Resident Workers Fair Compensation Act of 1995

Resident Workers Fair Compensation Act of 1995

Some employers in the Commonwealth may not be aware of Public Law (P. L.) 9-71, the Resident Workers Fair Compensation Act of 1995, which became effective about two years ago on November 16, 1995. The law states: “all benefits mandated by law given to non-resident workers, including, but not limited to food, housing, transportation, health insurance and medical expenses, must also be provided to resident workers or in a cash equivalent in jobs where the standard hourly wage is less than $4.25 per hour”, (the previous United States minimum wage).

In considering the impact of this law it is useful to know the number of residents employed within the private sector. The 1995 census reveals the number of resident Chamorro, Carolinian and those of multiple ethnicity, (i. e. a Chamorro with one parent who is Chamorro and the other parent of a different ethnicity), all of whom were 16 years of age or over and employed. This group was selected since it is likely that “other residents”, namely, other U. S. citizens are employed at wages equal to, or higher than, the minimum wage. At any rate, this was an assumption that was made. The characteristics of this segment of the population along with other ethnic groups may be examined on the accompanying graphic presentations. The 1995 census (Table 128) revealed that 34,812 persons of all ethnicities, 16 years of age or over were employed by the government and private sector in the Commonwealth. Of this number 6,376 (1) were Chamorro, Carolinian or one or the other of multiple ethnicity. Interestingly, at an average annual growth rate of 3.29 percent, the local indigenous population will not be of sufficient size to staff the economy at the 1995 employment level until around the year 2041.

One prominent employer has estimated the following annual expenses per nonresident employee when paying the minimum wage of $3.05 per hour. This cost, together with the related expenses associated with the nonresident worker of $1.67, as pro-rated on an hourly bases, results in the employer actually having an hourly employee expense of $4.72 or $9,818 per year, per employee. These expenses, by necessity, are often passed on to the consumer whether he or she is a resident or a visitor and thus add to the cost of living as well as the expense of a vacation. They contribute to inflation and account in no small measure for the high cost of living in the Commonwealth. With respect to the Northern Marianas’ tourist market these expenses should be monitored closely particularly in view of the less expensive tourist destinations around the Pacific rim with which the Northern Marianas competes. The presence of the nonresident worker also represents a cost to the government that is higher than otherwise would be the case. This occurs in the form of administrative costs requiring additional staff at the Department of Labor and Immigration as well as public safety, medical services, etc. The true cost is unknown but is partially offset by the various fees associated with such employment. Their presence, however, contributes substantially to the economy in that they support and ever growing private sector and thus an expanding tax base. The CNMI minimum wage laws may have had an adverse impact on the Northern Marianas’ ability to develop its own cadre of local, indigenous construction skills because of the low wages paid.

Of course, employers and others such as contractors benefit from the reservoir of available Philippine construction workers who are willing to work for wages lower than the United States minimum wage of $5.15 per hour, (as of September ‘97), with the result that fixed assets such as structures might possibly be erected in the CNMI at substantially reduced costs because the cost of the labor component is far below that found elsewhere in the United States and Japan. According to the 1995 census,(Table 97) of the 6,266 (1) indigenous employees, 16 years of age and over employed in the economy, 44 percent or 2,755 were employed throughout the private sector either for wages and salaries, self employed or unpaid family workers, with 3,511 or 56 percent employed by the government. Within the total 1995 employed workers of 34,812, local indigenous people accounted for 18 percent or 6,266 persons including those employed by the government. The percentage of local (indigenous) people within the various sectors was as follows: agriculture and fisheries – 6.92 percent of the total employees in this sector; mining and construction – 2.34 percent of the total; manufacturing – 2.83 percent; transportation – 24.47 percent; wholesale trade – 24.32 percent; eating and drinking establishments – 5.6 percent; all other retail trade – 19.16 percent; finance, insurance and real estate – 33.2 percent; business and repair services – 6.61 percent; hotels and motels – 9.28 percent; personal, entertainment and related services – 4.88 percent; professional and related services 46.41 percent. Assuming this entire group other than those employed in utilities and public administration were to benefit from P. L. 9-71 (which they would not – but there is no way to determine the actual beneficiaries short of a survey), and further assuming that the average employer’s expense for employee food and lodging is $100 and $75 respectively per month per employee, the total annual expense to each employer would be $2,100 for each employee or a total cost within the private sector of an estimated $8.5 million, (estimating the differential only for food and lodging). This would be in addition to the minimum wage of $3.05 per hour currently paid or a total annual wage payment of $6,344 per employee and an average recruitment expenses associated with the nonresident employee of approximately $3,475 per employee for an estimated total annual cost to the employer of $9,818 per nonresident employee.

To this cost the $2,100 per year must be added for those resident employees that qualify under P. L. 9 – 71 whatever that number of resident employees may be. According to section 5 of the law, the development of an adequate formula for a wage adjustment to place the resident worker on “a level playing field” with that of the nonresident worker, must be outlined in implementing regulations promulgated by the Department of Labor and Immigration. Then there is the matter of obtaining information from employers as to their “in-kind” costs for the provision of food, lodging, medical insurance, etc., for both types of employees, (resident and nonresident), for each of the several economic sectors from which to devise the compensating formula for use to determine any additional payment to the resident worker. Carrying it a step further – food costs for a hotel employee (which I would imagine are provided both resident as well as nonresident workers) are likely to be greater than those for, say, a construction worker. Medical insurance premiums are likely to be higher for construction workers than for hotel employees, and so on.

Within each sector, individual businesses will have varying wage levels and associated expenses. In the case of the pre qualification requirements from the Philippine Overseas Labor Office, their nonresident worker regulations state, for example, that hotel principals are required that free food or compensatory food allowance and free suitable accommodation and utilities be provided. Under these requirements a nonresident worker could be paid a salary equal to the current United States minimum wage of $5.15 per hour (as of September ‘97) and still benefit from the law and obtain the above in-kind contributions. (1) Author’s note: For those wishing to evaluate the matter further there is a discrepancy of 110 persons between Census Tables 128 & 97 probably Carolinians and others of multiple ethnicity which were omitted from Table #97.