Bill links minimum wage, cost of living

By Gordon Y.K. Pang
Advertiser Capitol Bureau

The hourly minimum wage in Hawai'i would be tied to increases in the federal cost of living allowance under a bill being debated in the state Senate.

State Labor Director Nelson Befitel and business leaders testified before the Senate Labor Committee against Senate Bill 2145, while labor organizations supported it.

Senate Labor Chairman Brian Kanno deferred a vote on the bill until tomorrow. Kanno, D-19th (Kapolei, Makakilo, Waikele), introduced the bill with Sen. Suzanne Chun-Oakland, D-13th (Kalihi, Nu'uanu).

The state's minimum wage is set by the Legislature. The minimum wage of $6.25 an hour went into effect on Jan. 1, 2003. It was raised to $5.75 on Jan. 1, 2002. The federal minimum wage is $5.15. Hawai'i, according to the U.S. Department of Labor web site, is one of 11 states whose minimum wage is higher than the federal amount.

Under the language of the bill, an adjustment would be made to the minimum wage each year based on increases to the federal cost of living allowance, a calculation used to determine Social Security benefits.

Befitel provided numbers showing that if the law were to be applied, minimum wage on Jan. 1, 2005, would increase to $6.38 an hour based on the 2.1 percent cost of living allowance that has been calculated for 2004. Using estimates provided by the Social Security Administration, showing annual increases in cost of living between 2.4 percent and 3 percent, minimum wage would rise to $7.32 an hour by January 2010.

The bill could hurt the state's economy just as it is recovering, Befitel said. "Raising the minimum wage will increase the cost of living in Hawai'i as businesses will simply have to raise their prices in order to make up for increasing wages," he said. "Our residents cannot afford to pay more for essential items."

He also warned that the bill could have the opposite effect of its intent if the cost of living allowance were to decrease.

To help those most needy, Befitel said, the Legislature should consider Gov. Linda Lingle's proposal to increase the standard deduction for those who file state income tax, a plan the administration believes would allow 19,000 low-income wage owners to be exempted from paying income taxes.

Mel Vios, government relations representative for the Hawai'i Society for Human Resource Management, said the bill could have a major effect on a company's costs because an increase in minimum wage would trigger pay increases for other employees in the company.

Terry Lau, political director for the Hawai'i State AFL-CIO, said the bill is necessary in Hawai'i where the cost of living is 25 percent higher than on the Mainland.

Raising the minimum wage would encourage those seeking to move off welfare rolls, Lau said, adding that "a solid body of contemporary research has found no job loss resulting from modest increases in the minimum wage."

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.

Correction: Nelson Befitel's name was incorrect in a previous version of this story.