Civil Beat Article: Minimum Wage Hikes Have Had Little Long-Lasting Effect On Business

Minimum wage hikes might be tough for some local businesses, but a recent state study of the impacts of the 2014 minimum wage increase shows few effects on the labor market.


Arguments against wage increases typically include rising business costs which could lead to higher prices, layoffs or even some businesses shuttering their doors, which could be bad news for customers, who’d hate to see plate lunch prices rise or their favorite noodle stand disappear.


But many of the companies that voiced opposition to the last wave of minimum wage increases in 2014 are still afloat. Civil Beat reached out to a few and found that businesses have mostly been concerned with raising pay for all their employees each time a minimum wage increase happens.


There’s also concern over how the raises could affect small businesses in the state. While some still struggle with each wage increase, others have found success despite the hikes.


The worst fears over minimum wage increases have not come true for many businesses.


A January report from the state Department of Business, Economic Development and Tourism found that minimum wage increases have had little to no impact on the labor market.


More than a third of workers in the state earn $17 an hour or less, according to the DBEDT study. And less than 4% earn the current minimum wage of $10.10 an hour.


State lawmakers are considering a measure this legislative session that would raise the minimum wage to $13 an hour by 2024. The level was set as a compromise between workers and the business community, which this year supports the slight increase.


House Bill 2541, which proposes the wage increase along with tax relief measures for the working poor, cleared the halfway point in the Legislature last week.


Lawmakers have tried to find a balance between wage increases and appeasing businesses.

“How do we balance it so businesses can survive, which means our people have jobs and they can survive,” Senate Majority Leader J. Kalani English said Wednesday.


Some advocate groups have pushed for an increase to $17 an hour, and even lawmakers and Gov. David Ige considered raising it to $15 an hour just last year.


Companies Still Afloat

Most state employees, members of private workers unions, bank employees and even some fast-food workers already make more than $10.10 an hour. Some large companies have plans to raise wages to $15 an hour.


And businesses in some of those industries, particularly manufacturers, restaurateurs and hoteliers voiced much of the opposition to minimum wage increases in 2014.


While they haven’t shuttered their doors, several companies Civil Beat contacted for this story still worry about rising employment costs. Payroll often makes up 40% of operating expenses for businesses.

Many have raised their prices, which could happen regardless of wage increases. But the most common concern has been raising wages to stay competitive with other businesses.


“We will always be ahead of minimum wage,” said Peter Sit, resort manager at Pono Kai Resort on Kauai. “No one will work for you if you pay minimum wage.”


The Pono Kai Resort, like many other properties in the state, already pays its employees above the minimum wage.


Pono Kai, just north of Lihue in Kapaa, employs about 77 staff, the majority of which are full time. The resort pays in the mid-range for hotels on the east side of Kauai, Sit said. And the resort has plans to raise its starting wage to $15 an hour by 2023.


Sit said he decided to raise Pono Kai’s pay scale after Ige’s campaign platform in 2018 included raising the minimum wage to $15 an hour.


When it comes to minimum wage, the majority of resorts and hotels in Hawaii try to stay competitive in the labor market.


That also means paying out medical benefits required under Hawaii’s prepaid health care law. Medical and dental benefits average about $700 per employee every month at Pono Kai, Sit said.


“That’s the only way we can keep our employees,” he said, adding that full-time staff also get 20 days of paid leave each year. “If you don’t offer them that, they’ll just go somewhere else.”


Many of Pono Kai’s workers have been with the company more than 10 years, Sit said. Some even get more paid days off, plus extra medical benefits for family.


“I don’t consider it an economics question alone. I consider it a moral question.” — General contractor Erik Hay


While the new round of wage increases may not affect Pono Kai, Sit still says that if the wages rise too fast, it could mean cutting hours or workers.


Pono Kai is a timeshare property, and maintenance fees for owners usually rise at least 3% each year, Sit said.


“We can only charge customers so much before they say enough is enough,” he said.


Effects On Labor

Studies on how wage increases affected employment in cities on the mainland have found varied results.


The DBEDT report noted that Hawaii paychecks don’t go as far as they would on the mainland. In fact, the current minimum wage of $10.10 an hour would be worth about $5 compared to the federal minimum wage of $7.25.


DBEDT found no negative effects on employment in jobs likely to be affected by a minimum wage increase, such as jobs in retail, food, service operations, housekeeping and cashiering.


Those results are based on a comparison between current pay levels in Hawaii, where minimum wage was upped to $10.10 in 2018, and a simulated situation in which a minimum wage increase never happened.


The study also looks at how future minimum wage increases could affect workers. Affected workers in this case would either see an increase in wages, have their hours cut, or be laid off.


This graph shows what percentage of the working population could be directly impacted by minimum wage increases.


Cutting back on hours has also been a talking point for the business community in opposing minimum wage hikes in the past.


“With that being said, these workers would still be benefiting; earning the same income while working fewer hours is generally considered an improvement in well being,” the study says.


About 24,400 workers in Hawaii earned the minimum wage in 2018. That’s about 3.8% of the state’s labor force. The study did not analyze a $13 an hour minimum wage, but such an increase could impact at least 93,000 workers in the state who make either $12 or less.


Those ages 16 to 24 and workers from families making less than $50,000 a year would be impacted the most by either a $12 or $15 an hour minimum wage, according to the report.


While that population of workers is most likely to feel the impacts of minimum wage increases, more than half of workers that could be affected by the increases have family incomes of over $100,000 a year.


“While younger people, workers from poorer families, and workers with no high school degree are far more likely to be affected, their small population size means they do not make up a plurality of affected workers,” the report says.



Small Businesses Still Get Business


Hamura Saimin in Lihue has served the same big bowls of Hawaii’s favorite noodle soup for more than 60 years. But each time the price for the beloved bowls goes up, Laurel Tanigawa, the saimin stand’s owner, notices that fewer people stop by to eat.


“In order to stay alive in this business, you’ve got to do whatever it takes,” Tanigawa said in a phone call Friday. “It’s hard, you know, because you can’t raise prices to an unreasonable amount. You’ve got to stay within the economics of the area.”


A 2018 paper from researchers at the University of California found that restaurants in San Jose passed added costs from wage increases to their customers by raising prices just over 1%. In developed countries, customers tend to be less sensitive to increases in food prices.


The effects of wage increases on small businesses across the state are ambiguous. Some can afford to pay their employees far above the minimum wage, while others may just be hanging on with any increase.


Contact Key Lawmakers

Senate Labor, Culture and the Arts Committee Chair Brian Taniguchi

sentaniguchi@capitol.hawaii.gov

808-586-6460


Senate Ways and Means Committee Chair Donovan Dela Cruz

sendelacruz@capitol.hawaii.gov

808-586-6090


Small businesses in the state employ about half of the private workforce, according to 2015 U.S. Census data.


The Hawaii Chamber of Commerce has long fought minimum wage increases because of the effect it could have on small businesses in the state.


Tanigawa says a large minimum wage increase could affect business and prices at Hamura Saimin, but it’s just one part of the many factors that affect costs of doing business.

Tanigawa also has to factor in shipping costs, among other things.


“We get stuck any which way you look at it,” Tanigawa said. “It’s a vicious circle that’s never going to stop. We’ll always need to increase prices.”


Other small businesses have found ways to succeed even with minimum wage hikes.

Since the last wave of minimum wage increases in 2014, Erik Hay, a general contractor on Oahu, has seen business rise, too.


Hay was one of several small business owners who voiced their support for wage increases to lawmakers in January.


When he first opened his contracting business, Hay started his workers at $20 an hour, he told a panel of lawmakers. Now, some of his top employees can earn up to $75 an hour.


Hay said that his workers are more productive. Last year, his company generated $5 million worth of business, he said.


“I don’t consider it an economics question alone,” Hay said of wage increases. “I consider it a moral question. What is the condition of the workers, as well as the company?”