Minimum Wage, Part 6
The "Samoan tuna" exemption
16 Jan 2007 in Regulatory Economics, Regulatory Policy, Legislation
In an editorial today, the Wall Street Journal says the minimum wage bill passed by the House of Representatives exempts certain of Speaker Nancy Pelosi's constituents in the tuna business. The editorial is not presentationally objective.
The Journal editorial ("Pelosi's Tuna Surprise," subscription required) says H.R. 2 includes a "loophole" exempting American Samoa from the rise in the minimum wage. The Journal editorial board suggests that this "loophole" was motivated by Speaker Pelosi's desire to protect certain of her constituents:
It turns out that American Samoa has a big fish and tuna canning industry, specifically operations run by StarKist and Chicken of the Sea. Both companies are headquartered in California, and StarKist's parent is located in none other than Ms. Pelosi's own San Francisco district.
Similar statements can be found in news stories by Charles Hurt of the Washington Times, Miles Lathem of the New York Post, and Jonathan Weisman of the Washington Post. According to Lathem, for example:
Republicans charged [Pelosi] slipped a loophole into the Democrats' just-passed minimum-wage bill to benefit a company in her San Francisco district." He says "[t]he legislation hiking the minimum wage to $7.25 an hour covered the entire United States and all its territories - except for one: American Samoa.
WHAT IS A "LOOPHOLE"?
No uniform definition exists, but the term is almost always use pejoratively. We propose the following (relatively) objective definitions:
- A loophole of commission arises when there is text that creates a benefit for some entity or group.
- A loophole of omission arises when the unexpected absence of text has the practical effect of creating such a benefit.
DOES H.R. 2 CONTAIN A "LOOPHOLE" FOR AMERICAN SAMOA?
No. Neither type of loophole is present in H.R. 2.
- The bill contains no loophole of commission because it has no text directly or indirectly related to American Samoa.
- The bill contains no loophole of omission because its silence concerning American Samoa is consistent with both existing law and previous minimum wage bills.
American Samoa, Puerto Rico, and the U.S. Virgin Islands are exempt from the the federal minimum wage under current law. The minimum wage for American Samoa is set administratively by the Department of Labor in consultation with a "special industry committee."
Several minimum wage bills were proposed in the 109th Congress. None of them included language that would have changed the exemptions for Puerto Rico, the U.S. Virgin Islands, and American Samoa. This includes S. 846 (Durbin et al), S. 1062 (Kennedy et al), S. 2725 (Clinton et al.), H.R. 2429 (George Miller et al.), H.R. 3413 (Boehlert), H.R. 5550 (George Miller) (sec 8), H.R. 5787 (Boehlert et al.), and H.R. 5731 (Al Green et al.).
The Post's Weisman and Times' Hurt both quote Pelosi as now wanting the bill changed:
"I have asked the Education and Labor Committee, as they go forward with the legislation, to make sure that all of the territories have to comply with U.S. law on the minimum wage."
H.R. 2 was passed by the House 315-116, There are only two ways for the House to fulfill Pelosi's directive. The first is to propose and vote on a new bill. The second is to amend H.R. 2 in conference with the Senate after the upper house has passed its own legislation. To date, no minimum wage bill has been introduced in the Senate. Whichever approach is taken, the thing to look for is a simple repeal of 26 U.S.C. 206(a).
WHY AMERICAN SAMOA?
A plausible explanation for this political controversy is that H.R. 2 includes special provisions that apply to the Commonwealth of the Northern Mariana Islands (CNMI). The CNMI is exempt from federal minimum wage laws, and it operates a two-tier labor market -- one for native-born citizens and another for Asian residents. CNMI also figured prominently in the Jack Abramoff scandal. Because of this history, the inclusion of specific provisions that force the CNMI to adhere to U.S. labor laws may have a retaliatory partisan origin. For example, left-partisan blogger dday acknowledges that Democrats have sought to eliminate the CNMI's exemption and says "it could fairly be seen as punishment."
But the language addressing the CNMI in H.R. 2 is not new. Several of the minimum wage bills introduced in the 109th Congress included the same or similar language, including S. 1062, H.R. 2429, H.R. 3413, and H.R. 5787. H.R. 5550 addressed a wide range of CNMI issues including its minimum wage.
It's not clear how many Americans could distinguish the CNMI from American Samoa or even locate these territories on a map. In surveys Americans have demonstrated limited geographic knowledge. But it seems plausible that the effort to apply the federal minimum wage to the CNMI was interpreted as a partisan act and that the allegation made against Speaker Pelosi is partisan retaliation.
Neutral Source shies away from politics. But we've posted several times on the economics of the minimum wage, including a specific post on the CNMI provision. We said:
the application of the proposed higher federal minimum wage to the CNMI can be expected to have significant and measurable disemployment effects. Indeed, by applying the new federal minimum wage to the CNMI, Congress would be conducting a real-world experiment in labor economics. We expect that many labor economists are waiting in the wings to conduct the study that estimates its effects.
If Congress follows through on Pelosi's stated request and extends the federal minimum wage to all U.S. Commonwealth territories, it will make for an even richer real-world experiment requiring even more labor economists to fully analyze.
H.R. 5731 was a very different type of minimum wage bill. It would have mandated a
minimum hourly wage sufficient for a person working for such wage 40 hours per week, 52 weeks per year, to earn an annual income in an amount that is 12 percent higher than the Federal poverty threshold for a two person household, with one person a child under age 18, and living in the 48 contiguous States, as published for each such year by the Census Bureau.
For 2004, this would have been an hourly wage of $8.19 per hour:
- 2004 poverty threshold, 2-person household plus 1 dependent under 18 = $15,205.
- Divide by (40 hours/week) x (52 weeks/year) = $7.31 per hour.
- Multiply by 1.12 = $8.19 per hour
PREVIOUS NEUTRAL SOURCE POSTS ON THE MINIMUM WAGE
Minimum Wage
Introducing a new series
Minimum Wage, Part 2
How many workers earn the minimum wage?
Minimum Wage, Part 3
$5.15 to $7.25 per hour, in stages
Minimum Wage, Part 4
H.R. 2
Minimum Wage, Part 5
New CBO report is unhelpful and misleading
...
(2) if such employee is a home worker in Puerto Rico or the Virgin Islands, not less than the minimum piece rate prescribed by regulation or order; or, if no such minimum piece rate is in effect, any piece rate adopted by such employer which shall yield, to the proportion or class of employees prescribed by regulation or order, not less than the applicable minimum hourly wage rate. Such minimum piece rates or employer piece rates shall be commensurate with, and shall be paid in lieu of, the minimum hourly wage rate applicable under the provisions of this section. The Administrator, or his authorized representative, shall have power to make such regulations or orders as are necessary or appropriate to carry out any of the provisions of this paragraph, including the power without limiting the generality of the foregoing, to define any operation or occupation which is performed by such home work employees in Puerto Rico or the Virgin Islands; to establish minimum piece rates for any operation or occupation so defined; to prescribe the method and procedure for ascertaining and promulgating minimum piece rates; to prescribe standards for employer piece rates, including the proportion or class of employees who shall receive not less than the minimum hourly wage rate; to define the term “home worker”; and to prescribe the conditions under which employers, agents, contractors, and subcontractors shall cause goods to be produced by home workers;
(3) if such employee is employed in American Samoa, in lieu of the rate or rates provided by this subsection or subsection (b) of this section, not less than the applicable rate established by the Secretary of Labor in accordance with recommendations of a special industry committee or committees which he shall appoint pursuant to sections 205 and 208 of this title. The minimum wage rate thus established shall not exceed the rate prescribed in paragraph (1) of this subsection;
