Ahokovi highlights on HPR why minimum-wage increases backfire
By Grassroot Institute of Hawaii, February 7, 2022
Is increasing the state’s minimum wage the best way to solve the challenges faced by low-income workers in Hawaii?
The Feb. 3, 2022, episode of “The Conversation” on Hawaii Public Radio considered the question, with Jensen Ahokovi of the Grassroot Institute of Hawaii contending such an increase would likely cause more harm than good.
Also on the program was Nate Hix, director of Living Wage Hawaii; HPR’s Catherine Cruz was host and moderator.
The background for the discussion is that Hawaii’s Senate recently passed SB2018, which would increase the state’s minimum wage gradually to $18 an hour by 2026.
Hix argued that a higher minimum wage is needed because some workers need to work two or even three jobs to keep a roof over their heads.
“There’s a lot of negative comments about what potentially could happen [from a higher minimum wage],” he said, “but here and definitely across the world, we’ve seen a lot of benefits” following minimum-wage increases.
Ahokovi said the evidence might show correlation, but not necessarily causation. He said policies like the minimum wage typically backfire on the people they are trying to help, and that the best way to help lower-income workers is to lower the cost of living.
“It is a textbook economics problem,” he said. “Minimum wages are effectively a price control, and what price controls do is they distort the market’s ability to be able to find equilibrium.”
To hear the entire conversation, click on the video above.
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2-3-22 Jensen Ahokovi with Nat Hix and moderator Catherine Cruz on HPR’s “The Conversation”:
Catherine Cruz: You are listening to “The Conversation” here on Hawaii Public Radio.
Over the next hour, we’ll be talking about the push to raise the minimum wage from its current $10.10. What can you buy for 10 bucks? Two gallons of unleaded gas? A gallon of milk? But that’s not enough for a plate lunch anymore, maybe a mini if you’re lucky, but you might have to settle for a few musubi. That’s how far $10 goes these days — not far at all.
All indications are that there is enough support to pass something this year. The governor has expressed his support, ditto for the leadership in both houses. The devil is in the details.
Our guests today are Nate Hix, director of Living Wage Hawaii, and Jensen Ahokovi, research associate at Grassroot Institute. Welcome, gentlemen. I’m really happy that you’re able to carve out some time for us.
Jensen Ahokovi: Thanks for having me.
Nate Hix: Thanks for having me.
Cruz: Nate, you want to start out? Set the stage: What are the bills that are making their way through this session?
Hix: Yes, we feel very fortunate that the Senate has already come out and passed through their entire chamber a bill (SB2018) to raise the minimum wage gradually to $18 an hour by 2026. That’s great news — $18 is what’s already needed for a full-time worker to make ends meet already today. This will at least get us to that level in a few years which would be a big help to a lot of working families.
Cruz: Then as far as the House?
Hix: The House has not acted yet. They have drafted a few bills. Speaker [Scott] Saiki before session had been speaking often about how he wanted an $18 minimum wage, and the bill that is sitting that they had drafted looks to get there by the year 2030.
Cruz: OK, so just later versus sooner. Jensen, what’s it been like as you’ve watched these first hearings on the discussion about that? It’s a passionate issue, I know, on both sides.
Ahokovi: Yeah. I’d just like to preface by saying that opposing minimum-wage increases, and really, minimum wages in general, does not mean that [neither] I nor anyone of similar opinion devalue the working community, especially here in Hawaii.
What I’ve taken away from seeing a lot of the debate, actually, the lack of the debate over the potential consequences of the minimum wage has, really in a sense infuriated me, particularly because what a significant amount of the literature indicates and what worries me and many economists is that many workers will consequently see themselves priced out of the labor market, whether it be through unemployment, hours reduction, the loss of benefits, the transferring of costs onto consumers, a smaller labor market, if firms decide to shift locations to other low-cost regions — really a myriad of effects that can be a consequence of drastically raising the minimum wage as it is proposed here.
Because effectively, what minimum wages do, and you can open up any basic economics textbook, what minimum wages do is effectively make the price of labor artificially expensive. As a result, firms will respond in such a manner to offset the higher fixed costs associated with labor because of the fact that minimum wage has made it more expensive to seek out and hire additional labor.
Cruz: Well, we have a caller already on the line. Esera from Kailua, what’s on your mind? Hello.
Esera Vegas: Aloha. Good morning.
Vegas: Hi, I think I was disconnected. My name is Esera Vegas. I was just on the line in the queue for today’s discussion.
Cruz: Yes. Well, you’re on live now. What’s on your mind?
Vegas: Actually, I just spoke with someone and I went over my notes and everything that I was going to say, and so I was just waiting.
Cruz: Well, tell us. You’re on the air now.
Vegas: Oh, my goodness. Well, hi.
Cruz: Hi. [chuckles]
Vegas: I’m Esera Vegas. I’m just calling in on the minimum wage raise.
I just wanted to note some potential benefits, pros and cons. Immediately, the ones that would take place would be lifting people up out of poverty, which would also support a reduction of the cost or need for federal aid expenditures on financial aid and other services like that.
It also would immediately increase morale of employees, which could lead to higher productivity for businesses, which would increase retention, decrease turnover, decrease cost of training.
But also it could provide increased generational education access for families, which would over a period of time bring greater wealth for those families, communities and for businesses. It will provide a boost in economic growth and spending, and retail spending as well.
Some of the cons would be businesses may see inflation immediately as they’ll pass the cost on to consumers. Maybe job loss at the low end, but that typically might not be a negative thing as you want to encourage young entrepreneurs and young individuals just coming into the working field to be able to hold those entry-level positions. And you’d like more senior workers and staff to be able to move up.
Then, just one last thing to note is that looking at some of the highest minimum wages in countries, you’ll see Australia, New Zealand, the Netherlands, Germany and according to CNBC, a recent report shows that the countries with the highest quality of living tend to mimic those with the highest minimum wage, including Australia, New Zealand, Sweden, Norway, Germany as well.
That’s what I’d like to share in support of raising our minimum wage. Thank you for your time. Aloha.
Cruz: Well, thank you so much for calling in. He brings out a good point. He’s looking at the global picture, not just here in Hawaii or across the country. Your thoughts, Nate.
Hix: I echo a lot of his thoughts and feelings. Raising the minimum wage has shown to bring tremendous benefit to the localities that implement them. You can even look here for an example. We raised the minimum wage from $7.25 in 2014 to $10.10 in 2018 and we’ve seen a lot of benefits out of it.
A recent state study showed that incomes for low-wage workers [rose] substantially. There weren’t any negative impacts to employment levels. We actually had record low unemployment over that time. Workers were able to spend more. We saw the number of businesses locally increase during that time as well.
There’s a lot of negative comments about what potentially could happen, but here and definitely across the world, we’ve seen a lot of benefits coming from minimum-wage increases.
Cruz: Jensen, the caller brought out the point of other countries and what they’ve done there. What are your thoughts?
Ahokovi: Right. Just to point out, the Nordic countries actually have no statutory minimum wage. The way minimum-wage policy works in the Nordic countries is via collective bargaining agreements due to the strength of private-sector unions in the Nordic countries, so there actually is no minimum wage as far as law goes.
You mentioned effects on poverty. As far as I’m aware, there really is no significant effect on poverty when you look at how minimum wages affect [poverty], depending on how you measure poverty.
As far as the relationship of minimum-wage increases in Hawaii, I’m not particularly convinced that we can tie some correlation with minimum wage increases and economic growth here in Hawaii, particularly because if you look at the history of minimum-wage increases here, the first increase was in ’92, from $3.85 to $4.75, and as Nate noted, most recently from $7.25 to $10.10. And the reason why I think it’s difficult to attribute or associate the minimum-wage growth with the growth of the overall economy is particularly because we avoid any sort of exogeneity associated with such a statement and such a model.
For example, to Nate’s point, if you pair low-wage employment along with the various increases in the minimum wage, you’ll find that his statement is actually fairly true. You’ll find that there is some correlation, but as you widen the time horizon, what you see is that there’s actually very little effect in terms of the increase in those occupations. This is likely attributed to the fact that it could be the case that the economy could have grown whether or not you increased the minimum wage.
Another problem is that when you look at the data associated with minimum wage, especially here, it’s largely total employment data, which means that it masks the possibility that high-wage industries could have been growing at a faster rate than low-wage industries. If this is largely the case, that would actually indicate adverse employment effects on the low-wage industries as a result of the minimum wage.
We actually observe nationally that when you implement higher minimum wages, you actually tend to see faster growth in terms of high-skilled labor as opposed to low-skilled labor, just because businesses and firms respond to incentives.
I think it’s largely erroneous to assume that businesses implementing the minimum wage will just go on willy-nilly; they’ll absorb the cost. No. Firms react to incentives and I think this is what the Legislature needs to be very wary of, and the lack of debate over these possible effects is what is really worrying me.
Cruz: If you’re just joining us, this is “The Conversation” on Hawaii Public Radio. Our guests today are Jensen Ahokovi, research associate at the Grassroot Institute, and Nate Hix, director of Living Wage Hawaii. You can join our discussion by calling us at 808-941-3689 or 1-877-941-3689 from the neighbor islands.
We did get some feedback from our listeners before we went on the air. We got this on our talkback line.
Speaker 1: I think with the higher wages, there’ll be more people spending money, too. It’s a trickle-down economy. Thank you. Bye-bye.
Cruz: We got this email from a listener:
“As a small business owner in urban Honolulu, I believe the issue of wages is part of a bigger conversation. Here on Oahu, the real estate market is such that an accountant told me having a retail storefront is not advisable unless you own the building. Rents here are high relative to how much business can be generated by a local clientele.
“I have no issue with paying the minimum of $15 per hour. In fact, if the minimum wage kept pace with inflation, we would be at $24 an hour. The working class are being squeezed by the wealth gap. Squabbling over minimum wage is the wrong argument. Humbly, Rumi Murakami Robertson.”
And we received these comments from our Facebook page. Mallamma Ohana says, “Of course, 100%, yes.”
Patrick Filbert says, “How will the state pay for it? Oh, right, legislate businesses to do it, who then raise prices to compensate, which passes the cost onto customers, causing wage increases to get nullified. Econ101. No matter how much people think, that shouldn’t be right or fair, especially in a state with the highest cost of living in the country, over 50% on welfare and a state government that actively stands in a do-nothing category.”
Very strong positions on either side of this.
I don’t know, Nate, are you hearing anything different this session than has been argued in the past?
Hix: No, these are very, very similar arguments. Yeah, usually, the same stuff.
Fortunately, we’re very glad that both nationally and here locally, the Democratic Party has come out in strong support of raising the minimum wage, right? The population here overwhelmingly supports wage increases. At this point, it’s just a matter of making sure that the Legislature acts on behalf of their constituents, making sure that they act in accordance with their Democratic Party platform, because the data is pretty clear: Raising wages does help workers, it’s absolutely necessary.
The cost of living here is through the roof and as long as we continue to middle in a low wage, you’re going to have massive [numbers] of people struggling to survive, which is currently the case.
We have tons of people leaving the island because they can’t afford to live here. The fortunate people remaining, we all know people who have had to leave, whether it’s friends, family, co-workers, whoever it might be. That’s going to continue if we don’t make sure the local jobs are paying enough to afford to live here.
It’s pretty clear, and fortunately, the population here backs raising the minimum wage.
Cruz: OK, we do have another caller on the line also from Kailua. Richard, you have a story to share?
Richard: Yes. I’m not going to mention the name of the employer but a long while ago, I was working at a local touristy place. I was hired on at $10 an hour and was told at the time that that wage would go up because my previous job had been higher. They said it would be a couple of months until the wage increase happened.
Four years later, the only increase I ever got was the increase to $10.10 and my boss tried to pass it off as a raise. Told me I should be thankful for that. Big businesses, at least, will never do this on their own. They just don’t have a real reason to, and it doesn’t make sense. The arguments against minimum wage just don’t pan out, if you look at international data on this sort of thing. [chuckles] It needs to change. You get the idea.
Cruz: Well, thank you very much for sharing that story. We have another caller on the line. Celeste from Kauai, you have a question?
Celeste: Oh, yes I do. Thank you so much for letting me participate today. I have a question for Nate. Just for the general public, for people such as myself who believe in the cause and who definitely want to see the living wage increase, how can we get involved? How can we advocate? What are some things that you suggest for us to do to make sure we see this initiative go through?
Hix: Thank you very much for the question. As a state that needs a bill to pass, it’s very important that people stay engaged and stay active. Here at Living Wage Hawaii, we try to empower people to be engaged. You can follow us on social media at livingwagehi [on Instagram] or sign up for our newsletter at livingwagehawaii.com, and we’ll send out action alerts to make sure that people can do what’s necessary to help move this bill along.
For right now, since the Senate has already passed the minimum-wage bill out of their committee, the ball is in the House chamber’s court. It’s up to the Speaker of the House, Scott Saiki, to move that minimum-wage bill through the ranks.
A minimum wage of $18 by 2026 is what the Senate had passed out and what working families need and deserve. So, A, people can call or email Speaker Saiki, get ahold of him and ask that he pass the Senate version, or you can call your own representative and ask them, “Will you please support the Senate version $18 by 2026?”
Making sure that representatives, and especially Speaker Saiki, hear from you would be very crucial in making sure they know that this is very important to working families.
Cruz: We do appreciate Celeste’s calling in. We understand that she was traveling but took the time to tune in just to get plugged into where we were at with this issue.
We are hearing that lawmakers want to help working families. Lauren Zirbel, executive director and president of the Hawaii Food Industry Association, points out that Hawaii is one of the only states that actually taxes groceries. The best way to help working families, she says, is to continue advocating for the regressive taxes on groceries to be removed. Here’s Lauren:
Lauren Zirbel: We do understand that the Legislature is under pressure to address the minimum wage. But we just ask them to take into consideration a few factors. The first is that Hawaii is already consistently ranked as one of the worst states in the United States to do business [in], and that Hawaii employers shoulder a burden of paying full medical insurance coverage, which is a very costly mandate. That should also be considered when looking at a minimum wage increase.
The second thing is that minimum wage is not intended to be a living wage — it’s intended to be a training wage.So I think we need to have a discussion about if there is room for having a training wage, what does that look like and how can we accommodate building people’s skills?
The third is that employers can and do pay skilled labor well above the minimum wage and will continue to do that without legislation changing the minimum wage.
We have put forward a proposal that would increase the minimum wage by a dollar a year, so pending at $15 an hour in 2027. We believe that that would really help to minimize some of the negative impacts on small local businesses that would be disproportionately impacted compared to larger multinational employers who have economies of scale and can [afford] to make the investment in automation, which maybe some small mom-and-pops can’t do, and they might not be able to absorb the burden of a really dramatic and fast increase in labor costs.
Cruz: That was Lauren Zirbel, head of the Hawaii Food Industry Association. Jensen, what are your thoughts on what she had to say?
Ahokovi: I largely agree. I think when we look at things like minimum wages, part of the problem is that, typically, people always like to look at the benefits. Of course, an artificially higher wage is very attractive.
Frankly, it’s a very attractive political mechanism as well, because it imposes almost no cost on the political body, and all the costs are passed on to the private sector. That’s part of the reason why it’s attractive politically, and part of the reason why it’s attractive socially.
But what we need to understand about the minimum wage is that, yes, what Nate said earlier is that minimum wages increase wages, but there is an asterisk next to that sentence. What the asterisk says is that it increases wages for those who remain in the labor force, and this is the key point that we need to underscore here.
Yes, the people who remain employed will see higher wages, but what the literature indicates is that, most of the time, those increases in wages are largely offset by the cutting of fringe benefits, the cutting of hours. It’s a restricted job market.
I understand that we need to help the working class here, and being opposed to the minimum wage doesn’t mean that you are opposed to other solutions.
The problem with minimum wages as well is [that] minimum wages only tackle the symptoms and not the causes of our state’s larger problems.
I like to think that minimum wages are, largely, as coffee is to sleep deprivation. Most of the time if you’re sleep-deprived, you often use some caffeinated beverage to treat the fatigue. But the solution to it is not more caffeine; the solution to it is more sleep. Minimum wages are largely analogous.
Our cost of living is extremely high. The largest determinant of our cost of living is the cost of housing. The solution, not only for the working class but for everybody who lives in the state, is not to raise the minimum wage, which in general is a very poorly targeted policy to actually help those in need.
The solution is to lower the overall cost of living by getting rid of things like our onerous regulatory burden on the housing market that makes it difficult to expand the supply of housing, which if we did that, we would drastically lower the cost that for many people is taking up a significant fraction of their income. We’re talking about rent, we’re talking about mortgages, we’re talking about all these things.
So I think we need to shift from this idea of, yes, let’s tackle the symptoms, but we should really be looking at the causes and not looking at demonstrably ineffective policies that really impose a net cost, and not a net benefit, on those who need it most.
Cruz: I do want to talk about a training wage, and Nate, I’m going to ask you about that but I do need to go to a break. If you’re just joining us, this is “The Conversation” on Hawaii Public Radio. You can join our discussion on minimum wage by calling 1-877-941-3689. We will be right back after the short break.
Cruz: You’re listening to “The Conversation” here on Hawaii Public Radio. Our guests are Nate Hix, director of Living Wage Hawaii, and Jensen Ahokovi, research associate with Grassroot Institute.
Nate, this whole concept of a training wage that Lauren Zirbel brought up, what are your thoughts on that?
Hix: A lot of people try to say that the minimum wage isn’t intended to make sure people can afford their basic needs. And that would be great if all of the workers who needed to pay for their basic needs were paid a livable wage, but unfortunately, that’s not the case, right?
There are over 200,000 workers in Hawaii making less than the $18 necessary to afford what they need to survive. And the unfortunate reality is that keeping the minimum wage as low as it is continues to perpetuate these low wages for a significant amount of workers.
More than one in three workers is paid less than a livable standard, and because of this massive gap, it’s absolutely necessary that we raise wages. There shouldn’t be any full-time worker who can’t just afford to pay rent. That’s not any society that we want to live in.
I do agree that making sure that costs are low is very important, too, and that’s why we advocate for a livable wage. If, for whatever reason, we can drop the cost of living to below 10 bucks an hour, well, then great, the minimum wage can stay there. But that’s far beyond the scope of what’s in the legislators’ power.
If you look at Minneapolis, for instance, their livable wage is $15 an hour already, and they have housing costs significantly less than ours. You can get a single-family home for about $200,000 there.
Even if we were to drop our housing costs and drop a lot of other costs, people still need to be paid a lot more than $10.10 an hour. The minimum wage is not a training wage; it’s a very effective tool. And fortunately, it’s something that we can do right now.
Cruz: Well, like we heard the caller from Kailua, Richard, he said he was paid a low salary, a low wage for four years, and his boss didn’t do it until he was forced to do it. Yes, it’s a dilemma. We do have another call from Maui. Sharon from Makena, what’s on your mind?
Sharon: Aloha. Thank you so much for taking my call.
We have owned our home for about 35 years and we are residents on Maui, one of about three that live in our condo complex of over 100 units. The rest are all off-island, second homeowners, and we have fought for years to get our association to pay our employees more. They have to work two and three jobs. They can’t afford to live here on the wages that we are paying them.
Some of these owners, more than half of them are renting, making anywhere from $10,000 to $40,000 a month in rental income, and yet we are constantly told that they simply cannot afford to pay people more. But the fact is, as the last person just said, they can’t afford to live.
And so now we’re talking to them, they’re telling us that their family members are all moving away. We are constantly helping them with basic costs, like car repairs, to get their safety inspections done and dental, and these just normal things that come up in people’s lives. How do we expect people to work when they’re not well?
Really, something needs to be done, and this argument that raising the minimum wage is just a fallacy is absolutely incorrect. We have to figure out a way to lift all boats, and as residents here who are retired and not working, we need to support our workers and we need to start supporting them now, in really robust ways.
Cruz: Well, thank you much, Sharon, for your thoughts on this. Jensen, what did you think about what she had to say?
Ahokovi: Listen, I completely sympathize, and — full disclosure — I myself work part-time in a restaurant at minimum wage on tips credit. Yes, the stakes are very high for me in this debate. But the reason why I and many others oppose such a policy is particularly because the attractiveness often blinds many people from the realities of what minimum-wage policies actually entail.
First, let’s look at big business. Everybody hates big business, but what many people don’t realize is that minimum wages only serve to increase the market share of these big corporations that they seem to detest.
Let’s look at labor. Like I said earlier, it just doesn’t bear out that minimum wages do not have any disemployment effects. They absolutely do. No matter how incremental and how long you choose to implement the minimum wage over time, there are always some sort of adverse employment effects associated with minimum-wage increases.
Now, what does that mean? That means not necessarily that we just ditch looking for solutions, because there are legitimate proven solutions out there to help the least of us. And those solutions are not to deal with the symptoms, they are to deal with the causes of our issues.
When we look at cost of living, Hawaii is the most regulated housing market in the country. When we look at the amount of consumption or the fraction of income that is spent on housing alone, things like rent and other related housing-related costs, it takes up a significant fraction of people’s spending.
What can we do to drive it down? Well, the consensus among economists is that the best way to drive housing costs down is to eliminate things like zoning and other land-use regulations that make it difficult to expand the supply of housing, which will necessarily result in lower housing costs for everybody.
Is this the only solution? No. But as far as the literature indicates, whether or not we want to lower our cost of living, it is the most effective and it is the most proven solution.
And when it comes to minimum wages, once again, I mean, frankly, I hear a lot that it’s just a fallacy, it’s not a good argument, minimum wages don’t reduce employment, but the data just doesn’t bear it out.
Take this, for example. David Newmark is an economist over at UC Irvine. Last year, he released a meta-analysis of every single U.S.-published minimum wage study that has been done over the past 20-30 years. And no matter how you decide to run the study, no matter what metric you use, no matter the methodology, the vast majority find that there are negative employment effects associated with minimum-wage increases, and the strongest negative employment effects are largely concentrated among the young and inexperienced worker population.
Cruz: Well, Jensen, we appreciate you sharing that you supply your income, and you rely on tips.
Ahokovi: I’m a college student as well.
Ahokovi: I’m … a full-time college student, and part-time rush hour [restaurant worker], so I understand. I understand where the calls are coming from. But once again, we have to deal with reality.
Cruz: Well, I have come across so many people who are working two and three jobs to make ends meet. We have another caller on the line. Caleb, from Haleiwa, you have a question?
Caleb: Yes. I actually have a more just like an obvious point I want to make about being in the No. 1 industry here on the islands, which is obviously, tourism. I’m a surf instructor here in Haleiwa. We get paid a minimum for each lesson, but in regards to how much time we put into that, and what we’re getting paid just straight from just being there, it’s nowhere in comparison to the tips we get. The issue with that is that it’s always hit [or] miss.
I feel like there’s a lot of industry workers, whether it’s the restaurant industry, the tourist industry, being on the water or just doing regular tour guides, that the minimum wage, most of the time, is absolutely not going to be able to sustain our way of life. We have to constantly rely on those tips that we get, and that is just something that just fluctuates so much that we have nothing to really depend on, I guess is what I’m saying. And if our normal minimum wage was just even a little higher, that would give us a little peace of mind for those days when we don’t get any tips whatsoever.
Cruz: All right. Well, thank you so much for calling in and sharing your situation. We have another call. Dave, from Hauula.
Dave: Hi. I agree with the caller who said minimum wage increases are just addressing the symptom, it’s not really going to address the problem. We do have a high cost of living.
We’re in a tourist economy. I think something that we need to think about is, look at the state of Nevada. They have zero income taxes, basically, because people come from out of state, empty their pockets in casinos, and leave. All that money stays in Nevada.
Why can’t we change the income tax brackets here so the lower-income [workers] especially are not paying income tax? We have some of the highest income taxes in the country. That way it rewards the people that are willing to work full-time jobs.
Cruz: Well, Jensen, do you want to weigh in on this, or Nate?
Ahokovi: Yes. Once again, I think the most recent caller really touches on, once again, that policies such as taxation and reducing the tax burden on the people who we’re trying to support, are most certainly one of the ways that have shown to be most effective.
Now, I’m not a big fan of this policy, but it is a policy that has at least provided some documented effect on poverty, especially in low-income brackets. That is the Earned Income Tax Credit.
We’re looking at policies that try to attack the roots but that don’t actually distort the labor market in such a way that leads to the fact that firms are no longer able to efficiently allocate resources where they need.
This is part of the problem. Again, we go back to minimum wage. It is a textbook economics problem. Minimum wages are effectively a price control, and what price controls do is they distort the market’s ability to be able to find equilibrium.
So once again, that continues to distort the decisions of entrepreneurs and the decisions of firms to most rationally allocate resources where they need to go, which in turn increases the economic pie for all of us. But things like minimum wages really only concentrate benefits to a smaller group and pass off costs to a larger group.
And things like housing regulation; trying to reduce the cost of living by such a significant fraction, If we want to do that, it’s housing regulation. If we want to target those who need the most support, let’s lessen the tax burden. Let’s look at things that restrict the entrepreneur from being able to provide goods and services to the community that needs it most.
Once again, going back to minimum wages, when we look at things like passing the cost off onto consumers, we also ignore the fact that, I think, that 75% of the cost premium is passed off onto consumers.
When you realize that the majority of minimum wage work tends to be consumed by those of lower income, if we look at the cost premium that’s passed on, a disproportionate amount of people with low incomes or in poverty are consuming goods that would thus be increased as a result of things like minimum wages to help the workers who are providing the goods. So it’s not all black and white. We need to add nuance and we need to look at the policies that actually address the roots of the problem and not merely the symptoms.
Cruz: We did talk to Gary Hooser, executive director of the Pono Hawaii Initiative. Here’s his position on minimum wage:
Gary Hooser: The reality of today’s economic environment is no one at all should be paying $10.10 an hour, that’s the minimum wage now. If they are, shame on them. Most businesses are paying $15 an hour or so right now.
Workers deserve a living wage. Anyone who is working 40 hours a week deserves a roof over their head and food on the table, and that’s the bottom line for a lot of people. We value our workers.
Yes, prices will go up a little bit. I think the price of a plate lunch in 2026 might go up 60 cents or so, and I, for one, am willing to pay that 60 cents, if it’s going to mean workers are treated fairly.
Cruz: Nate, what are your thoughts?
Hix: Yes, I completely agree. One in three workers is paid below a livable wage and that’s something that none of us want to incur, right? Lowering the cost of living is a great idea, but again, the amount that we can lower that to help address the need is very small. Taxes that low-wage workers pay currently is around $1,000 a year.
Housing costs could maybe decline, but nowhere to the point to get us a $10.10 minimum wage. We’ve seen huge benefits from our previous minimum-wage increase.
The unemployment rate in 2014, when the minimum wage was $7.25, was 4%. When the $10.10 minimum wage came into effect in 2018, the unemployment rate went down below 2%. A record low. So Hawaii specifically has not seen these negative employment outcomes. Our workers have kept their jobs, gotten raises and been able to afford more of the needs that they have.
This is the data here locally, this is what the state studies have shown, and it’s about time we start looking at and following the data. This is the reality that workers are well below the $18 they need, and we have the toolkit at our disposal by raising the minimum wage.
Cruz: Gary Hooser also brought up the issues of housing and some of the other things that the lawmakers need to be looking at, and not just raising the minimum wage. Here’s more of what he had to say:
Hooser: Workers have been stuck at $10.10 an hour for the last four years. The chair of the House Labor Committee, Richard Onishi, has refused to even hear a bill last session. Speaker of the House Scott Saiki has refused to move one forward. I believe it speaks very poorly for a Legislature that is dominated by Democrats, a legislature that every year talks about how they support the minimum wage.
Workers are hurting, there are people living under bridges and in the bushes because they can’t afford a roof over their heads. It is shameful. Hawaii can do better and our state Legislature can do better. Thank goodness, the Senate and the governor have stepped up and said enough is enough: $18 by 2026.
The minimum wage is one very important component of making life affordable for the people of Hawaii. Housing is the other huge component. Affordable housing is non-existent for most people. That needs to be dealt with.
Low-income people are taxed too much, and there are some provisions to lower the taxes for low-income working people. I believe we should take the tax off of food and medicine — fresh food, not restaurant food — so when people go shopping at the supermarket or the farmers market, they’re not paying that extra 4.5%. There’s lots of things to do, but the minimum-wage increase is a foundational element that needs to be done and needs to be done now.
Cruz: Is there consensus between the two of you here, Jensen and Nate, about getting rid of some of the taxes on food like this?
Hix: Yes, I support it, for sure. But obviously, that is such a small portion of the overall cost. The cost of living for a single adult is around $39,000 per year. Removing $1,000 of taxes is great; absolutely should be done. But that brings the cost down to $38,000, which they’re still going to need an $18 minimum wage to get there. Obviously, I support it, it absolutely should happen, but it’s a drop in the bucket compared to the gap of workers who full-time are making only $21,000 a year now.
Cruz: We have another call coming in from the Big Island: Jim. from Kurtistown.
Jim: Yes. Can you hear me?
Cruz: Yes. What’s on your mind?
Jim: OK. I’m 61 years old. I retired early because I wasn’t making much money and the minimum wage is supposed to go up.
As far as I’m concerned, I spent my life working hard and getting a raise just to have it knocked back down by the minimum wage going up. I think really, we had to have the wage go up for everyone that’s below livable wage an equal percentage, just so people don’t get sent backwards after working so hard.
My second point was when they built the Grand Wailea [resort] on Maui, the original company had built an apartment building to house their employees and then subsidize the housing. So that’s another way that people can make it without higher wages, if they have subsidized housing by their employer.
Cruz: Well, we thank you for sharing your thoughts on this issue. Yes, housing costs are through the roof. It is a dilemma that we have to deal with.
We did also reach out to Tom Jones, he’s the co-owner of Gyotaku Restaurants, and he was the past chair of the Hawaii Restaurant Association. He expressed his concerns about a hike in the minimum wage.
Tom Jones: If you’re looking at restaurants, the actual labor cost itself will run somewhere between 20% and 35% before benefits. For every dollar you spend on an employee, you’re pretty much spending about 30 more cents in FICA and other taxes, fees, benefits.
Especially in Hawaii, we have mandatory health insurance for somebody who works over 20 hours a week. So there alone, it’s $550 or so — at least $450, if not $500 right now — per employee for their health insurance package per month.
If they work 40 hours a week, that’s probably about another $2.50 an hour that they’re getting in health benefits. That wouldn’t happen on the mainland. There’s no other state that has the Prepaid Health Care Act, so we’re already way ahead on that — something I think that the proponents of the minimum wage sometimes overlook is how much more we’re paying in those benefits.
Cruz: Jensen, talk about those other costs for small businesses.
Ahokovi: I can’t disagree with much of what Mr. Jones just said. This really brings in the other half of the debate that must be had on the minimum wage.
Frankly, the legislators are too focused on the amount of votes that they’re going to get from the minimum wage and they’re not focused on the bad economics. The fact is that minimum-wage policies are bereft of sound economics. They’re too focused on votes, and they’re not focused on the rationality and the possible consequences — not merely possible, the almost guaranteed consequences — of increasing these wages.
We live in an age of growing technology as well. What we also ignore is the fact that minimum wages incentivize the growth of automation. If you go to a McDonald’s here in Hawaii, or really anywhere, I can guarantee that what you’ll find inside is fewer cashiers and more automated kiosks.
Do we want a world where minimum wages are incentivizing the substitution of human capital for machinery and other automated goods? No, not necessarily. I don’t think so. Some jobs require human interaction and those jobs frankly are the jobs that are most easily substitutable as a result of making human capital and human labor artificially more expensive.
So when we look at restaurants specifically, I’m frankly worried that, once again, we have increased automation, minimum wage, besides the fact that there are obvious unemployment effects, obvious reduction in hours, obvious cuts of fringe benefits, we also ignore the fact that oftentimes we’re ignoring the kids who are 15, 16, 13, 14 years old right now who want to enter the labor force in, say, 2026 or in 2030 or 2034 and cannot because the barriers to entry that the minimum wage provides makes it difficult for the younger generation to enter the labor force because of the fact that the job that they would’ve had 10 years ago is now being managed by some computer.
Cruz: On that thought, we are going to a call from Maui. Peter, what’s on your mind? Peter from Wailuku. Hello, hello? Oh, we might have lost …
Cruz: Oh, Peter. Yes.
Peter: In my mind when I was growing up, our minimum wage jobs were basically for the kids straight out of high school. “Hey, you can work. Here’s what you gonna to make.” In my mind, if you’re trying to make a living on minimum wage, I think people need to set their goals a little higher because I don’t think that the intention of minimum wage is a living wage. It’s a starting point of the wage, basically.
Cruz: All right. Well, we thank you all for participating in our show today. We’ve just got a couple of minutes. Final thoughts? You’ve got a minute each. Jensen?
Ahokovi: I just implore people to understand that by virtue of being opposed to the minimum wage doesn’t mean that I’m opposed to any solution.
The working class is facing significant challenges and the way to solve those challenges is not by using demonstrably ineffective policies like the minimum wage.
We need to lower the cost of living via deregulating housing, lowering the tax burden on low-income people, and not by using policies like minimum wage that only address the symptoms and not the cause.
Cruz: Nate, final thoughts?
Hix: Thanks. Again, raising the minimum wage here in Hawaii has shown to be tremendously beneficial. The unemployment rate has lowered during the time the minimum wage has increased, and employment is at all-time highs. And workers have gotten raises across the entire spectrum, not just low-wage workers but workers in the middle as well.
This is a policy that has been effective in states across the nation, and fortunately, the Democratic Party has supported this. It’s absolutely necessary that the state, Senate, and the House pass $18 by 2026 to make sure working families are paid the wage they need to survive. Thank you very much.
Cruz: Well, thank you so much, Nate Hix, director of Living Wage Hawaii. Thank you, Jensen Ahokovi of Grassroot Institute. And we’d like to thank you, the listener, for joining us here on today’s show as we’ve had this discussion on the pros and cons of raising the minimum wage.
Again, the Senate has passed its version out and we are waiting for the House to take action on the bills to raise the minimum from $10.10 to whatever comes out in the wash.
Thanks again. If we didn’t get to you and you have a comment to share about today’s show, we ask you to call our talkback line at 808-792-8217. You can also send us an email at email@example.com. If you want to listen back to today’s show, you can check out “The Conversation” podcast at hawaiipublicradio.org.
I’m Catherine Cruz. Join us tomorrow for more of “The Conversation.”