How high is too high? We actually know a lot about minimum wage increases

The Economic Research Association of the University of Hawai‘i (UHERO) recently posted on an analysis of the potential effects of a minimum wage increase to $15 an hour, as proposed in two minimum wage bills this legislative session: HB 1191 and SB 789.

Disappointingly, UHERO’s analysis largely focuses on a discredited University of Washington study that claimed to find negative effects after Seattle raised its wage—and got a lot of media attention mainly because it went against the existing body of research. In fact, a few days before that paper was released, University of California, Berkeley, economists found that Seattle’s minimum wage increase had beneficial effects and drew almost no headlines.

While UHERO notes one important critique of the University of Washington study, it minimizes the seriousness of its flaws. In fact, economists at institutions such as the Economic Policy Institute, the University of California, Berkeley, and the Center for American Progress have debunked it entirely and, as a result, some eminent economists who initially affirmed the paper have retracted their endorsements of it.

And UHERO fails to point out that the Seattle minimum wage increased by 37 percent in just one year, as opposed to an increase of 49 percent spread out over 4 or 5 years, which is what is being proposed in the current minimum wage bills before the legislature.

UHERO also entirely overlooks two recent and impressively large studies of minimum wage increases. Both analyses looked at state-level minimum wage increases between 1979 and 2016. The first paper, published in 2017, looked at 137 wage increases over that 37 year period, while the second study, published in January of 2019, looked at 138 increases.

Both studies concluded that low-wage workers saw pay gains after minimum wage increases went into effect, while there was little to no change in the overall number of low-wage jobs. They confirm the consensus of the vast majority of research that’s been conducted on the minimum wage over the past two decades: minimum wage increases do not hurt the job prospects of low-wage workers.

UHERO also states in its analysis, “Clearly, many more workers in Hawaii will be impacted in a move from $10.10 to $15 than the increase from $7.25 to $10.10 over the past four years.” However, that doesn’t seem so clear. When you look at our state’s recent increase of 39.3 percent over 4 years, that averages to 9.8 percent per year. Meanwhile, SB 789 proposes an increase of 49.5 percent over 5 years, for an average of 9.7 percent per year.

And what would that impact be? As the minimum wage in Hawai‘i rose between 2015 and 2018, our state’s unemployment rate dropped by 52 percent. And since 2015, there has been a 22 percent increase in restaurant server jobs, which are mostly paid at the minimum wage.

More importantly, though, we need to remember that we’re talking about the livelihoods—and lives—of real working people and their families here in Hawai‘i. Last week, Hawai‘i Appleseed released a new report to bring the focus back to those who would benefit from a wage increase.

We found that an estimated 208,000 workers would be directly affected if the wage were increased to $17 by 2024. In addition, 61,000 workers who earn slightly above the minimum wage would also get raises, or be indirectly affected. This increase would improve the pay of a wide range of workers:

  • The majority of affected workers would be women (55.7 percent). Close to half of women working in Hawai‘i would be affected (47.8 percent).
  • 46.4 percent of Native Hawaiian workers, and 64.3 percent of Pacific Islander workers, would be affected by the minimum wage increase.
  • Over a quarter (28.7 percent) of affected workers would be parents. Over half (52.9 percent) of single parents would be affected.
  • Only 4.5 percent of directly or indirectly affected workers would be teenagers. Over three in four (78.3 percent) of affected workers would be age 25 or older.
  • Over half (51.1 percent) of affected workers would have at least some college education.
  • Nearly two-thirds (65.8 percent) of retail workers, and over four in five (80.6 percent) of restaurant and food service workers would be affected.

Raising the minimum wage would boost not just the pay of many struggling Hawai‘i workers and their families; it would also boost the local economy. That’s because low-wage workers spend almost every additional dollar of earnings back into the local economy. If the wage rose to $17 by 2024, Hawai‘i’s minimum and near-minimum wage workers would receive a total pay increase of over $1.3 billion to spend at local businesses.

UHERO concludes by stating, “The point we are trying to make is not that the $15 minimum is too high, but that it is well outside the range that has been studied extensively for U.S. minimum wage changes over the past 25 years,” suggesting a cautious approach.

By contrast, in 2014—the last time the state legislature passed a minimum wage increase—UHERO posted about “the growing body of economic evidence that small minimum wage increases reduce poverty and have little or no adverse effects on employment levels,” and did not suggest moving with caution, despite the fact that the bill that they were looking at that year would have raised the minimum wage by 38 percent over 3 years—a faster increase than what this year’s bills are proposing.

The bottom line is that Hawai‘i’s struggling low-wage workers and their families can’t wait for a raise. At $10.10 an hour, a minimum wage worker is currently making only $21,000 a year for full-time work. We all know that’s not enough to cover a person’s basic needs, here in the most expensive state in the nation.