I live in Hawaii and recently heard my large, Hawaii-based employer use the term “cost of labor” when explaining how they derived the organization’s new salary ranges. It’s no surprise that jobs and companies in Hawaii generally pay less than equivalent jobs/companies on the mainland. But when I asked my employer on an all-company call to explain what cost of labor actually is and why Hawaii employers can pay so much less than companies on the mainland, the answer the consultant provided was largely a non-answer.
Can someone explain to me like I’m 5, why is Hawaii’s cost of labor so low compared to the mainland?
(Edit: for clarification, cost of living and cost of labor are different terms, and I’m wondering why the cost of labor in Hawaii Is so disproportionate to the cost of living compared to parts of the mainland that also have high costs of living, such as much of California, NYC, Washington, and so on. The disparity between these two terms seems much more significant in Hawaii)
In: Economics
Labor cost is total dollar spent on Labor as a percent of the whole revenue the company makes. There will be lots of answers but it boils down to this basically:
Total revenue-spending (Product cost+Labor cost+other costs) =profits
In Hawaii, many products need to come from mainland, this makes costs higher. Labor cost is lower by necessity. Other costs are things like taxes, property costs, rental costs, utilities, etc. all those other costs are higher as well, especially real estate/rental.
So with higher product cost, higher other costs, the only way to keep prices down and profit up is to keep labor low. It’s really the only one you have control over. Also people who want to live in nice areas will work for less sometimes.
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