President Ronald Reagan once quipped that the most dangerous words in the English language are “Hi, I’m from the government, and I’m here to help.” It’s a joke that provides tremendous insight into the minimum wage subject, suggesting that good intentions do not translate well into effective public policy. No matter how much politicians want to aid the impecunious with a higher wage floor, they will not defeat the laws of economics. This is a battle impossible to win, yet these supposedly smart men and women of the leftist persuasion keep trying, personifying the definition of insanity: doing the same things over and over again and expecting different results.
California Dreamin’ of Job Losses
California is beginning to see the effects of a higher minimum wage after leading the Fight for $15. By 2022, the Golden State plans to have a $15 living wage, a 50% increase from 2012. But California isn’t being rewarded for its initiative; instead, the state is being punished for interfering in labor markets and distorting prices. Of course, it is not the politicians being impacted; it is the workers losing their jobs.
According to a new University of California Riverside study, the state’s booming restaurant industry has experienced significant slow job growth since these high wages were introduced. Researchers found that restaurant sales are doing well, but employment in the sector “has grown more slowly than it would have without minimum wage hikes.”
The study concludes that the situation might worsen in the event of an economic contraction:
“When the next recession arrives, the higher real minimum wage could increase overall job losses within the economy and lead to a higher unemployment rate than would have been the case without the minimum wage increases.“
Phil Kafarakis, president of the Specialty Food Association and former Chief Innovation & Member Advancement Officer at the National Restaurant Association, told Forbes magazine that the hourly wage hikes are undermining job growth, even without a recession.
Night of the Living Wage
When there were talks of California hopping on the $15 bandwagon, economists and business groups began to sound the alarm about the ramifications for employment opportunities. The warnings made sense, considering that labor is the biggest cost for most restaurants with slim profit margins. Halfway through the journey to $15, experts continue to encourage lawmakers to have second thoughts.
In March 2019, a study projected that raising the hourly minimum wage would cost California 400,000 jobs. William Even, a Miami University of Ohio economic professor, and David Macpherson, a Trinity of University of Texas professor, say half of the estimated job losses would take place in two important industries: retail trade and accommodation and food service.
The study, titled “California Dreamin’ of High Wages,” forecasts a 9.5% contraction in retail trade, or 77,000 jobs, and a 10.7% decline in accommodation and food service, or 123,000 positions.
When he announced the wage hikes, former Gov. Jerry Brown (D-CA) conceded that “economically, minimum wages may not make sense. But morally, socially, and politically they make every sense.” This is the Rep. Alexandria Ocasio-Cortez (D-NY) School of Thought: It is better to be morally right than to be factually correct.
And this kind of thinking has spiked the water supply across the state. The Los Angeles Times wrote in June 2016:
“Californians strongly back the state’s minimum wage increase to $15, though they believe the wage hike will hurt their pocketbooks and the state’s economy,” and “high percentages of those surveyed expected negative consequences, including layoffs and business relocations to states with lower minimum wages. Almost 90% of respondents believed that prices for consumers would rise because of the wage hike.”
Is it any wonder why California is the laughingstock of the United States?
Take Our Jobs, Please!
California isn’t the only state falling victim to the principles of basic economics.
Illinois, recently implementing a $15 wage over a several-year period, is beginning to see a spike in the number of businesses announcing plans to shut their doors, move out of state, or limit their expansion plans. Multiple studies are urging citizens to brace for as many as 28,000 job losses.
New York City, after enacting a 49% increase in the minimum wage in just two years, witnessed its worst drop in restaurant jobs since the Sept. 11 terrorist attacks. The Big Apple is known for its legendary food scene, but full-service restaurants recorded a 1.6% job loss in 2018, the first annual slide in nearly 20 years.
Even smaller jurisdictions are enduring the wrath of a mandated minimum wage. Thanks to Arizona’s push, low-wage and low-skilled positions are gradually going extinct in Flagstaff, where the wage floor will start at $15.50 in three years.
The minimum wage, otherwise known as compulsory unemployment, doesn’t need to kill employment to be disastrous. If businesses are fortunate enough to refrain from laying off workers, restaurants will employ other cost-cutting measures, such as slashing hours, limiting overtime, or avoiding hiring more staff. One of the other most common changes is raising menu prices.
Immunity to Economics
It doesn’t matter if you’re a major metropolitan city such as Seattle. Economic laws are indifferent to powerful states such as Massachusetts. Think you will fly under the radar because you’re a small city? Nobody is immune to elementary economics. Like Liam Neeson in Taken, economics will look for you, will find you, and will take your jobs. Hide your wife, hide your kids, hide your bank account – economics is coming!
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