REPORT TITLE:
Labor; Minimum Wage


DESCRIPTION:
Increases the minimum wage by adopting a formula that uses half
the national average wage and multiplies it by the Hawaii cost-of
living differential.  Provides for automatic yearly update.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           637
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO MINIMUM WAGE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature supports the fundamental
 
 2 proposition that the minimum hourly wage paid to an employee
 
 3 should, at least, yield a basic "livable wage" to a person
 
 4 working 2,080 hours per year at the rate of fifty-two weeks a
 
 5 year and at forty hours per week.  This reflects the spirit and
 
 6 intent of the original minimum wage effected by the federal Fair
 
 7 Labor Standards Act of 1938.  The original minimum wage standard,
 
 8 which was deemed worthy of this spirit and intent, was that the
 
 9 minimum hourly wage should be one-half of the national average
 
10 hourly wage paid to non-farm, non-supervisory employees.
 
11      A weakness of this standard, based on a national average, is
 
12 that in areas of the country, such as the State of Hawaii where
 
13 the cost of living is substantially higher, the federal minimum
 
14 wage falls far below the original spirit and intent of a fairer
 
15 minimum wage.  For instance, during the 1994-1998 period, the
 
16 cost of living differential for the State from the national
 
17 average has been variously estimated by reputable sources to be
 
18 somewhere between twenty-five and forty per cent.  In fact, this
 
19 differential is commonly called the "paradise tax" and the "price
 

 
Page 2                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1 of paradise".
 
 2      Accordingly, the legislature has in recent times provided
 
 3 for a state minimum wage higher than the federal minimum hourly
 
 4 wage.  In 1995, for instance, the federal minimum wage was $4.25
 
 5 per hour while the State's was a dollar higher at $5.25.  But the
 
 6 present, 1999, federal minimum wage is $5.15 per hour while
 
 7 Hawaii's remains at only $5.25 an hour--just ten cents ahead of
 
 8 the federal minimum wage.
 
 9      A problem has developed over the years, both federally and
 
10 locally, with keeping the minimum wage current.  For instance, in
 
11 February 1995, the national average hourly wage was, according to
 
12 the United States Bureau of Labor Statistics, $11.31--yet the
 
13 federal minimum was was only $4.25 instead of the $5.65 that is
 
14 one-half $11.31.  Similarly, at a twenty-five per cent cost-of-
 
15 living differential, $5.65 multiplied by one hundred and twenty-
 
16 five per cent would have yielded a state minimum hourly wage of
 
17 $7.06 in February 1995.
 
18      But figured at the higher forty per cent estimate of the
 
19 state cost of living differential, the minimum wage yielded from
 
20 this formula would have been $7.91 (1/2 X $11.31 X 140% = $791).
 
21 Splitting the difference would have put the Hawaii state minimum
 
22 wage at approximately $7.50 per hour.
 
23      Using a more current figure for the non-supervisory national
 

 
Page 3                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1 average hourly wage of $12.93 (November, 1998), and assuming a
 
 2 twenty-five per cent higher cost-of-living differential for
 
 3 Hawaii--Hawaii's minimum wage today should be $8.08 according to
 
 4 the original federal intent ($12.93 X 1/2 X 125% - $8.08).
 
 5      There is an urgent need to always keep the minimum wage
 
 6 current with inflation.  This is vitally important to low-end
 
 7 wage earners who cannot afford even the slightest erosion of
 
 8 their wages caused by yearly cost-of-living inflation.  The way
 
 9 to achieve this is for this legislature to provide by law for an
 
10 automatic annual cost-of-living adjustment ("COLA") to the state
 
11 minimum wage.  This will effectively eliminate the periodic
 
12 controversy that arises each time the minimum wage becomes
 
13 unbearably eroded and bills to raise it have to be introduced to
 
14 this legislature.  These small annual incremental increases will
 
15 be easier for businesses to absorb.
 
16      The setting of the minimum wage is a market intervention
 
17 measure made necessary by another market intervention constantly
 
18 exercised by the United States Federal Reserve System (the
 
19 central banking system).  Part of the determination of how
 
20 interest rates are set is based on keeping a balance between
 
21 unemployment and inflation.  That means the Federal Reserve keeps
 
22 a certain amount of price inflation, amounting to constant wage
 
23 deflation, whether it be in the very low range of one to three
 

 
Page 4                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1 per cent per year as in recent years or at four to six per cent
 
 2 which previously was considered "normal".
 
 3      An average annual rate of inflation of two per cent over ten
 
 4 years means that after ten years an employee is receiving a
 
 5 paycheck worth only eighty cents to the dollar in real dollars
 
 6 from ten years ago.  For low-end wage earners who spend virtually
 
 7 every penny of their income on retail consumption and rent this
 
 8 is the equivalent of raising Hawaii's retail general excise tax
 
 9 rate to twenty-four per cent from the present four per cent at
 
10 the end of the ten years, assuming the minimum wage has not been
 
11 raised annually to compensate for inflation.
 
12      A common misperception is that raising the minimum wage has
 
13 serious negative consequences for both employers and employees,
 
14 as well as for "the economy" in general.  But many studies over
 
15 the years indicate that the negative effects are inconclusive to
 
16 negligible.  Perhaps that is because, in the aggregate, the
 
17 various positive and negative effects tend to cancel each other
 
18 out.
 
19      The most compelling evidence of the negligible negative
 
20 effects in raising the minimum wage is the failure of those who
 
21 are against raising the minimum wage to bring forth any credible
 
22 evidence that prior minimum wage raises in Hawaii or on the
 
23 continental United States ever caused any of the dire results
 

 
Page 5                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1 that were predicted.
 
 2      There is one very obvious and necessary positive effect,
 
 3 which is that low-end employees receive some immediate relief
 
 4 from the downward pressure of cost-of-living inflation on the
 
 5 real value of their paychecks.  But no restitution is made for
 
 6 wages lost in years with no raises in the minimum wage.
 
 7      An important general principle is involved with raising the
 
 8 minimum wage.  That principle is that a "rising tide lifts all
 
 9 boats".  In other words, raising the minimum wage has
 
10 traditionally had an overall ripple effect of eventually pushing
 
11 up all employee wages.  Obviously, sooner at the lower end.  That
 
12 means raising the minimum wage in response to cost-of-living
 
13 inflation can help all the employees in the State of Hawaii to
 
14 keep up with the eroding effects of price and rent escalation on
 
15 the real value of paychecks.
 
16      Other important benefits of raising the state minimum hourly
 
17 wage to a "livable wage" include:
 
18      (1)  A significant reduction in welfare payments from the
 
19           state general fund because a "livable wage" minimum
 
20           wage lifts some employees out of poverty and off the
 
21           welfare rolls;
 
22      (2)  It stimulates the local consumer economy by reducing
 
23           the profits derived from paying low wages and which are
 

 
Page 6                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1           taken directly out of the State by national and
 
 2           transnational "big box" retail sales corporations and
 
 3           thus increases the amount of money kept in circulation
 
 4           in the State's "local" economy;
 
 5      (3)  It increases tax revenue because more income means more
 
 6           income taxes paid as well as more retail general excise
 
 7           taxes paid as the result of raising employee-consumer's
 
 8           pay;
 
 9      (4)  It reduces the likelihood of state "budget shortfalls"
 
10           because it reduces welfare pay-outs and increases tax
 
11           revenues; and
 
12      (5)  It is the ultimate "public-private partnership" where
 
13           the private sector complies with the social
 
14           responsibility of ensuring that all of its employees
 
15           receive a basic "livable wage" especially in these
 
16           times when employees are exercising maximum social
 
17           responsibility through paying a significant amount of
 
18           their incomes in taxes.
 
19      In summary, raising the minimum wage to a "livable wage"
 
20 rewards work, reduces poverty and its many negative social
 
21 effects, enhances state revenues, and boosts the general economy
 
22 of the State.
 
23      The purpose of this Act is to raise the state minimum hourly
 

 
Page 7                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1 wage to a "livable wage" by using a formula that will consider
 
 2 the cost-of-living differential in Hawaii and provide for annual
 
 3 adjustments.
 
 4      SECTION 2.  Section 387-2, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "§387-2 Minimum wages.  Except as provided in section 387-9
 
 7 and this section, every employer shall pay to each employee
 
 8 employed by the employer wages at the rate of not less than
 
 9 [$3.85 per hour beginning January 1, 1988, $4.75 per hour
 
10 beginning April 1, 1992, and]:
 
11      (1)  $5.25 per hour beginning January 1, 1993[.];
 
12      (2)  $6.50 per hour beginning October 1, 1999; and
 
13      (3)  Beginning January 1, 2000, in order to accomplish a
 
14           basic "livable wage", the minimum hourly wage shall be
 
15           equal to one-half of the national average hourly wage
 
16           for non-supervisory employees multiplied by one hundred
 
17           per cent plus the current cost-of-living differential
 
18           percentage between the Hawaii and the average for the
 
19           United States as computed by the United States
 
20           Department of Labor for the previous calendar year;
 
21           provided that the director shall make an annual
 
22           adjustment and re-calculate the minimum wage for the
 
23           coming year by October 1, to be implemented on the next
 

 
Page 8                                                     
                                     S.B. NO.           637
                                                        
                                                        

 
 1           following January 1.
 
 2 The hourly wage of a tipped employee may be deemed to be
 
 3 increased on account of tips if the employee is paid not less
 
 4 than twenty cents below the applicable minimum wage by the
 
 5 employee's employer and the combined amount the employee receives
 
 6 from the employee's employer and in tips is at least fifty cents
 
 7 more than the applicable minimum wage."
 
 8      SECTION 3.  Statutory material to be repealed is bracketed.
 
 9 New statutory material is underscored.
 
10      SECTION 4.  This Act shall take effect upon its approval.
 
11 
 
12                              INTRODUCED BY:______________________