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
Business owner here.
Cost of labor, or the amount of money it costs a company to pay its workers, may sound like a pretty straightforward concept. But employees are often surprised to learn that it can cost the company a *lot* more to employ them than the amount they see on their pay check.
I personally run a union shop. The employees are paid well, a little over $50/hour. If 10 years ago you asked me how much it costs a company to pay someone $50/hr, I would have told you $400.
Now that I manage finances, I can tell you that a full-package employee at $50/hr has an *actual, direct* cost of about $950. The majority of that is hidden in insurance policies and government taxes or fees.
So your boss was probably talking about an expense that has gotten out of hand, that is directly tied to the amount of hours the company has to pay its employees for.
Latest Answers