The Senate last week approved a minimum wage bill that includes a tip credit, while the House version does not. Both versions go beyond the $7 threshold set by the administration.

The Senate version also would lower the unemployment insurance contribution for employers for three years, something the administration wants but had not previously tied to the discussion of minimum wages.

About 6 percent of the state's workers make minimum wage, and about half of those get tips, according to the state Department of Labor and Industrial Relations.

Debate over increasing the minimum wage comes as lawmakers look for ways to help Hawai'i residents cope with increasing costs, particularly for gasoline and housing.

It's important for the Legislature to increase the minimum wage this year "because of the high cost of living in the state, including the cost of high rents," said House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise). As overall prices rise, he said, "the buying power of our working people will be diminished."

Labor officials and others support the move, while business leaders say the costs to businesses go beyond the greater pay rate and could hurt hiring.

When first enacted by Congress in 1938, the concept of a minimum wage was that it would allow families to be able to meet basic financial needs, said Terry Lau, political director for the Hawai'i State AFL-CIO.

Today, he said, a family of four would have need a household income of at least $43,000 to meet those needs. That amounts to about $20.50 an hour in the case of a single wage earner.

"We're not even talking poverty wages at $8 an hour," Lau said.

But Jim Tollefson, Chamber of Commerce of Hawai'i president, said increasing the minimum wage to $8 by 2008 would mean more than a doubling of the rate since the early 1990s. No one opposes paying higher wages in principle, he said, but "it's a question of degree and it's a question of timing."

Tim Lyons, executive vice president of the Hawai'i Business League, told the House

Labor Committee that when the minimum wage goes up, so do employer contributions to temporary disability insurance, unemployment insurance and workers' compensation.

"As an employer, you only have so much money and if one of those (cost factors) goes up, you've got to either cut people or you've got to increase revenues," Lyons said.

Business leaders also cite the "stepladder" effect. While few workers make minimum wage, an increase triggers pay hikes for others up the wage ladder.

If lawmakers accepted these arguments, the minimum wage would never increase, said House Labor Chairman Kirk Caldwell. The rate, however, needs to go up to keep up with inflation. Caldwell, D-24th (Manoa), said that if it had kept up with decades of inflation, the minimum would be near $8.50 an hour.

James Hardway, assistant to state Labor Director Nelson Befitel, said the department estimates it would cost $7.64 to maintain the same purchasing power as $2.90 in 1979.

An increased minimum wage would hurt restaurants, which rely heavily on minimum wage earners, said Hawai'i Restaurant Association chairman Bill Tobin.

"If I can't afford to pay the higher minimum wage, I will need to cut back on job positions and hours," said Tobin, owner of Tiki's Grill & Bar. Tobin said any increase in the minimum wage should include a higher tip credit. While eight states do not have a tip credit, Hawai'i's 25-cent- an-hour credit is the only credit under $1 among the 42 states that have them.

The credit means that workers who earn tips, such as waiters, can be paid up to 25 cents less than the hourly minimum wage.

The difference between the proposed increases in the House and Senate bills probably means that the final proposal would need to be hashed out in conference committee, but Caldwell said he believes "there will be a minimum wage bill that comes out of the Legislature and goes to the governor."

The next move would then be up to Lingle, said Caldwell. "I think if it was vetoed ... , it's an issue that we probably would override on. But I question whether the governor will, in fact, veto it. I think it will depend on what the bill does."

Linda Smith, Lingle's chief policy adviser, said it's premature to say what the governor will do, because there is enough time in this year's session to craft a bill that would satisfy all parties.

Smith said the administration will consider supporting a wage increase if the amount goes up to no more than $7 an hour and if the tip credit increases.

Hardway, of the state Labor Department, said Hawai'i's tip credit has not increased since 1969 when the minimum wage was $1.60. An administration proposal would use a formula to calculate a tip credit, based on an individual employee's tips, that would shave as much as about $3 off the minimum wage.

The Senate proposal also gives employers what, in effect, would amount to a three-year drop in the maximum contribution they make to the unemployment insurance fund.

The proposed decrease is from $1,744.20 an employee to $378 per employee.

Lawmakers would need to significantly lower what's known as the maximum taxable wage base to achieve that saving, a plan strongly backed by the administration. Opponents worry that not enough will be left in the unemployment fund to cover a sudden jump in the jobless rate.

But Hardway said the unemployment fund had $388 million at the beginning of the year and paid only about $90 million in benefits last year. A three-year cap would save employers an estimated $198 million that could be put back into the economy, he said.

The administration sent each house a separate bill to lower unemployment taxes for employers. Neither received a hearing.

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