February 14, 2017
9:00 AM
Conference Room 016

To: Senate Committee on Judiciary & Labor
Sen. Gilbert S.C. Keith-Agaran, Chair
Sen. Karl Rhoads, Vice Chair

From: Grassroot Institute of Hawaii
Joe Kent, Vice President of Research

RE: SB107 – RELATING TO MINIMUM WAGE

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB107, which would increase the minimum wage to $15/hour by 2019 and remove the “tip credit” for employees whose wage includes tips.

Grassroot Institute is deeply concerned about the possible effect of this legislation on the state’s small businesses and economy—especially in the case of restaurants, which are already notorious for their razor-thin profit margins. Moreover, we believe that this bill will fail in its intent to help lift the state’s working families out of poverty. As our previous research on the issue found, increasing minimum wage benefits only a small proportion of low-income working families while raising the cost of low-skilled labor by a significant degree. In addition, an increase in the minimum wage will reduce teenage employment—an item that is often overlooked, but should be taken seriously by those looking to ensure the long term health of our economy.

Under the current proposal, the minimum wage is increased from $9.25 to $15.00 in a two year period. This means that the annual full-time costs for low-skilled labor (40 hour workweek) will increase by $11,960, which represents a 62% increase. For companies that primarily employ low-wage workers, this is a significant increase in labor costs—one they may choose to absorb by hiring fewer workers and raising prices. It is hard to imagine how further raising the cost of living and creating higher unemployment benefits the state economy.

The removal of the tip credit is an additional source of concern. The lack of a tip credit places a substantial burden on restaurants, which will be forced to privilege wait staff (who already average, with tips, salaries well above minimum wage) over back-of-the-house and non-tipped staff. In effect, this bill makes it more difficult to raise the dishwasher’s pay because the restaurant owner is required to spend even more on the sommelier.

Grassroot Institute of Hawaii looks for solutions that would strengthen our state’s economy and benefit both businesses and employees. You have heard from multiple representatives of Hawaii’s business community that this bill will not only be a burden, but that it will also have a negative effect on employment in general. Not only will companies in Hawaii be forced to lay off workers or cut hours or benefits in order to afford increased wages, but they are also likely to slow (or even eliminate) new hiring.

If we want to establish our state as a desirable place to do business, we cannot continue to treat company earnings as an endless well for the state to draw from on demand. A combination of tax relief and a reduction in the obstacles that the state places on business and entrepreneurship in Hawaii is the best way to move forward in improving both our economy and the situation of low-wage workers … not a minimum wage bill that will do little to help working families, while placing a significant burden on small business.

Thank you for the opportunity to submit our testimony.