Hawaii’s extremely low unemployment doesn’t seem to be translating into much higher salaries. So what’s going on here in the islands?

Our unemployment rate is just 3.1 percent, and supply-and-demand logic suggests incomes should be rising quickly, including for the many low-wage earners who struggle most with our nation-leading cost of living.

Experts have concluded that the “natural unemployment” rate in Hawaii is around 4.5 percent, according to Eugene Tian, the chief state economist at the Department of Business, Economic Development and Tourism. “Natural unemployment” is the percentage of people who are in transition between jobs but are expected to find work in fairly short order.

Not only is our unemployment rate about one-third less than the “natural” rate, it has fallen consistently for the last five and a half years, and that positive trend could continue.

So what about salaries?

Hawaii's unemployment rate is remarkably low, but that doesn't appear to be driving wages up much across the board.

Hawaii’s unemployment rate is remarkably low, but that isn’t changing the cost-of-living equation as much as expected.

There is a lag in data, but the average weekly wage in Hawaii in March 2015 was $881. (That’s less than $30 more than a year earlier; hardly a life-changing increase, especially given rising housing costs.)

In Honolulu, the average weekly wage was $918, a fraction of weekly incomes in cities with a similar cost of living.

New York City’s average weekly wage was $2,847, while workers in Santa Clara in Silicon Valley earned $2,203 and in San Francisco received $2,070 weekly. The difference in those average numbers is partly due to some big money makers, which highlights large income disparities in those cities, but there is a benefit: more money circulates there.

Among counties, the 12-month percentage increase in pay in Honolulu ranked 81st nationally.

Translation: We appear to be making up only minimal ground, at best, on our high cost of living.

The Missing Salary Increase

A tight labor market — especially one where the unemployment rate is below what is natural —  “usually means that it is very hard to get people to fill jobs,” said Tian.

There are various ways to convince a choosy workers to accept you as an employer. The work environment and hourly flexibility can be important in getting prospective employees to choose you. The quality of health care coverage a business offers can be another factor.

But the main one often involves pay and, in a tight market, this means that hirers must outbid others to draw from the limited stock of qualified workers.

And at some point, this should apply even to low-skilled jobs with salaries so small that people can’t get by on them in the most expensive state.

But in some cases, bottom-end wages only seem to rise when policymakers boost the minimum wage — and Hawaii’s current rate of $8.50 per hour is slated to increase twice by 2018 to $10.10 per hour.

But a living wage for a single person in Hawaii is $13.74, according to MIT’s “living wage” calculator. In Honolulu, it’s $14.66. So the coming minimum wage increases will leave many people with inadequate incomes, especially those with children or other family members to support given that living wages for families are much higher.

It all raises the question: Why isn’t there more competitive pressure on employers to pay workers more?

Workers move fish onto plastic pallets then iced and placed onto floor for auction start. 16 dec 2015. photograph Cory Lum/Civil Beat

Workers move fish onto plastic pallets in preparation for the fish auction at the port in late 2015.

Cory Lum/Civil Beat

Hawaii’s Hidden Labor Pool

Carl Bonham, who is the executive director of the University of Hawaii Economic Research Organization, said there are many possible reasons why, despite a minimal “headline unemployment” rate, low-end wages haven’t increased much.

The main reason, in his analysis, is that there is a lot more available labor in the islands than there appears to be.

Bonham pointed to a broader but less utilized measure of unemployment, known as the U6 rate, which goes beyond just the people who receive regular unemployment checks. Sometimes referred to as the “real unemployment” rate, this includes people who have used up their unemployment benefits, stopped looking for work and people who are working part-time but wish they could find full-time work.

Hawaii’s “real unemployment” was, as of the end of September 2015, the most recent data available, 9.7 percent.

This means that employers can tap into a pool of potential workers that consists of nearly 10 percent of the labor force, so there isn’t nearly as much across-the-board wage pressure on them as there appears.

There has always been a discrepancy between the headline unemployment rate and the broader jobless measure. But the Great Recession that began in late 2008 enlarged the gap substantially.

City and County workers separate a backpack found on Ohe Street after a group of independent State of Hawaii contractor/workers hired to handle some of trash went through from the mauka end of Ohe Street picking up cardboard, coconuts and other trash just after 5am. 22 dec 2015. photograph Cory Lum/Civil Beat

Local government workers generally enjoy union-negotiated contracts, which tend to give them higher wages.

Cory Lum/Civil Beat

Hawaii’s “real unemployment” rate peaked at 16.9 percent in 2010, while the traditional unemployment rate never got higher than 7.1 percent.

Prior to the recession, the gap was far smaller. In 2005, when “headline unemployment” in the islands fell as low as 2.8 percent, the broader U6 unemployment measure for the year was 6.4 percent.

Bonham noted signs of broad hourly wage improvement for some workers, including in the hotel and food services sectors, but he said that the real median household income on Oahu is about the same as it was at the end of the 1990s.

Other factors also undermine wage increases, particularly at the low end of the pay scale.

For one, some people are willing to come to Hawaii to work for substandard wages in the short term due, in some cases, to the magnetic appeal of the islands and because they don’t understand how expensive life will be.

And locally, 6 percent of workers in Hawaii held at least two jobs in 2014; that’s 22 percent higher than the national average, according to the federal Bureau of Labor Statistics.

Some of them face off with the high cost of living by working a traditional workweek at one job and then part-time or even more than 40 hours at one or several additional jobs.

Tian said there is no state or federal data on how many hours the typical person with more than one job works.

But full-time workers have repeatedly told Gallup that they work an average of 45 to 47 hours a week. Eighteen percent said they worked at least 60 hours, which is the equivalent of one and a half jobs.

If more of the low-wage workers with multiple jobs earned living wages, they might shift toward a more restrained workload, leaving secondary jobs for other people who are looking for work.

If that happened, Hawaii’s traditional unemployment rate might go down even more.

But if it did — perhaps even if the official unemployment rate reached zero — it still might not boost low-end salaries to living-wage rates.

By contrast, increasing the minimum wage to $15 per hour would.

You can read personal stories about the human impact of Hawaii’s high cost of living on our Connections story page, and then click on the red pen and share your own.

And join Civil Beat’s Facebook group on the cost of living in Hawaii to continue the conversation and discuss practical and political solutions.

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