Laws to increase Hawaii's minimum wage are moving forward this legislative session despite small businesses, business organizations, and industry groups opposing them. Written from a labor perspective, they are absent business and economic realities. Yet, a version is likely to pass this year.
So why not just let it happen? Because we know it will hurt businesses, their employees and the public.
Lowell Kalapa of the Tax Foundation of Hawaii writes: "Stop and look at the issue from an economic and financial well-being standpoint instead of the emotional and social welfare perspective." In his article "Just a vicious circle, higher minimum wage, higher prices," he points out that the minimum wage was never considered a "living wage," but rather an entry level pay scale to help workers gain much needed experience to work toward a better paying job.
A minimum wage increase will hurt businesses by:
* Setting a new floor for unskilled labor, pushing their income closer to that of seasoned workers, creating a wage compression that results in higher wages paid across the board for many businesses.
* Increasing payroll taxes and fees associated with wages.
* Further eroding profit margins necessary to survive and employ people.
However, it hurts us too, as shown in this example from a chamber member.
A young man gets his first job at a burger house making $7 an hour. The burger sells for $7. Then, the government mandates that his employer raise his wage to $9 an hour. The employer has to add 50 percent above his employee's wages to cover insurance, payroll taxes unemployment, etc., so at $7 per hour his cost is $10.50. At $9 per hour, his cost is $13.50, which means the owner now has to pay $3 an hour more for the young employee who's doing the same amount of work.
The average business in this country works with an approximate 5 percent profit margin, but the owner's labor cost just went up by 28 percent. Additionally, those raising cattle for beef, cheese makers, tomato farmers have all had to raise wages for their entry-level workers too. So the price of all hamburger ingredients went up. Now the burger joint owner must raise the cost of his burgers 30 percent to break even. If 30 percent of his customers can't afford the higher price, the owner loses 30 percent of his business and has to lay off 30 percent of his workers. And, the remaining workers have to work 30 percent faster or the entire business fails.
Arbitrarily raising wages of one group only gives a handful of people an immediate boost while everyone suffers later. Soon the burger joint employee cannot afford the higher priced burger, and those that can pay the extra $4 have $4 less to spend elsewhere, hurting other businesses.
Small businesses are already reporting that they will have to reduce the number of positions in their organizations to pay for a higher minimum wage and/or reduce employees work hours to save money that now goes toward medical benefits. They do not want to do this and are fighting a minimum wage increase but feel government is tying their hands.
Some think businesses can keep paying more and more, without limit or negative consequence. They're wrong. In Hawaii, we do not have large industries like Amazon or Microsoft where they pay more than the federal minimum wage. We are dependent on the visitor industry, federal spending (currently challenged), and small businesses (not industry giants) for our survival.
Rather than hack away at businesses that create needed jobs, shouldn't we support them? You decide; we already have.
* Pamela Tumpap is president of the Maui Chamber of Commerce.