under each model. Our  analysis considers only labor costs and tariffs to show the effect of  variation across different models. Our analysis excludes other  associated costs, including transportation and refrigeration, as well as  costs associated with establishing multiple production locations.  Therefore, we assume that shipping costs and other conversion costs,  such as for electricity usage, are identical. We also assume that fixed  costs for starting operations in a new location (i.e., search costs) are  equal to zero. We assume the alternative country is Thailand, on the  basis of prior related reports and interviews with relevant officials and  stakeholders. All of the tariff and tax assumptions used in our analysis are  based on input from tuna canning industry officials.

Model A (maintaining all loining and canning in American Samoa):  This is the current production process for the remaining cannery  operating in American Samoa. Tuna processing currently performed  in American Samoa remains entirely in American Samoa. The  cannery located in American Samoa hires local and foreign workers to  loin—clean, cook, and cut—and can the fish. With an estimated  workforce of 2,000 employees in American Samoa, the associated  labor cost was an estimated $23 million in 2019. The canned tuna  from American Samoa is exported directly to the United States and,  according to cannery officials who utilize this model, such canned  tuna is eligible for tariff-free access to the U.S. market. The cannery,  which is a qualified domestic corporation, according to cannery  officials, receives an estimated $5 million as a federal tax credit.

Model B (relocating loining to Thailand or another country with low  labor costs and canning processed loins in the U.S. states): This is  the current production process for a firm operating a cannery outside  of American Samoa. The loining operation—the most labor-intensive  part of the operation—would move to a country with low labor costs,  such as Thailand, where the fish would be loined, sealed in pouches,  and frozen. The loined, frozen fish would then be exported to the U.S.  mainland, where it would be canned. With an estimated workforce of  1,700 employees in a country with low labor costs making $1.25 per  hour, the associated labor cost would be $4.4 million; and with an  estimated workforce of 300 employees in the U.S. mainland at $15  per hour, the associated labor cost would be $9.4 million. Therefore,  the total associated labor cost in 2019 for this model would be $14  million. No workers would remain in American Samoa, and 300  workers would be employed on the U.S. mainland. The imported fish  would carry an average tariff of $11 per metric ton. This model  assumes that the firm operating outside of American Samoa would  not qualify for the American Samoa economic development credit.

Model C (relocating all loining and canning to Thailand or another  country with low labor costs):  This is an alternative production  process for operating canneries outside of American Samoa. Tuna  processing currently performed in American Samoa would relocate to  a foreign country with low labor costs. All operations, including loining  and canning the fish, would take place in this foreign country. With an  estimated workforce of 2,000 employees in a country with low labor  costs making $1.25 per hour, the associated labor cost in 2019 would  be $5 million. No workers would remain in American Samoa and no  workers would be employed in the U.S. mainland. The imported fish  would carry an average tariff of 12 percent of export revenue. This  model assumes that a firm operating outside of American Samoa  would not qualify for the American Samoa economic development  credit.

Figure 16 shows that, considering labor and tariff costs along with tax  credits, Model A has higher costs than Model B. Model B presents cost  savings; however, importing processed loins to the United States would  incur tariffs, and wages for canning in any of the 50 U.S. states would be  higher than in competing tuna processing countries. Model C presents the  highest combined labor and tariff costs and would result in an estimated  2,000 fewer jobs in American Samoa.

Table 7 below shows how revenue and labor and trade costs are  computed for each model.

Appendix VII: Comments from the Department of Interior

The following are GAO’s comments to the Department of Interior’s letter.

With respect to paragraph 4 of the U.S. Department of the Interior’s letter  above, the suggested further study was beyond the scope of this report,  which focused on (1) economic trends including changes in employment  and earnings since the minimum wage increases in American Samoa  began in 2007, (2) the status of the tuna canning industry, and (3)  stakeholder views on the minimum wage increases.

Appendix VIII: Comments from the American Samoa Government

Appendix IX: GAO Contact and Staff Acknowledgments

In addition to the contacts named above, Emil Friberg (Assistant  Director), Benjamin Bolitzer (Assistant Director), Justine Lazaro (Analyst  in Charge), Samuel Huang, James Boohaker, Carl Nadler, Debbie  Chung, Christopher Keblitis, Sara Daleski, Martin De Alteriis, and Alex  Welsh made key contributions to this report.

American Samoa: Alternatives for Raising Minimum Wages to Keep Pace  with the Cost of Living and Reach the Federal Level. GAO-17-83.  Washington, D.C.: December 2, 2016.

American Samoa and the Commonwealth of the Northern Mariana  Islands: Economic Indicators Since Minimum Wage Increases Began.  GAO-14-381. Washington, D.C.: March 31, 2014.

American Samoa and Commonwealth of the Northern Mariana Islands:  Employment, Earnings, and Status of Key Industries Since Minimum  Wage Increases Began. GAO-11-956T. Washington, D.C.: September  23, 2011.

American Samoa and Commonwealth of the Northern Mariana Islands:  Employment, Earnings, and Status of Key Industries Since Minimum  Wage Increases Began. GAO-11-427. Washington, D.C.: June 23, 2011.

American Samoa and Commonwealth of the Northern Mariana Islands:  Wages, Employment, Employer Actions, Earnings, and Worker Views  Since Minimum Wage Increases Began. GAO-10-333. Washington, D.C.:  April 8, 2010.

The statutory federal minimum wage has not applied in American Samoa for many years. In 2007, Congress approved increasing the territory's minimum wages, but later delayed or reduced the increases. Minimum wages are now scheduled to rise to the current federal level by 2036.

American Samoa’s economy depends on the tuna canning industry—but its only cannery is in financial trouble.

We interviewed stakeholders about a minimum wage increase. Territory officials favor a wage the economy can support. The Chamber of Commerce favors a delay. Employers and workers note benefits and challenges.