Last week’s commentary set off a string of responses, largely from small business owners concerned they will have to reduce their number of employees in order to accommodate a higher minimum wage.
Some of those businesses also report they use part-time workers to avoid providing benefits required for full-time employees. Others claim they already pay more than minimum wage for those who possess the skills or work ethic that make them great employees. What most of these businesses fear with a rise in the minimum wage is wage or salary compression — where a rise in the minimum wage pushes up against what employers pay experienced workers. These employees will look at their colleagues earning the minimum and ask to be paid more because their unskilled co-workers are getting more. This puts pressure on payroll costs, especially for companies operating with a thin profit margin, such as grocery stores and restaurants.
Where do elected officials think businesses will get the money to pay these proposed higher wages? Advocates point out that 21 states already pay more than the federal minimum. What they fail to note is most of those states have thriving industries. Washington, for example, is home to Boeing, Amazon and Microsoft. On the other hand, Hawaii is dependent on the visitor industry, which is subject to the whims of the leisure travel market, and on federal spending, which is about to be curtailed. While these two giant industries overshadow all other activities, the backbone of Hawaii’s business community is the small business and the budding entrepreneur.
To accommodate a higher minimum wage, small businesses will have to trim other costs if they can, raise their prices or shrink their workforce. At a time when unemployment continues to be worrisome, the latter option is untenable. Instead of increasing job numbers, a hike in the minimum wage will force businesses to reduce their workforce or freeze wages.
An interesting twist is government itself. While public employees enjoy the benefits of collective bargaining and have advocates who bargain for their wage increases, organizations dependent on state and county contracts do not. Observers cynically point out that while the state or federal government may increase the minimum wage, it is doubtful state or county contracts will be increased to accommodate contractors — largely nonprofit, social service organizations — who pay workers the minimum wage. Since these organizations have no way of increasing the cost of their services, they have no choice but to reduce the number of workers or the number of hours worked.
The other quirk in Hawaii’s minimum wage law is that although the federal minimum wage law allows employers of workers who earn tips or gratuities to be paid up to 50 percent of the federal minimum wage, the Hawaii differential is only 25 cents. The concept of a tip credit wage is that the tipped employee has an opportunity to earn substantially more in gratuities for superior service. These workers include waiters, bell persons, valets and tour guides. This law allows employers to pay a little more to those who don’t receive gratuities, like dish washers and food prep assistants in the “back of the house.” However, with only a 25-cent differential, there isn’t much to shift to the nontipped employees in Hawaii.
There are already programs in place to train the next generation of workers so that when they enter the workforce they will have skills to earn them more than minimum wage. The community colleges, in collaboration with the Department of Education, through the Career Technical Education program provides this kind of training so students not only stay in school to earn their diplomas, but further their education or join the workforce with skills that secure a job that will pay more than minimum wage. This is a boon for employers as they get trained workers, a commodity worth its weight in gold.
While increasing the minimum wage may be the politically correct position to advocate, elected officials should keep their sights trained on supporting a skilled workforce that will not only improve productivity but raise the standard of living for all workers.
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.