Debunking the minimum wage boogeyman

April 5, 2017

 

   None of the scenarios painted by those opposing the minimum wage increase transpired when wage earners received additional $1 per hour in 2015. Guam’s economy didn’t turn into howling wasteland of masses desperately looking for a job when the hourly wage was raised from $7.25 to $8.25.

 

    “Leading indicators of Guam’s employment, inflation and other (data) confirm that minimum wage has not negatively impacted Guam’s economic program. Employment rates show continued job and wage growth,” states a wage study report prepared by the Market Research Development for the Guam Department of Labor.

 

    Workforce increased by 2.2 percent; private sector jobs went up by 2.6, and government jobs, 1.2 percent. Inflation went down. Gross domestic product went up to $5.7 billion.

 

    The study released in February was a prerequisite to a new round of hourly wage increase — from $8.25 to $9.20 this year and then to $10.10 in 2018 — which, however, was aborted by Gov. Eddie Calvo’s veto of the bill.

 

    Those opposed to wage hike have reiterated their economic apocalypse warning, but based on the Guam business survey, few businesses reported reduction in the number of worker hours, or benefits in the year following the wage increase. “Many business interviewed indicated they had absorbed higher minimum wages with no major disruptions to their business activities, nor to the employees who work for them. Benefits, number of hours and fulltime employment did not change significantly,” the study said.

 

    Survey among business owners indicate that, for some, the minimum wage became a catalyst for business reforms. “What is interesting is the reported actions by some firms to grow their businesses in new directions and to reevaluate their businesses to gain efficiencies,” the report said. “These findings should be pursued for action as it appears the minimum wage increase may have been an incentive.”

 

    The implementation of the minimum wage increase came at the time when Guam—as shown by macroeconomic indicators— is amid an expansionary phase of its business cycle. Guam’s gross domestic product was pegged at $5.7 billion in 2015— representing a slight increase from $5.6 billion in 2014. The island’s per capita was estimated at $34,545 in 2015 from $31,809 in the prior year.

 

    While Guam may have managed to absorb the minimum wage increase during the growth phase, researcher cautioned that the outcome of a similar wage policy may not be same “under conditions of recessions.”

 

    In his economic update presentation in January 2016, Joseph Bradley, chief economist at the Bank of Guam, attributed the growth to increased number of visitor arrivals, tourist s spending and infrastructure investment by the U.S. government to support the military buildup.

 

   “Guam’s  minimum wage increase in 2015 is likely not a significant factor in GPD growth, but rather characteristic of the island’s economic expansion and legislative policy action to keep wages in line with expected inflation, also characteristic in periods of economic recovery,” the study said.

 

   For average the households, however, the $1 minimum wage allowed them to improve their capability to pay off their bills and put away some money in the bank. Household survey found that while minimum wage households may be better off, they continued their dependence on welfare and other forms of public assistance.

 

   “Where the interests of businesses and households overlap appear to be on issues of developing workers skill,” the study found. “Businesses report wanting greater productivity from workers for whom they are now paying more. Households report a desire to improve their skills to move beyond a minimum wage income as they recognize the quality of life will improve with better opportunities, particularly the opportunity to reduce the number of jobs held to have a batter quality of life with family.”

    The result of the wage study prompted Vice Speaker Benjamin Cruz to reintroduce the wage hike bill vetoed by the governor. “While some people will always oppose minimum wage increases for personal, philosophical, or political reasons — the facts are in,” he said.

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