Minimum debate over minimum wage

by Keli’i Akina, PhD, President/CEO Grassroot Institute, January 28, 2022

We’re just over a week into the 2022 legislative session, and already, we are seeing behavior that calls into question the Legislature’s dedication to the principle of democratic debate.

Take, for example, the minimum-wage bill.

The Senate is currently considering SB2018, which would raise the minimum wage to $18 an hour by 2026. In this case, “considering” is a generous description of how the Senate has treated the bill. 

(UPDATE: Senate has now passed the minimum wage bill over to the House.)

The first hearing, in the Committee on Labor, Culture and the Arts, was on Monday, scheduled in a way guaranteed to depress the number of people planning to testify. 

After being approved by that committee un-amended, the bill was scheduled for decision-making in the Ways and Means Committee on Thursday. The committee gave the bill less than 3 minutes of consideration before approving it, with only Sen. Glenn Wakai noting any reservations.

This is a bill that would increase the minimum wage by 78% over the next four years while Hawaii’s businesses are still struggling to recover from the pandemic and lockdown. Yet, the Senate has tried to avoid any real debate on the issue.

Rather than host a full and nuanced discussion of the bill and its economic implications, the Legislature has surrendered that responsibility to op-eds, articles and hosted panels in the media. Those, of course, are important, but they cannot replace proper democratic debate.

Any senators who have looked at the written testimony submitted would have noticed a multitude of warnings from business owners that they could not survive such an extreme wage increase. Here is just a sample from some of the testimony submitted:

>> “These increases along with the state of Hawaii requirement of mandatory healthcare coverage would surely put an end to all three of our restaurants. We are happy to provide healthcare to our full time staff, and are happy to offer livable wages to our staff. We are creative in the ways we compensate our staff as all small business owners must be in order to survive during a global pandemic. This bill as currently written would surely cause us to shutter our doors.” ~ Alan Wiltshire; vice president operations, Shorefyre/Skybox Taphouse.

>> “Please understand that not all businesses can just raise our prices immediately in order to pay for the wage increases. Many companies such as mine sign contracts with other businesses, government entities and nonprofits, and these contracts are anywhere from one year to three years. [...] Companies cannot survive by running at a loss for a whole year because you have mandated we pay higher wages in the same year the bill was introduced! You are shooting us in the foot!” ~ Suzanne Zeng, small business owner.

>> “Rents increased, food cost increased and our profit margins are dropping year by year. Due to the high inflation, we had no other option to increase our scoop prices to $6.50 with the result that our sales have gone down. We simply have less people buying gelato from us, as the prices are perceived to be too high. With COVID, all of Hawaii’s small businesses are in jeopardy.[...]. Adding more legislative stress on small businesses by increasing labor cost will be detrimental to our businesses and livelihood. It is not a good time to increase minimum wage and as it will kill a lot of small businesses and restaurants.” ~ Dirk Koeppenkastrop, IL Gelato Hawaii.

In our own testimony on SB2018, the Grassroot Institute pointed to a new report from the National Bureau of Economic Research that debunks the notion that minimum-wage legislation has no effect on jobs. 

In a meta-analysis of recent research, the agency found that, regardless of how researchers interpreted data to support a particular position in the minimum-wage debate, there is a clearly negative effect on employment associated with minimum-wage increases: Across all studies, 78.9% of estimated employment elasticities were negative.

But the Legislature doesn’t need to rely on studies to tell them what will happen. It’s there in the testimony — and in a survey conducted by the Chamber of Commerce of Hawaii. 

If the wage goes to $15 or more, nearly half of businesses polled said they will have to reduce staff. If the wage goes to $18, almost 70% said they will reduce staff and 28% will have to lay off half their staff. At $18 an hour, about one-third of businesses said they will have to close entirely.

The data is clear. This bill might help a few workers, but it will cost jobs and it will close local businesses, especially small businesses that have been barely hanging on after the last few years.

Those who advocate for minimum-wage hikes are well-intentioned in their effort to help working families, but the minimum wage is the wrong tool for the job. Research demonstrates that wage hikes do nothing to reduce poverty, but simply redistribute wealth among low-income earners, with the counterintuitive effect of increasing the proportion of poor families.

What the minimum wage hike will do is raise costs, close businesses and put people out of work. All of these will contribute to increasing Hawaii’s high cost of living further.

Hawaii deserves a real and honest discussion of the minimum wage and the effects of an extreme wage hike. Instead, our Legislature is trying to push through a bill without engaging in debate.

I implore our representatives in the House to give this proposal the consideration it deserves — and listen to the many local business owners and employers who are trying to warn them.

E hana kākou! (Let's work together!)