The Heartland Institute
February 22, 2021
Chairman Rhoads, Chairman Dela Cruz, and Members of the Committee:
Thank you for holding a hearing on Senate Bill 676, legislation that would increase Hawaii’s minimum wage from $10.10 per hour to $12 by 2022.
My name is Samantha Fillmore, and I am a State Government Relations Manager at The Heartland Institute. The Heartland Institute is a 37-year-old independent, national, nonprofit organization and our mission is to discover, develop, and promote free-market solutions to social and economic problems. Heartland is headquartered in Illinois and focuses on providing elected officials on all levels reliable and timely research on important policy issues such as minimum wage hikes.
Minimum wage laws attempt to create a minimum standard of living to protect employees’ health and well-being by mandating a base level of pay from employers to certain covered employees. Minimum wage laws are highly disruptive, artificially manipulating pay and the workforce in an attempt to combat poverty. Policymakers must consider the serious consequences a minimum wage increase can have on employment rates and economic growth.
Minimum wage hikes have a myriad of unintended consequences to all businesses, especially small businesses—the backbone of the American economy. A minimum wage increase in Hawaii would force businesses to reallocate their costs to cover the increase in employees’ wages, ultimately forcing them to alter spending elsewhere to offset their newly increased labor costs. More times than not, this results in reduced hiring, a reduction in work hours, and increased prices for consumers. This is often the small margin between staying open and bankruptcy for small businesses, which typically operate on slim margins, to begin with.
Every state experienced some degree of state and federally imposed lockdowns and shelter-in-place orders due to the sudden onset of the coronavirus pandemic, which sent shockwaves throughout the small business ecosystem that are still being felt. Therefore, a minimum wage hike in 2021 could not be more ill-timed. In an analysis based on self-recorded closures in their database, Yelp estimates that 60 percent of U.S. businesses that have closed since the start of the COVID-19 pandemic have shut down permanently.
More specifically to the Aloha State, Hawaii has had the highest percentage of businesses both temporarily and permanently closed. When ranked by states, Hawaii tops the list with 9.4 permeant closures and 13.4 temporary closures per 1,000 businesses, according to Yelp’s Local Economic Impact Report.
Hawaii relies heavily on revenue from travel and tourism, two activities devastated by COVID-19. Reports from the Hawaiian Department of Business, Economic Development and Tourism from 2019 show approximately 30,000 people arrived in Hawaii daily. Unsurprisingly, this number plummeted to less than 500 at the height of the coronavirus lockdown. This led to Great Depression-like unemployment levels for Hawaiians. According to Wallethub, Hawaii experienced a mind-boggling 291 percent increase in unemployment from December 2019 to December 2020.
Furthermore, closed businesses don’t pay property taxes, income taxes, sales and use taxes, and the dozens of other licensing and regulatory fees that governments rely on for revenue. Therefore, minimum wage hikes, like the one being considered in Hawaii, could result in further restricting the revenue flow to the state, exacerbating the budget shortfall caused by the coronavirus pandemic. While seemingly politically popular, the downstream effects of a minimum wage increase would certainly create challenges for Hawaii’s budget over the long term.
Minimum wage hikes are never a viable economic solution. A 2007 study from economists at the University of California-Irvine and the Federal Reserve Board comprehensively examined the body of work on the subject and found 85 percent of the studies they considered credible demonstrate minimum wage hikes cause job losses for less-skilled employees. Furthermore, a 2010 study by economists at Cornell University and American University found no reduction in poverty in the 28 states that raised their minimum wage laws from 2003 to 2007.
Although attempts to bolster a minimum standard of living and protecting low-skilled workers in a pandemic-world are admirable, the evidence is clear: minimum wage hikes accomplish neither of these goals. Raising the Aloha State’s minimum wage to $12 per hour would do little to raise Hawaiians out of poverty while annihilating entry-level jobs throughout the state. As such, I would like to behoove legislators in Hawaii to consider all of the economic effects that Senate Bill 676 would inflict.
Thank you for your time today.
For more information about The Heartland Institute’s work, please visit our websites at www.heartland.org or http:/news.heartland.org, or call Samantha Fillmore at 312/377-4000. You can reach Samantha Fillmore by email at [email protected].