Hawaii Risks Economic Catastrophe With $18 Minimum Wage

Governor David Ige (D-Hawaii) signed the first legislation across any state to raise its state minimum wage to $18/hour. This hike in Hawaii’s minimum wage will have disastrous consequences for the Hawaiian economy.

According to Maui Chamber of Commerce President Pamela Tumpap, more than 20% of businesses within Hawaii stated they would be forced out of business if this legislation was enacted. Now, businesses across Hawaii are mortified regarding the long-term impact that this legislation will have on its economy. High inflation has already been hindering the economy alongside fervent speculation of an imminent recession.

Photo Credit: Daniel Ramirez, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons

In addition, tourism makes up about 23% of Hawaii’s local economy. During the last recession, however, Hawaii saw a 14% decrease in tourism and a 22% decrease in visitor spending. The Hawaiian economy has only recently rebounded from the pandemic in which there was a 33% decrease in tourism in January 2022 compared to January 2020, and a 19% decrease in visitor spending. Small businesses will have little wiggle room to recover as the government has now imposed these mandatory increases in expenses on top of national economic conditions that look set to create long-term economic damage for many companies throughout the island.

The harms of this legislation also extend to Hawaiian industries that normally are negligibly affected by tourism rates. President of the Hawaii Food Industry Association, Lauren Zirbel, strongly criticized the legislation, arguing that, “Retail grocery operates on about a 1% profit margin, so if labor costs are to increase dramatically, there would be a corresponding link to increased food prices or changes to the labor market.” In other words, this legislation could have two problematic effects for Hawaiian consumers and workers. It could increase the cost of food prices, a segment of the economy that has already seen massive increases in costs during our current inflationary crisis. The bill could also result in a significant decrease of jobs. In the worst-case scenario, both consequences could occur. But there is no best-case scenario here.

Governor Ige pursued such an extreme minimum wage hike in spite of all these underlying, disconcerting economic conditions. This stubborn pursuit of such a radical policy agenda is in line with Democratic efforts to steamroll their agenda regardless of the harm it could cause during these uncertain economic times.

The inflexibility of Governor Ige parallels that attitude that the Biden Administration has shown towards its own push for a $15 federal minimum wage. Such a radical increase would force businesses in states with lower minimum wages (due to lower costs of living) to make similarly extreme expense hikes.

American for Tax Reform recently published a coalition letter warning of the dire consequences that a $15 federal minimum wage would have for workers nationwide. For example, they point to, “a recent study found that the Raise the Wage Act would kill over 108,000 jobs in Ohio, 106,000 jobs in Georgia, and 12,000 jobs in West Virginia. States like Maine and Montana would also lose thousands of jobs.” Additionally the letter details how the cost-benefit analysis does not make such a proposal beneficial in the long-term as, “ the CBO estimates the number of workers losing their job could greatly exceed the number of workers that would be pulled out of poverty…[and that there would be] a $9 billion reduction in family income and an increase in prices for all consumers.” Another CBO report shows that a $15 minimum wage could cost as many as 3.5 million jobs nationwide. 

The direst consequences of this piece of legislation will not fully kick in until 2026. In the meantime, Hawaiian legislators need to take notice of the response of their local business community to this legislation. Their warnings and concerns ought to inspire these legislators to reverse course on this damaging piece of legislation. Additionally, the Biden Administration and Congress should not be motivated to take similar actions as Hawaii. In fact, the response from Hawaiian businesses and national economists should make them wary of pursuing any minimum wage increase on the federal level.