Socialist Dreams vs. Hard Truths

The Reality of California’s $25 Minimum Wage

“The problem with socialism is that you eventually run out of other people’s money,” said the late English Prime Minister Margaret Thatcher.

Liberal lawmakers in California have never found it difficult to spend other people’s money. However, wealth distribution schemes never work, and California is finding out the hard way.

The California legislature passed a law last October to force an act of compulsory charity toward low-wage earners by mandating an increase to the minimum wage for large companies. The measure targeted “greedy” business owners, but now it is hitting back at the government with massive increases to the state budget that the wage hikes caused.

When the law mandating a $ 25-an-hour minimum wage passed, California already faced a staggering financial deficit of $45 billion. The government had to find another $4 billion to cover the first year.

As the deficit approaches $56 billion in the second fiscal year, lawmakers are panicking as they face the law’s unintended consequences.

The law is being implemented in phases, affecting different sectors over time.

The first sector was fast-food workers, and the rate suddenly increased to $20 per hour. The law’s immediate effect was restructuring many operations that hurt rather than helped the low-wage earners.

Franchisees are adapting by scaling back hiring efforts, minimizing work hours and accelerating the adaptation of automation technologies like kiosks and AI. These strategies aim at diminishing the need for hiring and retaining additional employees. All this translates into losses in tax revenue and higher governmental food services.

The ripple effect of the wage hikes is felt in another sector that has started implementing the law. California reports a decline in average weekly earnings for leisure and hospitality employees. Employers in this vast sector are downsizing due to the socialist wage mandates. California’s downward direction contrasts sharply with the national trend of increased earnings in the same sectors elsewhere.

However, the next phase of wage hikes will impact the government much more. It calls for wage increases among the vast number of healthcare workers. This addition will cause California’s deficit to explode.

The plan is for an immediate increase of $18 to $23 per hour, based on the healthcare provider’s nature and size. By 2028, almost all workers at healthcare facilities, including janitors, will be entitled to a minimum wage of at least $25 per hour.

California’s Governor Gavin Newsom anticipates an additional annual cost of $4 billion due to the new healthcare minimum wage requirements and other expenses. This calculation does not include the added cost to the private sector and, ultimately, the consumer.

The impact of these changes is so real that the Democratic legislature in California is now racing to postpone the implementation of the increased healthcare minimum wage. Gov. Newson has also already signed a law exempting fast-food restaurants from the $25-per-hour minimum wage mandate on government property.

Hiking minimum wage does not work for several reasons.

When the government forces wages to rise beyond what labor is worth, businesses must increase prices and cut labor. This reduces economic growth and consumer spending and keeps businesses from competing in the national and global economy.

Imposing a minimum wage hike to offset high living expenses such as housing or childcare is a losing proposition. Employers remunerate employees based on work value, not to cover personal costs, which differ tremendously by family and location.

While it is tempting to dream that corporations could absorb these costs for the benefit of consumers, they are not charities. They need to adapt to the increased expenses to sustain profitability. Labor is usually the highest cost.

Liberals pushing for a minimum wage hike prefer to shift the burden of compensating workers for high living costs to businesses. In addition, advocates pushing for a $25 minimum wage frequently consult unreliable benchmarks for setting minimum wage rates. Economy-wide productivity growth does not accurately reflect productivity trends for minimum wage workers or different localities.

Thus, socialist utopias and reality always clash. A government-mandated minimum wage is a one-size-fits-all socialist approach to poverty that destroys the solution under the guise of solving the problem. It also hurts the government because, sooner or later, socialist lawmakers will run out of other people’s money.