California’s minimum wage woes are a cautionary tale for the nation

As people rushed to do holiday shopping and prepare meals for family gatherings last month, it was impossible not to notice the rise in prices in recent years. The same is true for the price of labor, particularly for low-wage workers in California — and this is not coincidental.

California’s minimum wage increased from $15.50 an hour to $16 an hour on Jan 1. But some workers will see an even bigger hike. 

Fast food workers will enjoy a $20 per hour minimum wage — a 29 percent increase over the previous rate — beginning in April, and certain health care employees will see a jump to as much as $23 an hour in June, rising to $25 an hour in 2026. Notably, the latter includes not only what one might usually think of as health care workers, but also medical facility support staff, including janitors and cleaning crews, security guards and hospital gift shop cashiers.

The economic implications are all too familiar, as we have seen this scenario play out over and over again. A portion of the increase in labor costs for minimum wage workers will be passed along to consumers through higher prices. Indeed, within weeks of the fast food minimum wage bill, Assembly Bill 1228, being signed into law in September, McDonald’s and Chipotle announced that they would be forced to raise food prices in California.

Some workers will benefit, but many others will see their hours cut and benefits slashed or end up losing their jobs to compensate for the higher costs. Pizza Hut restaurants across the state are already planning on eliminating more than 1,200 delivery driver positions (a number that is likely to grow) in response. And in New York City, which just raised its minimum wage to $17.96 an hour last month, companies such as Uber and DoorDash are compensating by imposing higher delivery fees, and food delivery workers are seeing fewer tips and reduced hours and scheduling flexibility. 

Plus, there will also be fewer jobs in the future, so many others will never get hired in the first place — and it will now be much more difficult for low-skill workers and those new to the job market to get jobs since they now must compete against workers with skills worth $20 an hour. 

Automation, such as ordering kiosks, will increase and human-provided service will decrease. Less money will be left over for other innovations or investments in the business. Businesses that are already struggling to get by will close, leading to even more job losses.

What is even more telling is that fast food companies actually supported AB 1228 because it superseded an even worse measure, Assembly Bill 257. 

AB 257, passed in 2022 but never implemented, established a Fast Food Council charged with setting minimum standards for wages, training and other working conditions. It also would have set the fast food minimum wage at as much as $22 an hour. 

Only after the industry threatened a referendum on AB 257 were some provisions of AB 1228 improved. Those improvements include limiting the increased minimum wage to $20 an hour, prohibiting local governments from exceeding this limit, curtailing the authority of the Fast Food Council and eliminating a provision that would have subjected companies to liability for infractions by franchisees, which critics feared would end up destroying the entire franchise business model.

The health care workers measure, Senate Bill 525, signed into law in October, provides an additional wrinkle since the state pays for medical care through Medi-Cal and other programs, and thus will be directly affected by the increased labor costs. For this reason, even the state’s own Department of Finance opposed the bill, citing “significant economic impacts.” 

The fiscal impact was listed as “unknown” when legislators voted on the bill and Gov. Gavin Newsom signed it into law, but a few weeks afterward the administration determined that SB 525 would cost the state $4 billion in the first year alone — before the wage hikes had even been fully implemented. 

As the Los Angeles Times noted in a November article, “SB 525 is one of the most expensive laws California has seen in years.” This comes as the state faces a $68 billion budget deficit.

California politicians seem to have a penchant for doing whatever they can to reduce housing affordability and otherwise increase the cost of living in the state — high taxes, burdensome labor and environmental mandates, waste for boondoggles like the high-speed rail project and countless other laws and regulations. Then they attempt to be saviors by passing still more laws to benefit one group or another and alleviate the situation they have largely created. 

Never mind that these actions tend to have unintended consequences that only make matters worse by, say, driving more people to homelessness or forcing people and jobs to move out of state in search of greater economic freedom and quality of life.

The minimum wage is just one more example of this. We would be much better off in 2024 and beyond if these would-be micromanagers simply left us alone.

 Adam B. Summers is a research fellow at the Oakland, Calif.-based Independent Institute.