Is Hawaiʻi Being Left Behind?
by Steven Bond-Smith and Erich Schwartz, UHERO, February 19, 2026
This post focuses on a key theme from our comprehensive report, “Beyond the Price of Paradise: Is Hawaiʻi being left behind?”
Across the United States, a number of regions that once thrived have struggled to adapt as their economies have changed. These “left-behind places” share a common pattern: a dominant industry stops growing, productivity stalls, and incomes stagnate. The local economy doesn’t necessarily collapse; it simply fails to keep pace as the rest of the country moves ahead, leaving residents with declining relative living standards and frustration with their economic situations.
Over time, these conditions fuel what scholars call the “geography of discontent” and the “revenge of the left-behind places”—communities where the mix of slow growth and fading opportunity translates into declining civic trust, sharper political polarization, and growing skepticism toward economic development itself. These dynamics often reinforce themselves. When growth stalls, public investment erodes and private confidence weakens, making it harder for regions to adapt. At the same time, frustration can fuel political reactions that undermine the very institutions needed to support recovery—slowing growth further and amplifying the sense that opportunity lies elsewhere. In other words, without careful intervention, it could get worse.
At first glance, Hawaiʻi does not fit the image of a left-behind region. It is desirable, expensive, and globally recognizable. Yet the economic data tell a more complicated story. When we look past Hawaiʻi’s high prices and focus instead on long-run growth and purchasing power and the trajectory for both of these factors, Hawaiʻi increasingly resembles regions that are well recognized to have fallen behind. This blog walks through the key evidence.
Tourism: A Long Boom Followed by Three Decades of Stagnation
For most left-behind regions, stagnation begins when their anchor industry stops growing. In Hawaiʻi, that industry is tourism. Tourism thrived after statehood, rising rapidly through the 1960s, 70s, and 80s. But around 1989, the expansion stopped. Since then, tourism spending has fluctuated around the same level, interrupted only by major global or local shocks like the Gulf War, Hurricane Iniki, the Asian Financial Crisis, 9/11, SARS, the Great Recession, and COVID-19. There is no sustained upward trend after the late 1980s.
This matters because tourism is Hawaiʻi’s economic backbone. When it stopped growing, the broader economy struggled to grow as well. That dynamic is a hallmark of left-behind regions: the dominant industry matures, and the economy plateaus with it.
Figure 1. Real Tourism Spending, 1964 to 2025 (constant 2024 dollars)
Tourism boomed after statehood but has plateaued since 1989, interrupted mainly by crises.
Hawaiʻi’s economy hasn’t kept up, especially once we account for prices
If we look only at real GDP per capita (adjusted for national inflation), the story is familiar. Hawaiʻi surged ahead of the US through the 1960s–80s. The “lost decade” of the 1990s hit Hawaiʻi hard. But after 2000, Hawaiʻi roughly matched U.S. growth, although from a lower level. Viewed this way, Hawaiʻi does not look as good as it once did, but it does not look like a left-behind place either. It appears to be a place that suffered a setback in the 1990s but broadly kept pace afterward.
But this picture leaves out a crucial detail: Hawaiʻi’s high cost of living. Even when prices are stable, a high price level erodes the real value of every dollar earned. A state can appear to keep pace in nominal or inflation-adjusted GDP yet still sit well below once local purchasing power is taken into account—and even tiny price increases chip away at income growth. To see a more accurate picture, we adjust Hawaiʻi’s GDP per capita for its consistently higher cost of living using UHERO’s CPI-based RPP. Once we make that adjustment, the story changes dramatically (Toggle Figure 2).
The price-adjusted data show that Hawaiʻi has not been keeping pace since the early 1990s at all. The mild recovery after the lost decade continued into a mild recovery from the Great Recession, and another after the COVID-19 pandemic. As a result, Hawaiʻi’s real purchasing-power-adjusted GDP per capita has barely grown for more than 30 years, diverging steadily from the rest of the country.
Figure 2A: Real GDP Per Capita and Compound Annual Growth Rates, Hawaiʻi and the US, 1964-2024
Hawaiʻi’s Real GDP per capita fell behind the US during the lost decade in the 1990s, but has otherwise mostly kept up.
In other words, Hawaiʻi’s economic stagnation is not a recent development. Once we account for local prices, the “lost decade” did not end in the 1990s; it is ongoing. This is the clearest quantitative evidence that Hawaiʻi is becoming a left-behind economy.
How Do States Compare?
Economic distress is defined in federal policy using thresholds based on per capita income and unemployment. Under the U.S. Economic Development Administration’s criteria, a region is considered economically distressed if its per capita income is less than 80% of the U.S. average or its unemployment rate is at least one percentage point above the national rate for 24 months. These thresholds determine eligibility for certain federal development programs, including support for Economic Development Districts (EDDs). So how does Hawaiʻi compare to other states when we use this criterion?
Figure 3A: Real GDP per capita compound average growth rate by state 2008-2023, and incomes 2023
Considering nominal incomes and growth suggests that Hawaiʻi is at risk of economic distress, but isn’t in the distressed group yet.
Without adjusting for prices, Hawaiʻi looks “at risk”. It’s not especially strong, but it’s not among the poorest-performing states. Growth is low, but local per capita incomes are only slightly below the national average. As might be expected, Hawaiʻi sits near Nevada and other middling performers. If this were the full picture, we might conclude that Hawaiʻi is underperforming but not fundamentally distressed. We categorize this group as “at risk.”
When incomes are adjusted for local prices (Toggle Figure), we also adjust the distress threshold proportionally. Without this adjustment, states with low incomes but also low prices would appear much better off despite being included in the regulated definition of economic distress. The federal benchmark (per capita income below 80% of the U.S. average) is defined using nominal incomes, which already reflect that distressed states tend to have lower living costs.
If the EDA’s 80% nominal-income rule is a reasonable benchmark for identifying economic distress, then the same states should continue to be classified as distressed after adjusting for prices. But because price adjustment compresses income differences across states, we also raise the threshold—from 80% to 90% of the U.S. average—to reflect this narrower range and provide a fair comparison.[1]
In the adjusted picture, Hawaiʻi’s RPP-adjusted income drops significantly because high prices reduce purchasing power. While Hawaiʻi is already expensive, adjusting for prices doesn’t change its growth rate much because prices are steady. Nonetheless, Hawaiʻi’s long run growth rate is among the lowest in the country.
But other states’ RPP-adjusted incomes are often adjusted upwards, reflecting their much lower prices. When measured on a cost-of-living–adjusted basis across all states, Hawaiʻi’s relative position shifts sharply downward. With the adjustment Hawaiʻi does not look like a high-cost version of Colorado or Washington. It looks like an even slower-growth version of West Virginia.
Why This Matters
Many narratives about Hawaiʻi focus on its cost of living: housing prices, groceries, energy, childcare, and taxes. Those are serious issues. But high prices alone don’t make a region left behind. Many of the most expensive regions in America—Seattle, Boston, New York, the Bay Area—are also among the most productive and highest-income.
What distinguishes Hawaiʻi is not only that it is expensive. It is that incomes and productivity have not kept up, and this has persisted for decades. When productivity stagnates for this long, regions typically experience slower wage growth, reduced economic mobility, increased outmigration, rising political discontent, difficulty sustaining public services, and declining resilience to shocks.
These are all features of left-behind places. Hawaiʻi is not simply expensive. It has been economically stagnant for more than 30 years, and the high cost of living masks the depth of that stagnation. The key implications are:
Cost-of-living policies are necessary but not sufficient. Lowering prices helps residents but does not fix the underlying trajectory.
Productivity and diversification must rise. The tourism plateau limits the growth path unless new high-value industries emerge.
Stagnation is self-reinforcing. If wages do not keep pace with opportunities on the continent, outmigration will continue even if prices fall.
Addressing the “left-behind” dynamic is urgent. The longer growth remains weak, the harder it becomes to reverse.
Is Hawaiʻi being left behind?
The data suggest that it is, though not in the same way as traditional left-behind regions. In Hawaiʻi’s case, the high cost of living may even mask these structural weaknesses and the extent of its economic decline. Adjusting for those costs reveals a large and growing gap between Hawaiʻi and the U.S. overall, akin to that of some of the most economically distressed states in the country.
To change course, Hawaiʻi will need to confront the structural sources of its low productivity growth and create space for new economic opportunities beyond tourism. The alternative is continued stagnation and continued outmigration—a trajectory that has already reshaped the state more than many realize.
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[1] In a separate paper (currently in progress), we estimate empirically that the price-adjusted threshold for economic distress is approximately 94.6%. Using a 90% cutoff here is therefore a conservative adjustment.