Makes adjustments in the minimum hourly wage based on national
average hourly wages.

THE SENATE                              S.B. NO.           819
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 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 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 this State, where the cost
13 of living is substantially higher, the federal minimum wage falls
14 far below the original spirit and intent of a fairer minimum
15 wage.  For instance, during the 1994-1998 period, the cost-of-
16 living differential for the State from the national average has
17 been variously estimated by reputable sources to be somewhere
18 between twenty-five and forty per cent.  In fact this
19 differential is commonly called the "paradise tax" and the "price

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 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.
 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 U.S. Bureau of Labor Statistics, $11.31 -- yet the federal
13 minimum wage was only $4.25 instead of the $5.65 that is one-half
14 of $11.31.  Similarly, at a twenty-five per cent cost-of-living
15 differential, $5.65 multiplied by one hundred twenty-five per
16 cent would have yielded a state minimum hourly wage of $7.06 in
17 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.  Splitting the difference
21 would have put the State's minimum wage at approximately $7.50
22 per hour.
23      Using a more current figure for the non-supervisory national

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                                     S.B. NO.           819

 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
 4 to the original federal intent.
 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 to the state minimum
11 wage.  This will effectively eliminate the periodic controversy
12 that arises each time the minimum wage becomes unbearably eroded
13 and bills to raise it have to be introduced to this legislature.
14 And these small annual incremental increases will be easier for
15 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 U.S. Federal Reserve System.  Part of the
19 determination of how interest rates are set is based on keeping a
20 balance between unemployment and inflation.  That virtually
21 always means the Federal Reserve System keeping in effect a
22 certain amount of price inflation which amounts to constant wage
23 deflation -- whether it be in the very low range of one to three

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                                     S.B. NO.           819

 1 per cent per year as in recent years or at the four to six per
 2 cent previously 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 -- if the minimum wage has not been
11 raised annually to compensate for inflation.
12      A common misconception is that raising the minimum 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

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                                     S.B. NO.           819

 1 that were predicted.
 2      But there is one very obvious and necessary positive effect
 3 -- low-end employees receive some immediate relief from the
 4 downward pressure of cost-of-living inflation on the real value
 5 of their paychecks.  But no restitution is made for wages lost in
 6 years with no raises in the minimum wage.
 7      An important general principle is involved with raising the
 8 minimum wage.  And, that principle is that a "rising tide lifts
 9 all boats".  In other words, raising the minimum wage has
10 traditionally had an overall ripple effect of eventually pushing
11 up all employee wages.  And sooner at the lower end.  And that,
12 in effect, means that raising the minimum wage in response to
13 cost-of-living inflation helps all the employees in the State of
14 Hawaii to keep up with the eroding effects of price and rent
15 escalation on the real value of paychecks.
16      Other important benefits of raising the state minimum hourly
17 wage to be a "livable wage" are as follows:
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

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                                     S.B. NO.           819

 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-consumers'
 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" -- in these times when
16           employees are exercising maximum social responsibility
17           through paying a significant amount of their incomes in
18           taxes.
19      In short, raising the minimum wage to be 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

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                                     S.B. NO.           819

 1 wage to be a "livable wage" according to the formula as follows:
 2 the state hourly minimum wage shall be equal to one-half the
 3 national average hourly wage for non-supervisory employees
 4 multiplied by one hundred per cent -- plus the cost-of-living
 5 differential percentage between Hawaii's cost-of-living and the
 6 average cost-of-living for the continental United States of
 7 America.
 8      Further, the purpose of this Act is to provide for an
 9 automatic yearly cost-of-living adjustment to the minimum wage so
10 that it helps Hawaii's employees keep up with annual cost-of-
11 living inflation.
12      SECTION 2.  Section 387-2, Hawaii Revised Statutes, is
13 amended to read as follows:
14      "387-2 Minimum wages.  Except as provided in section 387-9
15 and this section, every employer shall pay to each employee
16 employed by the employer wages at the rate of not less than $3.85
17 per hour beginning January 1, 1988, $4.75 per hour beginning
18 April 1, 1992, [and] $5.25 per hour beginning January 1, 1993[.],
19 and $6.50 per hour beginning October 1, 1999.  Beginning
20 January 1, 2000, in order to accomplish a basic "livable wage",
21 every employer shall pay to each employee employed by the
22 employer wages at a rate of one hundred per cent of one-half the
23 national average hourly wage for non-supervisory employees plus

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                                     S.B. NO.           819

 1 the then current cost-of-living differential percentage between
 2 the State and the entire United States.  Beginning January 1,
 3 2001, and each January 1 thereafter, any cost of living inflation
 4 percentage registered during the preceding calendar year shall be
 5 added to one hundred per cent of one-half the national average
 6 hourly wage for non-supervisory employees in order to set the
 7 cost-of-living adjustment for the new annual wage required under
 8 this section.
 9      The director shall complete annual adjustments to the
10 minimum wage by October 15 of each year in time for
11 implementation the following January, using available data from
12 the federal Bureau of Labor Statistics, the department of
13 business, economic development and tourism, or other source.
14      The hourly wage of a tipped employee may be deemed to be
15 increased on account of tips if the employee is paid not less
16 than twenty cents below the applicable minimum wage by the
17 employee's employer and the combined amount the employee receives
18 from the employee's employer and in tips is at least fifty cents
19 more than the applicable minimum wage."
20      SECTION 3.  Statutory material to be repealed is bracketed.
21 New statutory material is underscored.

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                                     S.B. NO.           819

 1      SECTION 4.  This Act shall take effect upon its approval.
 3                           INTRODUCED BY:  _______________________