Apparently unhappy with the current pace of business migration out of their state, California’s legislators have come up with a good way to accelerate it. They voted recently to create a council of political appointees to set wages in the fast-food industry. The so-called FAST Recovery Act awaits Governor Gavin Newsom’s signature. He can’t squash this ill-conceived initiative quickly enough.
California already has a minimum wage of $15 an hour. The new measure envisages raising this to as much as $22, with inflation-linked increases to follow — but only for those who work for big fast-food chains. Why this group should be singled out for special protection isn’t entirely clear. Yes, the bill’s proponents 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 a strangely narrow target.
Then again, this is just a start. With luck, the bill’s advocates believe, this approach will eventually be applied to other industries as well, and other states will follow California’s lead. In due course, micro-managed wage-fixing will apply to many more low-wage workers in many more industries. How hard could it be?
Labor markets aren’t perfect. Even now, with unemployment low and wages trending higher, they don’t guarantee well-paid jobs for workers without skills in demand. Policy makers certainly need to address this — but must be careful not to make life harder for the intended beneficiaries. Moderate minimum wages attuned to local conditions, subsidies (such as the earned-income tax credit) that boost demand for workers, and programs to expand relevant vocational training and apprenticeships are all eminently desirable. Creating unaccountable bureaucracies to set wages industry by industry is not.
A statewide minimum wage for a subset of workers would arbitrarily fragment California’s labor market, raise prices for consumers, and depress investment across the industry. The incentive to hire would fall and the return to automation would rise. As these effects became apparent, the bill’s supporters would doubtless see the need for further rounds of regulatory repair. Once you start to dismantle markets, it’s hard to stop.
California’s legislators see their state as the vanguard for enlightened economic regulation. In some cases, such as environmental policy, they’ve on occasion set examples that the rest of the country would indeed be wise to follow. Zeal to cripple the market for labor, however, doesn’t serve the state’s interests. It might be good news for Texas and Florida, as further confirmation that California is no friend to business. But if this isn’t 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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