Liberals Try Strong-Arming the Free Market Again With New California Minimum Wage Law

Study after study demonstrates that minimum wage hikes reduce employment in the long term.

AP/Nam Y. Huh
A hiring sign at a restaurant at Rolling Meadows, Illinois, January 30, 2023. AP/Nam Y. Huh

The minimum wage boost for California fast food employees to $20 an hour, rather than improving the lives of employees, is likely to harm job growth and accelerate automation. It’s yet another example of Democrats’ contempt for the free market.

According to Governor Newsom, who signed the measure into law, the salary hike will bring the state “one step closer to fairer wages, safer and healthier working conditions, and better training.” Yet, study after study demonstrates that minimum wage hikes reduce employment in the long term. 

A meta-analysis published last year found that almost 80 percent of studies since 1992 found negative effects on employment, with stronger impacts for teenagers, young adults, and less-educated employees. Less than 6 percent found that minimum wage hikes increased employment.

The law will also fail to bring the other benefits Mr. Newsom mentions. Businesses often compensate for increases in the minimum wage by worsening workplace conditions, laying off low-skilled and inexperienced employees, and reducing benefits like healthcare.

Plus, increasing the minimum wage for fast food employees will raise prices at those restaurants, which disproportionately serve minority and lower-income people. At McDonald’s restaurants, for example, increases in the minimum wage are almost completely passed onto the consumer through higher prices.

While restaurants might compensate with higher prices and reduced profits in the short term, such policies discourage new businesses from entering the market and may drive less competitive restaurants out of business entirely. At San Francisco, minimum wage increases were found to predict closures of low-rated restaurants. The result is fewer jobs and decreased consumer welfare.

“We helped a father or mother feed their children, we helped a student put gas in their car and helped a grandparent get their grandchild a birthday gift,” a California Assembly member, Chris Holden, the sponsor of the bill, said at the signing. 

Yet strong-arming the free market was never going to help parents, students, or grandparents. Besides reducing employment in the long run, the law will only quicken the industry’s shift to automation, costing countless jobs.

In early August, a National Restaurant Association survey found that 65 percent of restaurant operators reported not having enough employees to meet consumer demand. Restaurants, especially fast food ones, are turning to automation to meet their needs. Reuters reports that 10 percent of Starbucks locations are getting new coffee machines that are faster than baristas. 

Chipotle is testing a grill that can cook 70 percent faster than the average employee. Dominoes is developing an automated pizza preparation device. Nationwide, 58 percent of restaurant operators in February said the use of technology to address labor shortages will become more common this year, according to the National Restaurant Association.

California’s fast-food wage increase is the latest Democrat attempt to outsmart free-market economics. Time after time, progressive economic policies try to increase wages or reduce the cost of living by simply asserting it through law with no regard for the unintended consequences of government planning. 

Just last month, Mayor Brandon Johnson of Chicago announced plans for a city-owned grocery store to promote “food equity” in underserved neighborhoods, a plan that does nothing to address the crime and taxes that are driving stores out. At St. Paul, strict rent controls that limit increases to 3 percent per year drove applications for building permits down by 84 percent, Reason reported.

If history is any indication, the new California law will do little to increase wages while driving down employment. The Cato Institute found that changes in the state minimum wage play only a small role in wage increases for minimum wage laborers. An employee’s experience and skills, as well as the overall economic conditions, are much larger drivers of wage growth.

Policies like California’s are a large reason why hundreds of thousands of people are fleeing blue states to red states with greater economic freedom and lower costs of living. While states like California and New York stifled growth with high taxes and burdensome regulations, many states in the Sun Belt attracted laborers with faster wage growth and new jobs across many industries, argued the Wall Street Journal.

The fundamental issue is that progressives believe their policies can somehow beat the free market at allocating goods, services, and labor. Until Democrats recognize their failed history of government-planned economics, they will continue passing laws like California’s that will fail to benefit their citizens.

The New York Sun

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