Unintended consequences?

Recently, California Governor Gavin Newsom signed legislation into law that capped fast food worker minimum wage at $22 per hour. It goes into effect in 2023. Starting in 2024, the minimum wage will adjust according to inflation, but will be capped at 3.5% annually. Sounds great for those fast food workers, right? Maybe not.

Consider how other employed workers will feel, having climbed the economic ladder, having earned the hourly wage they now enjoy. Jacking up unskilled labor wages erodes the gains those workers had. Their previously higher wages will now have less buying power than before… also factor in increased prices across the the economy to pay those increased minimum wages.

And there are other considerations… Employers are very conscious of their operating budgets and how taxes and wages affect their bottom lines. At some point, it becomes more affordable to replace humans with automation. Sure, people will still be needed to keep automation machinery working properly. But it is highly doubtful many of the people who will be replaced by automation, would have the skills necessary to maintain those machines. So, what happens to them?

Another potential outcome of raising the minimum wage to unrealistic levels, is that the unskilled fast food workers would be replaced by college educated workers. Twenty-two dollars and hours is not bad money to a recent college graduate. Employers are always trying to hire the most competent workers for the wages offered. Having a choice between hiring a college graduate or someone without a degree, well… you get the picture.

Unskilled workers losing their jobs to automation and college educated people, kinda defeats the original intention of the ‘living wage’ concept. I’m no proponent of a living wage. The minimum wage is supposed to be a temporary wage to an employee until that person learns more skills to justify higher wages. Employers being forced to pay higher minimum wages to unskilled labor, seems to me, like a very bad idea. How many businesses will leave the state? How many people will not start future small businesses in California? What are all the long-term unintended consequences?

Time will tell…

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