Higher minimum wage might backfire, report says

By Howard Dicus

HONOLULU (HawaiiNewsNow) - Economists at the University of Hawaii say raising the state's minimum, as the state legislature is considering, is "unlikely" to raise living standards and could have a greater negative impact than in other states.

UHERO, the UH Economic Research Organization, said in a Sunday analysis that the service orientation of the Hawaii economy is what increases the risk of such a move backfiring, a significant assertion given that the Hawaii Legislature has two separate bills in the current session to raise the minimum wage.

The UHERO analysis finds little research evidence to support either the argument of opponents that a higher minimum wage would kill a large number of jobs or the argument of supporters that it would rises the living standards of the working poor.

The current minimum wage in Hawaii is $7.25 an hour, which is also the national minimum wage, 29 times the originally minimum wage enacted late in the Great Depression. The vast majority of workers in Hawaii make more than that. One bill is the legislature could raise it by 50 cents in six months. Another, which reportedly has the governor's support, would raise it to $8.75 by July 2014. Both bills propose to index the minimum for inflation from now on.

President Obama has proposed raising the minimum wage nationally to $9 and index it for inflation, though there is no sign that it has any chance of passing Congress. The highest minimum wage in the nation, $9.19 an hour, is in Washington state. A uniform minimum wage nationwide would be worth more or less from one state to the next according to the local cost of living, which varies significantly from state to state.

UHERO says Hawaii's minimum wage is lower in real dollars - that is, accounting for inflation, than it was in the 1970s. The buying power of the minimum wage eroded significantly in the inflationary spiral of the 1980s and never recovered, so the current minimum wage in real dollars is commensurate with the $1.00 an hour minimum wage of the 1950s.

In 2009, minimum wage workers made up less than 5 percent of the work force, according to the U.S. Bureau of Labor Statistics, more more than 10 percent made less than $9 an hour. But it may be more in Hawaii, where 10 percent of workers are employed in food service, traditionally one of the lowest-paid occupations.

Nationally, however, a third of minimum wage earners are teens, so that there is surprisingly little correlation between minimum wages and living in poverty. "All but one recent study have found that past minimum wage hikes had no effect on poverty," UHERO said.

UHERO suggests that a better way to raise a large number of people from poverty without negative side effects would be to raise the Earned Income Tax Credit, which does not alter demand for unskilled workers. It costs the government tax revenue, though this can be offset by people getting off welfare. But there are administrative costs attendant to the Earned Income Tax Credit which do not apply to raising the minimum wage.

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