Price increases seen with wage hike

Businesses and minimum wage workers in the CNMI both believe that an impending 50-cent increase in the islands’ minimum wage would ultimately lead to higher prices of supplies, commodities, and services.

Despite this, many small businesses, which would bear the brunt of the increase, intend to comply with the law and increase the wages of their minimum wage earners.

At least that’s what Natural Nail Spa owner and manager Merle Hudkins said. She concedes that it will be an added burden but she intends to comply with the law.

“We take care of our employees. They are my priority. We just hope the government will also take care of the small businesses with all these fees and other expenses. Otherwise, in the long run, small businesses will be hurting,” she said.

The minimum wage in the CNMI will go up from $6.55 an hour to $7.05 an hour effective Sept. 30, 2017.

Hudkins, who opened her business over two years ago, has five employees—a combination of U.S. citizens and foreign workers.

“We complied with the minimum wage increase last year without increasing the cost of our services. We got by because business was good and we were busy. It was break even. Now, as I study the numbers, I may have to increase my prices but it will not be much. I try to make it affordable,” she said.

Hudkins was able to keep the price of the nail spa’s services down last year by looking for more affordable supplies.

“I was also smart about it. I looked for other vendors locally, off-island or online ordering that would be cheaper. I really tried my best to make sure I got a fair price that didn’t make me want to increase my prices,” she said.

According to Hudkins, with the wage increase this year, she would have to increase the spa’s price a little.

“Everything is adding up. When wages increase, there is an increase in the cost of supplies and shipping as well. The cosmetics tax of $17.25 is expensive here on island. Also, the fees of U.S. Citizenship and Immigration Services have gone up. People and other businesses have raised their prices to pass on the expense,” she said.

Despite the challenges, Hudkins remains optimistic.

“I always look at the long-term effects of decisions today. I don’t want to put the burden on my customers. There may be a slight increase but we will continue to give them quality service, at the same time making sure everybody is taken cared of,” she said.

“I am in the middle of everything, trying to please my customers and, at the same time, taking care of my employees. With the pending increase, I will try to please both. Bottom line is, if everybody is happy, I believe everything will be fine,” she added.

One of the biggest construction companies in the CNMI, RNV Construction, is not immune to the challenges the wage hike will bring.

“Whether you are a big business or a small business, [everything] is affected because it follows that everything else will increase—Federal Insurance Contributions Act tax, construction materials, equipment maintenance, goods, etc.,” said Michelle Villaraza-Rueda, comptroller and business manager of RNV.

Despite of that, RNV Construction intends to comply.

Villaraza-Rueda also acknowledged that employees are the lifeblood on the company.

“Manpower is our business’ greatest strength. All of our field workers are very important to us because…when we do not have our field workers, we can’t finish a single project,” she said.

According to her, they are currently studying the market to know the impact of the wage increase on their manpower and operations.

“We will increase the minimum wage and then see the results of the study that we are doing. With past contracts, we projected the cost of manpower at $6.55 per hour and some [projects] are still not finished. That will have a great impact on us because the income from that will be affected.”

“Our attitude is that the increase is a good thing for our employees. If there is a wage increase, they will have more savings,” she added.

While Fernando Galban welcomes the increase in his salary next week, he is also anticipating a price increase in food and personal amenities.

“The wage increase feels like that nothing will change. Prices of everyday supplies and food have already risen up. Grocery stores have already increased prices on some of their items. Having a 50-cent increase will only make me cope with the existing expensive commodities,” Galban said in Tagalog.

Electrician Guiller Castaneda shares Galban’s sentiments.

“I have been fortunate that all my employers follow the law. But prices of food and gas have gone up too. This increase will not totally alleviate our lifestyle or give us more spending power. If anything, it will help us to just afford the things that we need,” he said in Tagalog.

The minimum wage increase does not only affect minimum wage earners. Workers who get more than the minimum wage are not oblivious to the ripple effect that the increase will have in the economy.

According to Joe (who asked for anonymity), living in the CNMI has become expensive.

“The increase in the minimum wage and in the prices of commodities on island are added challenges to living here. I sympathize with those making the minimum wage. I don’t know how they can live here, pay these prices and still send some money home to their family,” he said.

According to a professor (whose name has also been withheld), businesses should take some of the burden off consumers.

“I think the wage increase is necessary but such increases in operational expenses should not fall on the consumer. As times change, profit margins should change a well, as we play catch-up with the minimum wage of the U.S. mainland,” the professor said.

The next minimum wage increase is expected in September 2018. That would put the CNMI minimum wage at the federal level of $7.25 per hour.

Commerce Secretary Mark Rabauliman said last week that the ultimate goal is to reach the $7.25 level.

“That was the goal when Congress imposed the minimum wage increase. A lot of the states have since increased their minimum wages and I think Guam is following suit. You would expect the same with the territories at some point. I don’t know if it’s immediately after we reach the $7.25 or if it will be given some breathing space,” he added.

A U.S. Government Accountability Office report in May this year stated that about 62 percent of workers were affected by the wage hike to $6.55 in 2016.

This year, the percentage is yet to be evaluated as the labor force continues to be dynamic and competitive in the CNMI.