REPORT TITLE: 
Minimum Wage


DESCRIPTION:
Raises the state minimum hourly wage to be a "livable wage",
based on a formula, and to provide for an automatic yearly cost-
of-living adjustment to the minimum wage.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            825         
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                     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 should, at least, yield
 
 3 a basic "livable wage" to a person working two thousand eighty
 
 4 hours per year at the rate of fifty-two weeks a year and at a
 
 5 forty hours per week.  This reflects the spirit and intent of the
 
 6 original minimum wage effected by the federal Fair Labor
 
 7 Standards Act of 1938.  The original minimum wage standard was an
 
 8 hourly wage of one-half the national average hourly wage paid to
 
 9 nonfarm, nonsupervisory employees.
 
10      A weakness of a standard based on a national average is that
 
11 in areas of the country such as Hawaii, where the cost of living
 
12 is substantially higher, the federal minimum wage falls far below
 
13 the original spirit and intent of a fair minimum wage.  For
 
14 instance, during the 1994-1998 period, the cost of living
 
15 differential between the Hawaii average and the national average
 
16 has been estimated between twenty-five and forty per cent.  In
 
17 fact this differential is commonly called the "paradise tax" or
 
18 the "price of paradise."
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      Accordingly, the legislature has in recent times provided
 
 2 for a state minimum wage higher than the federal requirement.  In
 
 3 1995, the federal minimum wage was $4.25 per hour while the
 
 4 State's was a dollar higher at $5.25.  But the present 1999
 
 5 federal minimum wage is $5.15 per hour while Hawaii's remains at
 
 6 only $5.25 an hour, just ten cents ahead of the federal
 
 7 requirement.
 
 8      A problem has developed over the years, both federally and
 
 9 locally, with keeping the minimum wage current.  According to the
 
10 U.S. Bureau of Labor Statistics, in February 1995, the national
 
11 average hourly wage was $11.31, yet the federal minimum wage was
 
12 only $4.25 instead of the $5.65 or one-half the national average.
 
13 Similarly, a twenty-five per cent cost-of-living differential
 
14 applied to $5.65 would have yielded a state minimum hourly wage
 
15 of $7.06 in February 1995.
 
16      Based on the forty per cent estimate of the state cost of
 
17 living differential, the minimum wage would have been $7.91.  The
 
18 average of the low and high differentials would be $7.50.
 
19      Using a more current figure, for the nonsupervisory national
 
20 average hourly wage of $12.93 (November 1998), assuming a twenty-
 
21 five per cent cost-of-living differential for Hawaii, Hawaii's
 
22 minimum wage today should be $8.08.
 

 
 
 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      There is an urgent need to adjust the minimum wage for
 
 2 inflation.  This is vitally important to low-end wage earners who
 
 3 cannot afford even the slightest erosion of their wages caused by
 
 4 yearly cost-of-living inflation.  An automatic annual cost-of-
 
 5 living adjustment to the state minimum wage will eliminate the
 
 6 controversy attending any proposed increase of the minimum wage.
 
 7 Such small annual incremental increases will be more easily
 
 8 absorbed by business. 
 
 9      The setting of the minimum wage is a market intervention
 
10 measure made necessary by another market intervention constantly
 
11 exercised by the U.S. Federal Reserve System (Fed).  Part of the
 
12 determination of how interest rates are set is based on keeping a
 
13 balance between unemployment and inflation.  That virtually
 
14 always means the Fed is keeping in effect a certain amount of
 
15 price inflation which amounts to constant wage deflation, whether
 
16 it be in the very low range of one to three per cent per year as
 
17 in recent years or at the four to six per cent previously
 
18 considered normal.
 
19      An average annual rate of inflation of two per cent over ten
 
20 years means that after ten years an employee is receiving a
 
21 paycheck worth only eighty cents to the dollar in real dollars
 
22 from ten years ago.  For low-end wage earners who spend virtually
 
23 every penny of their income on retail consumption and rent, that
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 is equivalent of raising Hawaii's retail general excise tax rate
 
 2 to twenty-four per cent from the present four per cent at the end
 
 3 of the ten years, if the minimum wage has not been raised
 
 4 annually to compensate for inflation.
 
 5      A common misperception is that raising the minimum wage has
 
 6 serious negative consequences for both employers and employees;
 
 7 as well as for the economy in general.  But many studies over the
 
 8 years indicate that the negative effects tend to cancel each
 
 9 other out.
 
10      The most compelling evidence of the negligible negative
 
11 effects in raising the minimum wage is the failure of those who
 
12 are against raising the minimum wage to bring forth any credible
 
13 evidence that prior minimum wage raises in Hawaii or on the
 
14 continental U.S. ever caused any of the dire results that were
 
15 predicted.
 
16      But there is one very obvious and necessary positive effect,
 
17 low-end employees receive some immediate relief from the downward
 
18 pressure of cost-of-living inflation on the real value of their
 
19 paychecks.  But no restitution is made for wages lost in years
 
20 with no raises in the minimum wage.
 
21      An important general principle is involved with raising the
 
22 minimum wage: raising the minimum wage has traditionally had an
 
23 overall ripple effect of eventually pushing up all employee
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 wages, and sooner at the lower end.  That, in effect, means that
 
 2 raising the minimum wage in response to cost-of-living inflation
 
 3 helps all the employees in the State to keep up with the eroding
 
 4 effects of price and rent escalation on the real value of
 
 5 paychecks.
 
 6      Other important benefits of raising the state minimum hourly
 
 7 wage to be a "livable wage" are as follows:
 
 8      (1)  A significant reduction in welfare payments from the
 
 9           state general fund because a "livable wage" minimum
 
10           wage lifts some employees out of poverty and off the
 
11           welfare rolls;
 
12      (2)  It stimulates the local consumer economy by reducing
 
13           the profits derived from paying low wages and which are
 
14           taken directly out of the State by national and
 
15           transnational "big box" retail sales corporations and
 
16           thus increases the amount of money kept in circulation
 
17           in the State's local economy;
 
18      (3)  It increases tax revenue because more income means more
 
19           income taxes paid as well as more retail general excise
 
20           taxes paid as the result of raising employee-consumers'
 
21           pay;
 
22      (4)  It reduces the likelihood of state "budget shortfalls"
 
23           because it reduces welfare pay-outs and increases tax
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1           revenues; and
 
 2      (5)  It is the ultimate public-private partnership where the
 
 3           private sector complied with the social responsibility
 
 4           of ensuring that all of its employees receive a basic
 
 5           livable wage.  
 
 6      In short, raising the minimum wage to be a livable wage
 
 7 rewards work, reduces poverty and its many negative social
 
 8 effects, enhances state revenues, and boosts the general economy
 
 9 of the State.
 
10      The purpose of this Act is to raise the state minimum wage
 
11 and establish an automatic adjustment for the minimum wage to
 
12 help Hawaii's employees keep up with annual cost-of-living
 
13 inflation.
 
14      SECTION 2.  Section 387-2, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "�387-2 Minimum wages.  Except as provided in section 387-9
 
17 and this section, every employer shall pay to each employee
 
18 employed by the employer wages at the rate of not less than
 
19 [$3.85 per hour beginning January 1, 1988, $4.75 per hour
 
20 beginning April 1, 1992, and] $5.25 per hour beginning January 1,
 
21 1993[.], and $6.50 per hour beginning October 1, 1999.  Effective
 
22 January 1, 2000, in order to accomplish a basic livable wage, the
 
23 minimum hourly wage shall be adjusted to be equal to one-half the
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 national average hourly wage for nonsupervisory employees
 
 2 multiplied by one hundred per cent plus the then current cost of
 
 3 living differential percentage between the State of Hawaii's cost
 
 4 of living and the average cost of living for the United States of
 
 5 America as a whole.
 
 6      Beginning January 1, 2001, and each January 1 thereafter,
 
 7 any cost-of-living inflation percentage registered during the
 
 8 preceding calendar year shall be added to one hundred per cent
 
 9 and multiplied by the preceding year's minimum wage in order to
 
10 set the cost-of-living adjustment for the new annual minimum
 
11 wage.
 
12      The annual adjustment to the state minimum wage shall be
 
13 completed by October 15 of each year by the director using
 
14 available data from the federal Bureau of Labor Statistics, the
 
15 department of business, economic development, and tourism, and
 
16 other applicable and reliable sources and implemented each year
 
17 beginning on January 1.  The hourly wage of a tipped employee may
 
18 be deemed to be increased on account of tips if the employee is
 
19 paid not less than twenty cents below the applicable minimum wage
 
20 by the employee's employer and the combined amount the employee
 
21 receives from the employee's employer and in tips is at least
 
22 fifty cents more than the applicable minimum wage."
 

 
 
 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      SECTION 3.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 4.  This Act shall take effect upon its approval.
 
 4 
 
 5                           INTRODUCED BY:  _______________________