Guam Economy Can Handle Higher Minimum Wage: Economist

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Growth for 2016 projected at 3 to 4 percent

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, Jan. 4, 2016) – If his forecast for a 3 to 4 percent economic growth for Guam materializes this year, the island may be able to absorb another minimum wage increase, local economist Joseph Bradley said Monday.

What’s not clear yet, Bradley said, is whether that increase would be $1 hourly, similar to the amount minimum wage earners received last year.

On Jan. 1 last year, Guam’s minimum wage increased to $8.25 an hour under local law, which made the local rate higher than the $7.25 set under federal law.

Local legislation initially proposed raising the minimum wage every Jan. 1 — over three years.

However, some members of the business community warned that annual increases would be too much for the economy to bear, and would cause employers to shed jobs.

Job losses didn’t occur, as shown in the latest jobs data Bradley cited. Guam’s private sector gained more than 1,200 jobs in June 2015, compared to one year earlier.

The local economy could grow this year by 3 or 4 percent, Bradley projected, in part because of increased military spending and tourism’s rise.

President Obama recently signed the defense spending law for 2016, which authorizes the military to spend $272 million in projects directly related to the development of a Marine Corps base and $126 million to help improve Guam’s civilian water and wastewater infrastructure.

What’s a big deal for the local economy is Congress’ decision to unfreeze spending limits on $800 million worth of funding from Japan for the military buildup, Bradley said.

Tourism on the rise

On the tourism investments, Bradley said, a new Guam hotel construction project is in near-construction phase, and another investment group made up of South Korean investors are interested in Guam hotel investments.

Guam’s tourism industry, which received more than 1.3 million tourists in 2014, is seeing a surge in South Korean tourist arrivals, which are helping to offset a dip in arrivals from Japan.

Tourism arrivals in 2015 have yet to be released by the Guam Visitors Bureau.

Bradley, chief economist and a senior vice president at the Bank of Guam, said Guam’s private sector gained jobs, particularly in the hospitality industry, after the minimum wage increased.

Bradley points to Guam’s government jobs report, which shows the private sector’s total number of jobs increased by 1,270 in June 2015. In June 2014, Guam’s private sector had 46,340 jobs and the total increased to 47,610 in June 2015, Guam’s latest employment report shows.

Approximately 8,849 Guam workers, all of them in the private sector with the exception of about 630 who were in the government of Guam, were making at or below $8.25 hourly, according to a Labor Department report before the minimum wage increased.

In light of the business community’s concerns, local law required that Guam’s subsequent minimum wage increase be contingent on an economic impact study.

Under local law, the study must be completed by March this year, and submitted to the Guam Legislature and the governor by April, also this year.

Vice Speaker Benjamin Cruz was the chief sponsor of the minimum wage bill, and subsequent legislation introduced by Sen. Aline Yamashita required the economic impact study. Public Law 32-229 gave the Guam Economic Development Authority and the Guam Department of Labor, the task of ensuring the study is completed on time.

"Since Guam’s minimum wage was increased to $8.25 and made effective on January 1, 2015, my ongoing review of the available economic data indicates that unemployment is down, hotel occupancy is up, and overall inflation in 2015 was lower than it was the previous year — facts that completely contradict the runaway economic apocalypse predicted by the legislation’s opponents a year ago," Cruz said.

Cruz said "an independent, unbiased review of the facts will support a staggered and responsible increase of the minimum wage over the next two years, just as I originally proposed."

Repercussions for small business

A small business owner, Joe Roberto, said he hopes the study would include a look at whether the dropout rate for working-age high school students increased when the minimum wage increased.

A minimum wage increase could encourage high school students to drop out of school, so they can help their family by trading education for a higher minimum wage-paying job.

The repercussions to the island community are far greater than simply raising the minimum wage, Roberto said.

Roberto’s Island Tinting auto detailing and window tinting businesses pay workers above the minimum wage, he said.

Minimum wage is a starting point, and a paycheck higher than that should be earned through hard work, by showing good work ethic, Roberto said. There’s an additional employment tax cost that comes with a higher minimum wage that policy makers should also consider, he said.

The Guam Chamber of Commerce opposed the minimum wage increase that went into effect in January last year, while the Guam Women’s Chamber of Commerce advocated for it.

Guam Chamber’s top leadership was unable to comment as of press time.

The Guam Women’s Chamber hasn’t formed a position on any future minimum wage increase proposal, said Jackie Marati, a founding member of the organization’s board.

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