Wednesday, January 13, 2016

The cost of Guam’s unemployment level

Guam’s unemployment rate, at about 7%, is near its historic low. We’re getting close to another annual update of the island’s employment situation, and there’s reason to believe that these levels will be maintained. But we're not here to celebrate.

Guam’s economy is dependent on three things: The number of visitors to the island, the military presence, and the size of the government's payroll. The size of the government and the U.S. support for the island are interrelated. But the military build-up is another matter.

The U.S. will relocate some 5,000 Marines and 1,300 family members to the Guam, over the next few years. The military owns one-third of this 212 square mile island, and a major part of the island can’t be developed because of its steep terrain.

The island's economic development is constrained by resources and population. It is extraordinary difficult for Guam to achieve sustainable development, if you define that as creating enough jobs to support the population without despoiling the environment. Let's see why.
Source: Guam Bureau of Labor Statistics
First, there aren't enough people on Guam to support a diverse economy. Guam's major employers are the government, state and federal, and tourism-related. Guam's working population is roughly 63,000 out of 175,000, residents.

There's not much to compare Guam with, but consider Puerto Rico.

Puerto Rico has 3.5 million residents, and roughly 45% of its economy is based on manufacturing, with another 20% in the financial services sector. About 8% work for the government.

But on Guam, manufacturing accounts for about 3% of the island’s economy, and fully 25% of the island’s employment is government payroll, local and federal. The other large employment sector is tourism and retail. Health care and other service occupations make up the rest. Guam is not an exporter of goods and services.

The second major issue is cost of living. Job growth from the buildup will put pressure on housing. Prices may rise faster than incomes.

The unemployment rate will likely remain below 10% for a time, at least through the construction phase of the build-up. Much of the buildup long-term job growth will likely be in relatively low-wage, service sector jobs with incomes that aren’t keeping up the cost of living on Guam.

Guam already has an affordability problem.
According to the Guam Housing Corporation (GHC), a modest size home on Guam (3 bedroom 1 bathroom house) ranges between $65 to $90 per square foot. The average price tag to build a simple home on Guam, excluding the price of land, connection of utilities, sewer, water, power, etc. costs approximately $ 78,000 to $150,000. Low to mid-level rentals range from $900-$1,200 for a two-bedroom apartment or condominium and $1,200 to $1,700 for a three-bedroom house.
If you live on the mainland, especially on either coast, these prices may seem affordable, but not for the typical wage earner on Guam.

There are, for instance, only 570 people on Guam who work in computer and mathematical occupations, with annual mean wage of $47,690, according to U.S. Bureau of Labor Statistics data. This pay rate is well below mainland wages for similar work, except, perhaps, in rural areas.

But Guam has plenty of service-sector jobs. There are, for instance, 6,200 employed in food preparation and serving alone. The mean wage is $18,270.

With few exceptions, such as health care, jobs on Guam pay well less than $50,000, and that makes Guam residents particularly susceptible to housing price increases.
Source: Guam Bureau of Labor Statistics
Wage levels are unlikely to change all that much with the buildup. Island employers will likely quickly import workers. Island residents may be competing for employment with military spouses.

The forward impact of the buildup may already be taking root. There's clearly increasing commercial interest in Guam, especially now that tourism is rebounding as people from Korea, Taiwan, China discover the island. The island's most recent economic development outlook reported near record high construction activity.

In a normal world, economic growth, and decreasing unemployment, is a good thing. People want jobs, and it may encourage more of the native born population to remain on the island. But Guam is not like the U.S. It’s an island, and as distant as one can be from the mainland. It’s a different world with clear limits, economically and environmentally, and it’s worrisome to think about how those limits might be tested in the years ahead.