Vice Speaker Calls For Increase To Guam’s Minimum Wage

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Purchasing power of current minimum is half of that 30 years ago

By Mar-Vic Cagurangan

HAGÅTÑA, Guam (Marianas Variety Guam, April 11, 2014) – Taking a cue from President Obama's pitch for a minimum wage hike, Vice Speaker Benjamin Cruz said yesterday he will introduce a bill to raise Guam's hourly minimum rate from $7.25 to $10.10 with a staggered rollout over three years.

"Like its federal counterpart, my $10.10 proposal will take a phased-in approach, incrementally raising the minimum wage by 0.95 cents a year ending in 2017. Doing so will allow our business community to adjust," Cruz told the Guam Women’s Chamber of Commerce's wage and compensation forum at the Pacific Star Resort & Spa.

"Though the first increment of our plan would not be enough to immediately regain the purchasing power lost by the minimum wage when compared to 2007, I know that progress requires partnerships, and we must work together," Cruz said.

But Guam economists endorse higher wage rates given the fact that the cost of living on Guam is much higher than that of the continental United States.

Maria Claret Ruane, economics professor at the University of Guam, noted a 20 percent cost differential on Guam compared to the U.S. mainland. Based on her calculations, the hourly wage rate required to meet the poverty threshold on Guam should be pegged at between $12.12 and $15.81.

"Whichever hourly wage rate prevails, it should be equal for employees with the same productivity and qualifications, regardless of their gender and regardless of whether they work in the public or the private sector," Ruane said.

Value matters more

Joseph Bradley, senior vice president and chief economist at the Bank of Guam, said the actual value of the dollar weighs more than the nominal wage amount.

"Wage rates don't matter; it is what you can buy with those wages that is important," Bradley said.

He noted that Guam's minimum wage, adjusted for inflation, has not fared very well over the years.

"It has less than half the purchasing power that it had 30 years ago," Bradley said. "A $10.10 minimum wage would get us back to where we were in the middle of 1992."

In February, Obama signed an executive order to implement the $10.10 hourly wage increase for federal contract workers, starting on Jan. 1, 2015. It applies to new contracts and replacements for expiring contracts.

Obama, who has also pressed Congress to enact legislation to raise the minimum wage for all workers nationwide, urged business leaders and government officials to do more to increase workers' incomes.

During his State of the Island address in February, Gov. Eddie Calvo stopped short of calling for a mandated minimum wage increase, but encouraged employers to pay their employees more, saying that investing in employees presents a successful formula that produces happy employees and results in greater productivity and better business.

Ruane said economic theory always links the wage rate to employee productivity and contribution to production.

"Wages must be rewarding enough for any prospective employee to get up from their beds, couches, leave the comfort of their homes, usually drive to work and do their work," Ruane said. "If it is more attractive to stay home than work, very simple economics will predict exactly that. From an employee's perspectives, going to work is costly but the benefit is the wages and compensation he/she earns from working."

Ruane, however, acknowledged raising the minimum wage is not an easy proposition as it entails additional cost for the employers.

"It is a two-edged sword and the goal is to find that delicate balance," she said. "Increasing wages increases the cost to employers and businesses but it also increases the purchasing power in the economy."

Cruz said Guam’s experience indicates raising the minimum wage "does not kill jobs or cut hours."

He said a phase-in approach can mitigate the impact on employers.

"By responsibly raising the minimum wage over time, and protecting public assistance programs and existing tax subsidies for our most vulnerable neighbors; we give thousands of people the chance to move, at least a few steps, past poverty," Cruz said.

Inflation

The Bureau of Statistics and Plans' first quarter report showed Guam's consumer price index of 116.4 shows a 0.5 percent increase over the fourth quarter of 2013.

The purchasing power of the dollar is 58 cents when compared to base year 1996.

Cruz said the spiraling prices of commodities make a wage increase imperative.

"When indexed against the cost of housing, food, medical care, and electricity; today's minimum wage would have to be $8.41 an hour just to have the same purchasing power as it did in 2007— the time at which the first of three minimum wage increases went into effect," he said.

"To put it in terms we might all understand, in 2007, a 50-pound bag of Jasmine rice was $14.95. That same store now prices that bag at $29.99. A can of Spam at this store was $1.89 in 2007 but that can is now $3.19."

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