Basic economics says that as costs go up, prices go up. If I own a bakery and sugar prices spike, the final cake product is going to spike too.
Even if Sacramento politicians don’t want to admit it, that’s basic economics. And two minimum wage increases out of CA’s capital reminded us of this reality in the past month.
Quick background. Newsom signed AB257 last year to create a “Fast Food Council,” which was a government body with the authority to impose new minimum wages, working hours, and other conditions of fast food restaurants. A lot of folks described it as creeping European socialism.
The fast food industry qualified a referendum for voters to decide whether this law made sense. CA’s legislature then introduced punitive legislation to harm the industry further. In response, leaders in the fast food industry negotiated with legislators and labor unions, resulting in a compromise two months ago.
The fast food industry withdrew the referendum (you won’t be voting on it), a new version of the Fast Food Council exists with limited authority, and the minimum wage would increase to $20 per hour with increases of not more than 3.5% each year (the current minimum wage is $15.50, already higher than all but one of the U.S. states).
In response, McDonald’s and Chipotle publicly stated that prices would be hiking next year. Because … of course they will. This is already in addition to the inflation we’ve been seeing over these past two years.
The economic lesson is also playing out in healthcare, where workers will receive minimum wage increases to $25 per hour by 2028. This passed the legislature without a firm cost estimate (a dumb way to govern). Republicans said it would cost billions, the Democratic author claimed it would save money.
Guess who was right.
Yep, the opening estimate is that it will cost the state ~$4 billion next year (1/2 from the state’s general fund).
As you see prices rising, remember Bastiat’s admonition: “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”