California already has a minimum wage of $15 an hour. The new measure plans to raise that amount to $22, with inflation-related increases to follow, but only for those who work for large fast-food chains. Why this group should be given special protection is not entirely clear. Yes, proponents of the bill believe that market-determined wages are inherently predatory, and that the franchise business model compounds this underlying problem. Even so, the fast food industry seems an oddly narrow target.
Again, this is just the start. Hopefully, the bill’s proponents believe, this approach will eventually be applied to other industries as well, and other states will follow California’s lead. In time, micro-wage setting will apply to many more low-wage workers in many other industries. How hard could that be?
Labor markets are not perfect. Even now, with low unemployment and rising wages, they are not guaranteeing well-paying jobs for workers without in-demand skills. Policy makers must certainly address this issue, but must be careful not to complicate the lives of the intended beneficiaries. Moderate minimum wages tailored to local conditions, subsidies (such as the earned income tax credit) that stimulate demand for workers, and programs to expand relevant vocational training and apprenticeships are all highly desirable. Creating irresponsible bureaucracies to set wages industry by industry is not.
A statewide minimum wage for a subset of workers would arbitrarily fragment the California labor market, raise prices for consumers, and reduce investment in industry. The incentive to hire would decrease and the return to automation would increase. As these effects became apparent, proponents of the bill would no doubt see the need for new rounds of regulatory remedies. Once you start dismantling the markets, it’s hard to stop.
California lawmakers see their state as the vanguard of enlightened economic regulation. In some cases, such as environmental policy, they sometimes set examples that the rest of the country would do well to follow. The zeal to cripple the labor market, however, does not serve the interests of the state. This could be good news for Texas and Florida, as further confirmation that California is no business friend. But if that’s not the message Newsom wants to send, he should veto the bill — and say why.
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The editors are members of the Bloomberg Opinion Editorial Board.
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