It's too late for now for Hawaii, but evidence against minimum-wage hikes keeps piling up

from Grassroot Institute, August, 2022

The issue will inevitably come around again, and next time let's hope our legislators do what is empirically, not politically, correct

Hawaii lawmakers approved a bill earlier this year that will nearly double the state’s legal minimum wage over the next six years, from $10.10 to $18 an hour — despite overwhelming evidence against such a move.

And that evidence keeps piling up. 

Just last month, the National Bureau of Economic Research published a paper by researchers from the University of Minnesota and the Federal Reserve Bank of Minneapolis, “Minimum Wages and Labor Markets in the Twin Cities,” that evaluated the effects of minimum-wage increases in the cities of Minneapolis and Saint Paul. 

The researchers — Loukas Karabarbounis, Jeremy Lise and Anusha Nath — found that  “establishments with larger exposure to the minimum wage experienced larger increases in their wage and larger declines in their jobs, hours and wage bill [than those with less exposure],” while “workers who are more exposed to the minimum wage experience significantly larger employment and earnings losses [than those with less exposure].”

Also last month, NBER published the findings of researchers from Stanford University, the University of Chicago and the University of Pennyslvania that looked at the issue from both short-run and long-run perspectives.

In their paper, “The Distributional Impact of the Minimum Wage in the Short and Long Run,” Erik Hurst, Patrick J. Kehoe, Elena Pastorino and Thomas Winberry said their “main message” was that “a permanent increase in the minimum wage to $15 has beneficial effects for low-earning workers in the short run but detrimental effects for them in the long run.” 

In the short run, they said, “even a sizable increase in the minimum wage induces only a small adjustment in the employment of workers who initially earn less than the new minimum wage. Hence, an increase in the minimum wage leads to an increase in labor income and welfare for such workers." 

Over time, though, they continued, "as firms reorganize their production in response to the higher minimum, they start substituting away from these workers on whom the minimum wage binds and towards those on whom it does not.”

Unfortunately, it’s too late now for Hawaii’s lawmakers to undo what they did in the 2022 legislative session. But if they really want to support those in poverty in the future, they will resist further interfering with the state’s delicate labor market other than to remove the regulatory barriers that make new and unskilled workers less employable.