Will California kill McDonald's?

“Fight for Fifteen” It’s old news, it seems. In California, they may soon have a minimum wage of $22/hour — at least for fast food workers.

The “FAST Act” is heading to Governor Gavin Newsom’s desk after recently passing the state legislature. As the Wall Street Journal reports, this “would create a government council that would set wages for about half a million fast food workers in the state.”

“The bill would establish a council with members appointed by the governor and legislative leaders composed of workers, union representatives, employers and business advocates”, explains the newspaper. “They could set hourly wages of up to US$ 22 for fast food workers starting next year, and could increase them annually at the same rate as the consumer price index, up to a maximum of 3.5%.”

Basically, a council of political comrades would actually set wages for the state’s fast food sector. This is a dramatic expansion of the government’s reach and would drastically disrupt the market forces that remain. There are several entirely predictable economic consequences that would far outweigh any benefits.

1. Higher Prices

Like all Americans, Californians are struggling with inflation right now. Food, in particular, has become especially inaccessible. Legislative meddling would make this problem worse.

“In a state that already burdens companies with numerous regulations, adding another layer would simply increase costs that would ultimately be passed on to consumers”, warned the US Chamber of Commerce in a statement condemning the legislation.

It’s a pretty basic account that when the government imposes unnecessary costs on businesses, some of them will end up being borne by consumers. One study found that the proposal could raise fast food prices by up to 20%.

Furthermore , the pro-business Employment Policy Institute commissioned a survey of economists, most of them identified as independents or Democrats, and received an extremely negative assessment of the legislation. A massive 83% opposed the bill, with a supermajority also specifically agreeing that it would eventually lead to higher prices.

The last thing that Californian families struggling to put food on the table need right now is a big increase in prices.

2. More Unemployment

Although the California commission may try to set the minimum wage for fast food workers as low as $

/hour in their state, they will be faced with a painful economic reality: the real minimum wage is always $0. It is unemployment.

“Making it illegal to pay less than a certain amount does not make a worker’s productivity worth that amount – and if not, that worker is unlikely to be employed,” explains Thomas Sowell. “Unfortunately, the real minimum wage is always zero, regardless of the laws, and this is the wage many workers receive after the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or cannot find jobs when they enter the workforce. job market.”

The simple truth is that many fast food workers do not produce US$ 22/ hour in value to your employer.

And, as Milton Friedman explained, employing someone at a salary above their productivity is “engaging in charity”.

“Most employers are not in a position to engage in charity,” concluded the Nobel Prize-winning economist. “So the consequences of the minimum wage laws have been almost entirely bad… to increase unemployment and increase poverty.”

Therefore, while we cannot predict exactly how many, countless fast-food workers food will lose their jobs thanks to this law that was supposed to help them.

3. Economic Dysfunction

California is a vast and diverse state. Different parts of the Golden State, as the state is known, have very different economic conditions, average incomes and price levels. However, this government commission setting wages would shove a one-size-fits-all regulation concocted by political cronies into the entire fast food sector of the state.

This is a recipe for dysfunction. As the Chamber of Commerce put it: “We firmly believe that franchisees and other business owners are better equipped to run restaurants in California than unelected politicians appointed in Sacramento.”

This foolish attempt of running an entire industry would ruin a lot of business, leaving your employees and customers worse off as well. It is estimated that such a plan would increase companies’ labor costs by up to 60%, a huge increase that many cannot afford. It doesn’t take an economist to realize that this will lead to store closures, job losses and economic malaise.

A Republican state lawmaker says McDonald’s warned her they might stop to expand in California or even abandon the state altogether. How, exactly, can this improve the lot of Californians?

The withdrawal

The California legislators who invented this proposal may actually have good intentions. They can sincerely believe that their plan will help improve the lives of workers. But those good intentions will be no consolation to the countless Californians who will end up suffering if this legislation becomes law.

©2022 FEE Foundation for Economic Education. Published with permission. Original in English.
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