Changes in Application of Federal Minimum Wage and Immigration Laws

			Minimum Wage Changes

In 2007, the minimum wage provisions of the Fair Labor Standards Act of  1938 were applied to the CNMI, requiring the minimum wage in the CNMI  to rise incrementally to the federal level in a series of scheduled  increases. CNMI’s Labor Market Has Begun to Grow While Continuing to Rely on Foreign and Minimum Wage Workers

According to CNMI tax data, overall employment in the CNMI increased  by about 8 percent from 2013 through 2015. On  September 30, 2016, the CNMI’s minimum wage increased from $6.05 to  $6.55 per hour. Demand for  CW-1 workers in the CNMI exceeded the available number of CW-1  permits in 2016, while planned hotels, casinos, and other infrastructure  projects estimate needing thousands of new employees. The existing  CW-1 permits for foreign workers and the local supply of U.S. workers are  insufficient to meet this estimated future demand. Economic Analysis and Recent Data Show That Ending the CW Program Could Have a Large Negative Effect on the Economy

If all CW-1 workers, or 45 percent of the total workers in 2015, were  removed from the CNMI’s labor market, we project a 26 to 62 percent  reduction in the CNMI’s 2015 GDP, depending on the assumptions  made. A key factor in the additional demand for labor in 2016 was the  construction of a new casino in Saipan. When the CW program ends in 2019, available data  show that the unemployed domestic workforce, estimated at 2,386  in 2016, will be well below the number of workers needed to replace  currently employed CW-1 workers in nonconstruction-related  occupations. Other U.S.-eligible workers. Workers could be recruited from U.S.  states, U.S. territories, and the freely associated states (Federated  States of Micronesia, Republic of the Marshall Islands, and Republic  of Palau). At least one employer in all four facilitated employer discussion groups  and six of seven employers in semistructured interviews reported on  efforts to recruit U.S. workers. At present, the CW-1 fees support  job training programs at Northern Marianas College and Northern  Marianas Trades Institute and in recent years also funded job training  provided by CNMI’s Public School System. According to the report, Public  Law 113-235 repealed the U.S. Secretary of Labor’s authority to  extend the transition period beyond 2019. To evaluate changes in the CNMI’s labor market since the federally  mandated minimum wage increases began, we (1) analyzed overall  employment data for all domestic and foreign workers in the CNMI,  (2) estimated inflation adjusted average earnings, (3) determined the  industries and occupations with the highest numbers of CNMI workers  affected by the current and scheduled minimum wage increases, and  (4) obtained employers’ and employees’ opinions about the minimum  wage increases. To evaluate the potential economic impact of reducing the number of  foreign workers in the CNMI to zero and replacing them with domestic  workers, we (1) developed an economic model that simulates how the  CNMI’s GDP would change if the number of CNMI-Only transitional  worker (CW-1) permits were reduced to zero, (2) evaluated the local  supply and demand for labor, and (3) obtained local employers’ and  employees’ opinions about the past and scheduled reduction in foreign  workers. To evaluate federal and CNMI government efforts to address labor force  challenges, we (1) collected information about the CNMI’s three job  training programs supported by CW-1 vocational education fees, (2)  assessed the results of the CNMI’s two scholarship programs, (3)  examined employment programs offered by the CNMI’s Department of  Labor, (4) reviewed a grant agreement between DOI and the CNMI  government, and (5) summarized the results of the 902 consultative  process (902 Consultations) that resulted in a report to Congress with  several recommendations. Appendix VII: Descriptions and Numbers of Foreign Workers Approved in the CNMI, by Permit Type, Fiscal Years 2011–2016

Although the majority of foreign workers approved by the U.S.  Department of Homeland Security (DHS) in the Commonwealth of the  Northern Mariana Islands (CNMI) have CNMI-Only transitional worker  (CW-1) permits, DHS also approves other types of permits for foreign  workers in the CNMI (see table 14). GAO-12-64.
Why GAO Did This Study

A 2007 law required the minimum wage in the CNMI to rise incrementally to the federal level in a series of scheduled increases. GAO has been periodically required to report on the economic impact of the minimum wage increases in the territory. A 2008 law established federal control of CNMI immigration. It required the U.S. Department of Homeland Security (DHS) to create a transitional work permit program for foreign workers in the CNMI and to decrease the number of permits issued annually, and presently requires that DHS reduce them to zero by December 31, 2019. To implement this aspect of the law, in 2011, DHS created a CW-1 permit program for foreign workers.
In addition to the above statutory provisions, GAO was asked to review the implementation of federal immigration laws in the CNMI. Accordingly, this report examines (1) changes in the CNMI's labor market since the start of the federally mandated minimum wage increases, (2) the potential economic impact of reducing the number of foreign workers to zero, and (3) federal and CNMI efforts to address labor force challenges. GAO reviewed U.S. laws and regulations; analyzed government data; and conducted fieldwork in Saipan, Tinian, and Rota, CNMI. During fieldwork, GAO conducted semistructured interviews and discussion groups with businesses, CW-1 workers, U.S. workers, and current and former job training participants.

What GAO Found

The Commonwealth of the Northern Mariana Islands' (CNMI) labor market has begun to grow after years of decline, while continuing to rely on foreign workers. By 2015, the number of employed CNMI workers was about 8 percent higher than in 2013, and inflation-adjusted average earnings had risen by 18 percent from 2007 levels. By 2016, about 62 percent of CNMI workers were directly affected by CNMI's minimum wage hike to $6.55 per hour. In 2015, foreign workers, who totaled 12,784, made up more than half of the CNMI workforce and filled 80 percent of all hospitality and construction jobs, according to GAO's analysis of CNMI tax data.
If all workers with CNMI-Only transitional worker (CW-1) permits, or 45 percent of total workers in 2015, were removed from the CNMI's labor market, GAO projects a 26 to 62 percent reduction in CNMI's 2015 gross domestic product (GDP)—the most recent GDP available. Demand for foreign workers in the CNMI exceeded the available number of CW-1 permits in 2016—many approved for workers from China and workers in construction occupations. The construction of a new casino in Saipan is a key factor in this demand (see photos taken both before and during construction in 2016). Meanwhile, by 2019, plans for additional hotels, casinos, and other projects estimate needing thousands of new employees. When the CW-1 permit program ends in 2019, available data show that the unemployed domestic workforce, estimated at 2,386 in 2016, will be well below the CNMI's demand for labor. To meet this demand, CNMI employers may need to recruit U.S.-eligible workers from the U.S. states, U.S. territories, and the freely associated states (the Federated States of Micronesia, Republic of the Marshall Islands, and Republic of Palau).
Federal and CNMI efforts to address labor force challenges include (1) job training programs offered by Northern Marianas College, Northern Marianas Trades Institute, and the CNMI's Public School System; (2) employment assistance funded by the U.S. Department of Labor and implemented by the CNMI's Department of Labor; and (3) technical assistance provided by the U.S. Department of the Interior. In 2016, a U.S.–CNMI consultative process resulted in a report to Congress with six recommendations, including one to raise the cap on CW-1 foreign worker permits and extend the permit program beyond 2019.

What GAO Recommends

GAO is not making recommendations.