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

By Adam B. Summers of The Independent Institute. Excerpts:

"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."

"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."