California’s $25-an-Hour Minimum-Wage Boomerang

Gov. Newsom now says the law he signed last October would add to the state’s fiscal woes. He ignored warnings at the time.

WSJ editorial. 

"Progressives in Sacramento rarely think twice before burdening businesses. But lo and behold, they are having second thoughts about California’s new $25-an-hour minimum wage for healthcare workers. Why? Because its burdensome budget costs are threatening liberal programs.

California’s Democratic Legislature is scrambling this week to delay the state’s higher healthcare minimum wage, which is scheduled to take effect on June 1. It’s not uncommon for politicians to reverse themselves, but California Gov. Gavin Newsom is walking back a law that he signed only last October. What’s changed?

The state’s budget deficit has ballooned to $45 billion. Mr. Newsom projects that the new healthcare minimum wage would cost the state $4 billion more a year owing to higher Medicaid costs and compensation for workers at state-owned facilities. Legislative analyses warned about these costs, but Mr. Newsom signed the law anyway.

Thus the minimum wage for healthcare workers is set to rise to between $18 and $23 an hour this Saturday,(June 1) depending on the type and size of healthcare provider. California’s current minimum wage for all workers is $16 an hour. Nearly all workers at healthcare facilities including janitors will have to be paid at least $25 an hour by 2028.

Democrats shrugged when healthcare providers warned that the wage mandate could force cuts to patient services. Who cares if Californians wait longer before being seen at the ER? But now Democrats worry that the state’s higher health costs could force bigger government spending cuts. Oh no. Californians may have to wait even longer for their bullet train to nowhere.

Mr. Newsom is proposing to tie health worker minimum-wage increases to the state’s general fund revenue and to exempt state facilities. But once capital-gains revenue picks up again, California’s private healthcare providers will be stuck paying for the wage mandate, which they will ultimately pass on to patients. Far better to repeal the $25 wage minimum en toto.

As usual, Democrats don’t want to eat their own lousy cooking. Gov. Newsom this spring also signed legislation to carve out fast-food restaurants on government property from California’s new $20-an-hour fast-food minimum wage, which kicked in last month. Democrats don’t want the mandate interfering with government concession licenses.

California’s wage minimums are another illustration of how progressive mandates boomerang. Average weekly earnings for leisure and hospitality employees in California have declined by 2.6% over the last year owing to a steep drop in hours worked. By contrast, those average weekly earnings rose 3% nationwide, 3.2% in Florida and 5.2% in Texas.

Average hourly earnings for California leisure and hospitality workers have also increased more slowly—2.1% compared to 3.8% nationwide—no doubt partly because the state’s softer labor market has reduced competition for workers.

When government raises wages above what the market commands, employers will increase prices and reduce labor. California, QED."