Impact of Minimum Wage Increases on Hawaii, a cautionary tale

Abstract:

This study analyzes the impact of increasing the minimum wage by 80% in Hawaii, a distant island archipelago heavily dependent on the labor-intensive tourism industry, by focusing on the lower end of the salary spectrum.   It does so by classifying labor into monotonically increasing salary categories rather than more traditional nominal skill classes.  This enables the precise and variable shocking of regionally based salary categories reflecting the impact of change in Hawaiian minimum wage using a static multiregional CGE model, Term USA, under conditions of short-term closure.  The results highlight the fact that without concurrent decrease in the returns to capital, Hawaii might be tempted to pursue unsustainable levels of tourism a path which past minimum wage increases appears to have placed them on.  Thus, this is a cautionary tale, not necessarily of what will happen but certainly what could happen and the results are not environmentally welcome.

Keywords: Hawaii, Computable General Equilibrium Model, tourism, environmental sustainability

Authors: