Dark clouds are gathering over Hawaii even though the economy appears to be improving

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

Hawaii‘s economy could recover.

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

Though tourists may return to Waikiki, Hawaii is in trouble.

Consider Hawaii’s most vulnerable: There are undoubtedly more of them than before the pandemic, and Bonham says they’re almost certainly faring worse, despite federal stimulus money that’s kept many households afloat.

According to a 2020 report by Aloha United Way, 42% of Hawaiian households were just making ends meet and 33% were just above the poverty line. These so-called ALICE families, known as “asset-constrained, income-constrained, employed,” lived essentially paycheck to paycheck with little financial cushion when things went wrong.

Another 2020 study that looked more broadly at household financial health showed that even more people are burdened by the high cost of living in Hawaii. The Financial Health Pulse found that more than two-thirds of households were struggling – many turning to savings or living with extended families to make ends meet – strategies that left little room for maneuver to deal with unexpected crises.

While employees have been able to work from home, others have not been so fortunate. And while some might have been able to save on stimulus checks or use them to pay down debt, the worst had no option.

“There is no doubt that there are more ALICE families than before, they are worse off than before, so we have a lot to do,” Bonham said.

Low unemployment rate hides the problem

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

By February, the most recent month for which data is available, that number had risen to 658,000. While that was an improvement, it was still about 17,700 fewer jobs than the 675,700 job counts reported in February 2020, just before the pandemic began.

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

The worst case scenario envisages something far more sinister.

“The total number of payroll processing centers would not even reach 2015 levels by 2025,” UHERO reported. “The prolonged period of weakness would inflict significant additional pain on local households and businesses.”

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

It measures not only unemployed and job-seekers, but also those who are underemployed – for example, people who work part-time but want full-time employment. That number, Bonham said, is closer to 19%.

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

Against this backdrop, Hawaii faces another problem: a brain drain that has resulted in a net loss of population. UHERO forecasts that Hawaii will continue to lose population in 2021 and 2022, which would mean five straight years of net population declines and no real recovery in 2023. The losses are particularly noticeable as births generally outnumber deaths each year, so the population should naturally be growing.

It’s the continuation of a trend that has been going on for decades as Hawaii’s population ages and young people leave the country.

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

“Migrating is a big decision,” she said. “Leaving the state is a big decision.”

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

The result, she said, is that those who leave Hawaii are often people with more professional skills and the means to set up households elsewhere. Those with fewer opportunities and less money, she said, are often the ones who stay even when job opportunities are limited.

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

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

And the trend goes far beyond family breakups. It’s also bad for the economy, says Peter Ho, chairman, president and chief executive officer of the Bank of Hawaii.

“Fundamentally, fewer people means less economic output and a greater tax burden on those who stay,” Ho said.

Finally, there is a potentially longer-term problem 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 into the impact of the 1916 polio pandemic, which included 23,000 cases. Officials closed public schools and imposed quarantines. Decades later, a 2017 research paper showed, many high school students nearing graduation chose not to return to school when it reopened.

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

“It could be a lot 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 be very helpful. The first is housing for low-income people.

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

Ho agreed.

“We have to work on both the issue of economic dynamism and the issue of the cost of living,” he said. “In terms of the cost of living, creating better and much cheaper housing is key to better affordability.”

Regarding economic dynamism, the Hawaii Department of Business, Economic Development and Tourism is embarking on a multi-year process to develop a plan called Hawaii 2.0 for diversification. Gov. David Ige will leave it up to the next governor to decide whether to implement Hawaii 2.0 or some other plan.

Meanwhile, a community group called Aina Aloha Economic Futures is also 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.

“The status quo has an unrelenting dynamic,” he said in an email. “It doesn’t take much effort or energy (actions) to keep it going. Changing this will require an equally powerful counterforce.”

The group sees 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 well-paying jobs that are readily available and are the kind of jobs that people want to make a career out of.”