Despite recovering from the worst economic impacts of the COVID-19 crisis, Hawaii faces major problems that existed before the pandemic and that are likely to worsen, experts on Hawaii’s economy and demographics say.

Hawaii’s economy may be bouncing back.

“But,” University of Hawaii economist Carl Bonham says, “what are we bouncing back to?”

Even though tourists might be flocking back to Waikiki, Hawaii is in trouble.

Consider Hawaii’s most vulnerable: there are no doubt more of them than before the pandemic, and, Bonham says, they are almost certainly worse off, despite federal stimulus money that kept many households afloat.

According to a 2020 report by the Aloha United Way, 42% of Hawaii households were just making ends meet and 33% were just above the poverty level. Known as “asset limited, income constrained, employed,” these so-called ALICE families were essentially living paycheck to paycheck with little financial cushion if something went wrong.

Visitors using masks and unmasked along Kalakaua Avenue as visitor arrivals increase to Hawaii during the COVID-19 pandemic.
Tourists are bringing renewed vibrancy to places like Kalakaua Avenue in Waikiki, but economic problems that existed before the pandemic remain. Cory Lum/Civil Beat/2021

Another 2020 study looking more broadly at household financial health showed even more people burdened by Hawaii’s high cost of living. The Financial Health Pulse found more than two-thirds of households were struggling – many resorting to dipping into savings or living with extended family to get by – strategies that left little wiggle room to deal with unexpected crises.

While white-collar workers have been able to work from home, others haven’t been so lucky. And while some might have been able to save stimulus checks or use them to pay off debt, the worst off didn’t have the option.

“There’s no doubt there are more ALICE families than there were before, they’re worse off than they were before, so we have a lot of work to do,” Bonham said.

Low Unemployment Rate Hides Problem

Hawaii’s lower unemployment rate has masked another basic problem. The state has lost an enormous number of jobs. According to the University of Hawaii Economic Research Association’s data portal, at the height of the pandemic, the civilian workforce had dropped to 608,600 in September 2020, compared with 667,800 the same month in 2019.

By February, the most recent month for which there’s data, that number had risen to 658,000. While an improvement, that was still approximately 17,700 fewer jobs than the 675,700 payroll number reported in February 2020, just before the pandemic started.

Hawaii has lost so many jobs that UHERO’s most optimistic scenario, published in a March outlook titled “More Substantial Recovery In Sight,” predicts it will be 2022 before the number of payroll jobs gets within 4% of pre-COVID levels.

The worst case envisions something far more grim.

“The total number of payroll jobs would not reclaim even their 2015 level until 2025,” UHERO reported. “The lengthy period of persistent weakness would impose considerable additional pain on local households and businesses.”

One thing that is certain is that for now, things are not as good as they might seem. For example, Hawaii’s unemployment rate has dropped from about 22% in April 2020 to less than 9% in April of this year, which looks good. But Bonham said a better gauge for what’s really going on is something known as the U6 unemployment.

It measures not just people who are out of work and looking for jobs, but also people who are underemployed – such as people working part-time but who want full-time work. That number, Bonham said, is closer to 19%.

That’s almost one in five workers who are still, if not unemployed, then underemployed.

Against that backdrop, Hawaii faces another issue: an outmigration of people that has led to a net loss of population. UHERO predicts that Hawaii will continue to lose residents in 2021 and 2022, which would mark five straight years of net population declines, and for no real rebound in 2023. The losses are particularly striking because births generally outpace deaths each year, so the population should naturally be growing.

It’s the continuation of a trend that’s been going on for decades as Hawaii’s population has aged and young people have left.

Jenjira Yahirun is a professor of sociology at Bowling Green State University who previously studied the demographics of Hawaii as a researcher with the University of Hawaii’s Center on the Family. She said Hawaii’s loss of population is a troubling indicator.

“To migrate is a big decision,” she said. “To leave the state is a big decision.”

A graph of Hawaii’s population once had a classic pyramid shape, with large base of younger people and relatively few elderly residents. But the shape of the pyramid has shifted dramatically in the last 40 years, in what economists say is a troubling trend. Carlie Procell/Civil Beat

Hawaii is highly unusual, she said, because of its isolation, high cost of living, and prevalence of multigenerational households, as well as the importance of family connections. These factors combine to make it both undesirable and difficult for people to leave.

The result, she said, is that those who leave Hawaii are often people with more jobs skills and the means to set up a household elsewhere. Those with fewer options and less money, she said, are often the ones who stay, even if employment options are limited.

It’s not new that people who go away to college do not return to Hawaii because of a lack of job prospects, she said. The fallout from the pandemic, she predicted, “would just catapult that further.”

But prolonged damage to the economy could cause others to leave in search of better work, particularly to places like Las Vegas, which is a popular landing spot for Hawaii expats.

And the trend does more than break up families. It’s also bad for the economy, says Peter Ho, chairman, president and chief executive of Bank of Hawaii.

“Basically fewer people means lower economic output and a greater fiscal burden placed on those who remain here,” Ho said.

Finally, there is a potentially longer-term issue facing younger people. Those transitioning into young adulthood during the pandemic could face long-term economic problems, says Sumner La Croix, a University of Hawaii economist who has written about the phenomenon, known as economic scarring.

In a UHERO blog post co-authored with fellow economist Jim Mak, La Croix pointed to research on the effects of the 1916 polio pandemic, which included 23,000 cases. Officials closed public schools and put quarantines in place. Decades later, a 2017 research paper showed, many high school students close to graduation decided not to return to school when they reopened.

U.S. Census data from 1940, taken when these students were 38 to 41 years old, showed they “completed fewer years of education than those who preceded or followed them,” LaCroix and Mak said.

“Things could be much worse for kids who graduated in May 2020,” La Croix said in an interview.

Affordable Housing And Economic Diversification Are Essential

The consensus is that there are two things that can go a long way to help. The first is housing for lower income people.

“There needs to be more housing, and there needs to be affordable housing,” Yahirun said.

Ho agreed.

“We need to work on both the issue of economic vibrancy as well as the issue of the cost of living,” he said. “On the cost of living front, clearly creating better and substantially more affordable housing is the key to better affordability.”

Concerning economic vibrancy, the Hawaii Department of Business, Economic Development and Tourism is starting a multi-year process to craft a plan, called Hawaii 2.0, to diversify. Gov. David Ige will leave it to the next governor to decide whether to implement Hawaii 2.0 or another plan.

Meanwhile, a community group called Aina Aloha Economic Futures also is working on a plan separate from Hawaii 2.0. The goal is to take Hawaii in a new direction, said Keoni Lee, one of the group’s founders.

“Status quo has unrelenting momentum,” he said in an email. “It does not take much effort or energy (actions) to keep it steaming along. To change it is going to take an equally powerful opposing force.”

The group is looking at industries like creative media, agriculture and renewable energy as potential growth sectors, Lee said.

“It’s not about the cost of living,” Bonham said. “It’s about good paying jobs that are readily available and that are the kind of jobs people want to make a career out of.”

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