California’s $20 Minimum Wage: A Lesson in Economic Reality

When California Governor Gavin Newsom signed his $20 minimum wage mandate for fast-food workers, he described it as a “win-win-win” scenario. The reality reads more like a cautionary tale about what happens when woke politics intersects with reality.

The FAST Recovery Act, implemented in 2023, was intended to be Newsom’s crowning triple achievement, designed to benefit workers, businesses and customers simultaneously. Instead, it has delivered such disastrous effects that even the most ardent socialist might think twice about implementing it.

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The Numbers Don’t Lie

Since the law was enacted, nearly 20,000 fast-food jobs have disappeared from California. Two Pizza Hut franchisees alone cut over 1,200 delivery roles. Entire chains, such as Mod Pizza and Foster’s Freeze, have simply closed up shop and left the Golden State.

For those fortunate enough to keep their jobs, the “victory” feels empty. The average non-tipped worker has seen their hours cut by 250 annually, resulting in about $4,000 in lost income.

The Automation Acceleration

Predictably, businesses have turned to the employees who never ask for raises or get sick: robots. Self-service kiosks now fill the spaces where human workers once stood. Indeed, when the government artificially inflates labor costs, the market seeks cheaper alternatives.

Meanwhile, consumers—the policy’s supposed beneficiaries—are bearing the costs. Literally, fast-food prices in California increased by over 13 percent after April 2024, nearly doubling the national average. Families already struggling with inflation now face even higher bills for fast food meals. Now, a Whopper at Burger King can cost a whopping $17.97 in San Francisco!

The Fundamental Flaw

Increasing fast food wages does not make sense. Such entry-level jobs were never designed to support mortgages or families. They are stepping stones—opportunities for students, recent immigrants, and others who need part-time work. They also serve as entry points for inexperienced workers to gain experience and develop skills. When government mandates transform these positions into artificially expensive propositions, they simply disappear or become automated.

The market has an intelligent way of determining wages based on multiple factors that measure the value an employee contributes. A teenager learning to operate a fryer does not suddenly become more valuable just because a politician signs a mandate for higher wages. The work remains the same; only the cost has changed.

Small Business Casualties

Large corporations can better withstand these shocks, automate their processes, and pass on the costs to consumers. Small franchise owners—the backbone of American entrepreneurship—lack this flexibility. They face a tough choice: cut staff or shut down entirely. Many have opted to shut down, taking their dreams and local jobs with them.

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The American Cornerstone Institute points out that applying uniform wage mandates across a state as diverse as California overlooks fundamental geographic and market realities. What works in San Francisco’s financial district does not necessarily work in Fresno’s suburbs.

The Emperor’s New Economics

Newsom’s defenders cite a University of California—Berkeley study claiming the law resulted in minimal job losses and only modest price increases. However, this analysis conveniently overlooks the widespread closures, layoffs and reduced hours now visible across the state. It is similar to the story about the statistician who drowned in a river because it only had an average depth of three feet!

The Broader Warning

This California experiment offers a sobering preview of what happens when egalitarian socialist ideals collide with economic reality. No amount of political rhetoric can repeal the fundamental truth that artificially inflating wages destroys the very jobs policymakers feign to protect. This disaster repeats itself every time socialist politicians mandate unreasonable minimum wages.

Perhaps it is time to let businesses determine what their employees are worth, rather than having politicians play with other people’s livelihoods.