Is California Going to Kill McDonald’s?

(Brad Polumbo, Foundation for Economic Education) “Fight for Fifteen” is old news, it would seem. In California, they may soon have a $22/hour minimum wage—at least for fast food employees.

The “FAST Act” is headed to Governor Gavin Newsom’s desk after recently passing through the state legislature. As the Wall Street Journal reports, it would “create a government panel that would set wages for an estimated half-million fast food workers in the state.”

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

Basically, a board of political cronies 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 what market forces remain. It would have several utterly predictable economic consequences that would far outweigh any benefits. 

Like all Americans, Californians are struggling with inflation right now. Food, in particular, has become especially unaffordable. The Golden State’s legislative meddling would make this problem worse.

“In a state that already burdens businesses with countless regulations, adding another layer would simply increase costs that ultimately would be borne by consumers,” the US Chamber of Commerce warned in a statement condemning the legislation.

It’s pretty basic economics that when the government imposes unnecessary costs on businesses, some of it will ultimately be borne by consumers. One study found that the proposal could raise fast-food prices by up to 20%. 

What’s more, the pro-business Employment Policies Institute commissioned a poll of economists, most of whom identified as independents or Democrats, and received an overwhelmingly negative assessment of the legislation. A whopping 83% opposed the bill, with a supermajority also specifically agreeing it would ultimately lead to higher prices. 

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

While the California commission may attempt to set the minimum wage for fast food employees at up to $22/hour in their state, they will run up against a painful economic reality: the real minimum wage is always $0. It’s unemployment.

“Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount— and, if it is not, that worker is unlikely to be employed,” Thomas Sowell explains. “Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or fail to find jobs when they enter the labor force.”

The simple truth is that many fast food employees do not produce $22/hour in value for their employer.

And, as Milton Friedman explained, to employ someone at a wage above their productivity is “to engage in charity.” 

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

So, while we can’t predict exactly how many, countless fast food employees will lose their jobs altogether thanks to this law that’s supposed to help them. 

California is a vast and diverse state. Different parts of the Golden State have wildly different economic conditions, average incomes, price levels, and more. Yet this government commission setting wages would cram a one-size-fits-all regulation concocted by political cronies onto the entire state’s fast food sector. 

That’s a recipe for dysfunction. As the Chamber of Commerce put it, “We firmly believe franchisees and other business owners are better equipped to run restaurants in California than unelected political appointees in Sacramento.” 

This foolish attempt to commandeer an entire industry would ruin many businesses, leaving their employees and customers worse off as well. It’s estimated that this plan would increase businesses’ labor costs by up to 60 percent, a huge spike that many can’t afford. It doesn’t take an economist to realize that this will lead to store closures, job losses, and economic malaise. 

One Republican state lawmaker says that McDonald’s warned her that they may stop expanding in California or even abandon the Golden State entirely.