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$20 Minimum Wage for Restaurant Workers is Only the Beginning


By Kerry Jackson, Pacific Research Institute

Exclusive to The Economic Standard

It was bound to happen. Less than a month after the $20-an-hour fast-food restaurant minimum wage kicked in, activists are demanding that all other minimum-wage workers, who got a bump to $16 an hour on Jan. 1, which will be elevated to $18 an hour if voters approve November’s Minimum Wage Initiative, get the same rate. Apparently they don’t care that the April 1 increase is, according to the New York Post editorial board, “already a disaster”?

One Fair Wage, headed by a Berkeley crusader, “is demanding that California’s new $20 minimum wage law for fast food workers be extended to all sectors to help working-class people who are struggling with the state’s high cost of living,” Fox Business reports. Bloomberg says the “raise for many restaurant workers sets” a “new benchmark” in the state. CNBC has noted that “other business owners across the state are watching to see whether they will have to raise their own pay to compete.” 

So rather than a single sector being pulled down by the burden of artificially higher wages, every business in the state would be subject to increased employment costs.

Labor activists and left-leaning academics habitually claim that concerns that minimum wage hikes harm most those they are intended to help are hyperbolic. They tell us that “​​study after study shows that increases to the minimum wage actually have a net gain” and “produce a stimulus effect.”

“​​If you give poor people more money, they’re going to spend it locally, including on rent, utilities and housing. It doesn’t get much more local than that, and that increased spending actually produces jobs,” Tia Koonse, a researcher at UCLA’s Labor Center, said earlier this month in the British Guardian.

She’s referring to Keynesian demand-side economics, which holds that empowering buyers with cash and government intervention boost economic growth. She is not considering the supersized prices that fall on consumers nor the job opportunities others will lose. These income losses completely offset any in local consumption increases by those workers lucky enough to benefit from the wage increase.

Koonse and others are also callously unconcerned about the strain that lurching minimum wages put on small businesses. What would they say if confronted by Brian Hom, owner of two Vitality Bowls locations in San Jose, who expects his higher labor expenses will cost him a combined $100,000 between his stores?

“​​To offset wage increases,” Hom has “increased store prices by 5% – 10% and has stopped hiring new employees,” says Fortune magazine. “Depending on the future of the business, he may consider cutting down shifts from three to four employees down to two – or, if things get bad, laying off workers.”

Remember, the $20-an-hour wage floor is restricted, for now, to a single industry. Imagine if Hom’s troubles were multiplied by the more than 4 million small businesses in the state, which make up almost 99% of all businesses in California. Those small businesses employ 7.4 million workers, many of them among the 3.2 million making the minimum-wage. 

While minimum-wage advocates claim “study after study” supports their position, there is a substantial inventory of studies that show the opposite. So rather than duel over policy papers, let’s use some common sense. If a business is forced to increase its costs to employ workers, it has to make adjustments, as Hom and others are being forced to. In extreme cases, owners will have no choice but to close their businesses.

Large businesses can often absorb minimum-wage hikes and at times they have even lobbied for them because they hurt small businesses’ capacity to compete against the corporate chains. Big companies “have the revenues and the scale to​​” soften the financial blow that would “crush some of their small business competitors,” says ​​Brad Close, president of the National Federation of Independent Business.

This is a special sort of cruelty inflicted by lawmakers who might be well meaning but don’t understand how their policies can devastate struggling employers. Or in some cases know exactly what they are doing. There is a war on small business in California. 

If hiking the minimum wage were such a grand idea, so beneficial to businesses and the economy, then why do employers have to be coerced by lawmakers to increase wages? Are company owners and managers so incapable that the government has to step in and force them to make sound business decisions? Maybe government should review all business plans and approve only those that are politically acceptable.

Or it could leave business to businesses. That shouldn’t be too much to ask. But clearly it is in California.


Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.