Our Minimum-wage Governor

Larry Price
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Wednesday - February 13, 2008
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The Legislature has a proposal working its way through committees that would raise Hawaii’s minimum wage gradually until it reaches $9 per hour. If enacted, minimum wage workers in the Islands would earn an annual salary, before taxes, of about $18,720 a year, assuming they put in a 40-hour work week.

Under the proposal, employees would get a 75-cents-an-hour boost to $8 in July 2009 and reach $9 an hour in 2011. The measure sailed through its first legislative committee vote. It passed the House Labor Committee with a 10-2 vote. The only person to speak up against the passage of the bill was Jim Tollefson, president of the Chamber of Commerce of Hawaii. He said that some restaurants and small businesses oppose the wage hike because they would be forced to raise prices to pay for it. Union leaders urged lawmakers to pass the minimum wage increase to help residents with low-paying jobs who are living paycheck to paycheck. It’s an interesting argument under the prevailing circumstances.

Aweek earlier, not a soul spoke out when it was revealed that hundreds of University of Hawaii officials and professors earn more than Hawaii’s governor. A few gasped when they learned that the new football coach had become the state’s first seven-figure employee, earning $1.1 million! The Honolulu Star-Bulletin reported that there are 473 other university employees who make more than Lingle’s salary of $117,000. UH President David McClain gets just over $392,000 and a newly renovated house in lush Manoa Valley.

In a small state like Hawaii, we need to be able to trust those around us, because in the absence of trust the pursuit of myopic self-interest appears to be the only strategy that makes sense.

Knowing that, there is another money bill proposed to address repairs at UH which received approval by the House Committee on Higher Education. The proposal would set aside 1 percent of the state’s general revenues, or $50 million, into an account for UH to address campus repairs and maintain facilities every year for six years. Additionally, UH wants control over Aloha Stadium only if it is not responsible for any capital improvements, repairs or construction costs, but admitted in testimony that it would only accept a refurbished Aloha Stadium and the revenue it generates.

What’s interesting about all this money talk is that there is no outrage from the taxpaying public. How come?

Do you remember a fellow named Richard Grasso, the former head of the New York Stock Exchange? In business literature, he is famous because he became the first CEO in American history to get fired for making too much money. Mr. Grasso had run the NYSE since 1995, and by all accounts had done a great job. He was a self-promoting type like most CEOs, and was not incompetent or corrupt. But when the news broke that the NYSE was planning to give Grasso a lump-sum payment of $139.5 million made up of retirement benefits, deferred pay and bonuses, the public uproar was deafening and immediate, and the calls for his removal reached the NYSE’s board of directors (the people who had agreed to pay him the lump sum). They asked Grasso to step down because the public’s outrage had made it impossible to keep him on.

The obvious question here is why was the public so outraged? Grasso was not being paid with taxpayer money. It didn’t make anyone better off, since he had already been paid. The public outrage was irrational. Economists believe that human beings are basically self-interested. This means it is rational to people, when faced with different choices or courses of action, to choose the one that benefits them personally. You can bet that, in the future, when the NYSE thinks about hiring a CEO, it will be more rigorous in figuring out how much he’s actually worth.

The point is, individual irrational acts can produce a collectively rational outcome. Maybe it’s time for our overly generous legislators to figure out how much Aloha Stadium is really worth to UH, or find out how much a private firm would be willing to pay to own it. It would be simple to find out - just put out a bid to privatize it.

Under the circumstances, $9 an hour doesn’t seem like an irrational proposal.

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