Commentary
California raised the minimum wage by 25 percent, to $20 an hour, for some fast-food chain restaurant workers on April 1. The raise came, appropriately, on April Fool’s Day. That’s because many of those same workers who thought they were getting a generous raise will likely soon get nothing near that. Instead, some will get unemployment benefits when their employers cut back staff. And only certain fast-food workers at big chains will actually get the raise. That’s an “April fool!” from the California state legislature and Governor Gavin Newsom.
Mandates and ‘Good Intentions’
California’s legislative houses, the Assembly and the Senate, have been dominated by Democrats for at least 30 years. In recent years, those bodies have imposed multiple mandates for the environment, business, and daily life. Many of the edicts handed down from Sacramento epitomize the phrase, “The road to hell is paved with good intentions.” It’s no surprise that California’s multiple unfunded mandates, its high taxes, and its onerous regulatory regime have led to an exodus of the state’s population to other states.This month’s new fast-food wage mandate, though, is particularly cruel, because it will likely result in layoffs of lower-income workers as well as higher consumer prices for meals eaten away from home. Inflation in that category, that had, traditionally, been on par with the rest of the economy, has well exceeded it since the financial crisis of 2008–09 (see the graph below).
Source: Bureau of Labor Statistics
Surprisingly, fast-food restaurateurs acceded to the new law after negotiations with labor unions, according to KTLA. (The TV station noted that the two sides took the unusual step of signing non-disclosure agreements as part of their deal.) The new 25 percent raise comes after California’s minimum wage laws had already gone from $8 to $16 an hour in the last decade.
More ‘Equity’ at Consumers’ and Employers’ Expenses
The unfunded fast-food wage mandate is yet another effort by California and other state governments to promote the “equity” portion of the diversity, equity, and inclusion (DEI) agenda by paying lesser-skilled workers higher wages than their skills justify.As I wrote elsewhere recently, DEI is a performative solution to a substantive problem: the profound, egregious, and systemic failure of American education to ready youngsters for the modern workforce and well-paying work.
But politicians prefer to address outcomes on the back end, expending as little political capital as possible, instead of doing the hard work necessary to develop actual means to level America’s socioeconomic divide. Means, not mandates, would have addressed things like education, training, and the dearth of marriage and fatherhood in American families. At the federal level, it would mean adopting some of the mercantilist and protectionist trade barriers employed by nearly all our Group of 7 trading partners instead of clinging to our dogmatic illusion of “free trade” that has justified moving better-paying manufacturing jobs to low-wage nations abroad.
The mandatory pay raises for some fast food workers—the economic “equity” that California legislators want to advance—will have to be funded by fast-food consumers and businesses, not the taxes that normally fund things like food stamps, subsidized housing, and other types of direct aid to the working poor. California’s burger munchers and restaurateurs, not taxpayers generally, will foot the bill.
‘Don’t Tax You, Don’t Tax Me, Tax That Fellow Behind the Tree’
The late Senator Russell B. Long (D-La.), the chair of the Senate Finance Committee from 1965–80, once used that witty verse to describe the entreaties his committee received from Capitol Hill lobbyists to tax everyone but not their clients.Clearly, D.C. lobbyists’ Sacramento counterparts had their hand in the new fast-food wage mandate. The bizarre taxonomy of restaurateurs and workers that are—and are not—covered by the new, higher, wage make clear it was heavily lobbied. Moreover, it was arguably intended to benefit home state California-based chain fast-food restaurants over national or regional chains from outside the Golden State.
The most egregious element of the new law is that it applies only to chain restaurants with 60 or more outlets nationally and only to those with “limited table service.”
Breaking that coverage down, we see that smaller, California-based restaurant chains that have fewer than 60 outlets are exempt. There are a variety of such restaurants that might qualify to be exempt. One, Original Tommy’s, for example, is a burger and fries quick-serve restaurant with about 30 locations, mostly in Southern California, with a few in Nevada. Even though Tommy’s menu of burgers and fries resembles that of the larger Shake Shack or Five Guys, a recent job listing for a California crewmember for the chain offered $16 an hour, the same minimum wage as before the April 1 law change. That’s because Tommy’s is exempt from it because it has less than 60 locations.
While that seems, on its face, patently unfair, the new law would likely pass muster under the Commerce clause of the U.S. Constitution, which prohibits favoring in-state businesses over out-of-state businesses. That’s because a national chain with fewer than 60 locations but just one outlet in California would be exempt from the $20 per hour minimum wage. Since the out-of-state and in-state chains are treated the same, there is no actual discrimination. Nevertheless, it’s clear California’s legislators intended to impose their vision of economic “equity” on large chain restaurants ("that fella behind the tree” in Sen. Long’s words) that they envision are more readily able to bear the additional wage costs. (And, not incidentally, are also mostly headquartered out-of-state.)
But it’s important to note that not all “chain” restaurants are the same.
Chipotle and Shake Shack restaurants, for example, are owned and run by large, publicly traded corporations that take in over $1 billion per year in revenue and employ tens of thousands of workers. The same applies to Five Guys, though it is not publicly traded. However, other chain restaurants, like McDonald’s, mostly operate on a franchise model.
In a franchise model, a local owner-operator of a one or a few restaurants of the chain pays the franchisor (e.g., McDonald’s) a franchise fee for its managerial expertise, advertising, supplies, and trade dress (i.e., the decor, food packaging, staff uniforms, etc.), and agrees to other rules imposed by the franchisor. McDonald’s also gets a small percentage of the location’s revenue. In exchange, the franchisee gets the exclusive right to operate the franchise in a given restaurant or area.
Beyond that, though, franchisee restaurateurs are mostly on the same footing as independent fast-food restaurateurs doing business on their own or with corporate-owned giants like Five Guys or Shake Shack. But the franchisee of a major chain whose single restaurant might gross only a few hundred thousand dollars a year in revenue still has to pay the same $20 minimum wage as the Five Guys location down the street that is owned by a billion-dollar corporation!
Moreover, that same restaurant owner-operator of a single California franchise restaurant—say a McDonald’s—that grosses maybe $1 million or $2 million in sales and that has a crew of, maybe, 20 employees, has to pay each of them at least $20 an hour while the Original Tommy’s hamburger restaurant the next block over can pay its workers 25 percent less! And Tommy’s, while privately held, is part of a corporation whose parent company is reported to gross $62 million a year and has 5,000 employees!
There are other, less egregious, examples of the inequity brought about by the California legislature’s ham-fisted efforts to bring about “equity” for fast-food worker. Even big chains, for example, are exempt from the higher wage if they are located in a theme park. So a Starbucks barista on Main Street in Oakley, California, will be paid $20 an hour while a barista at the Starbucks on Main Street USA at Disneyland will still be paid the $16 an hour that applied before the law change.
Simply put, the California fast-food minimum wage rules are unfair and make no sense. As policy to effect “equity,” they are an act of cowardice by state leaders who won’t do the hard work to raise employment standards.
Summary
California isn’t the first jurisdiction to aver they are advancing social justice and equity by imposing higher costs on the back of businesses and consumers. New York did something similar with its fast-food workers by increasing their minimum wage in New York City to $16 an hour. In addition, following suit on a rule in San Francisco, the New York City Council also imposed an arduous employee-scheduling regime that requires workers to be paid a premium if it changes and that cannot be changed from week to week. Other states likely have similar rules.The business model for fast-food restaurants is offer affordable food and employ high school and college kids, and perhaps some senior citizens, who are working their first jobs to pick up spending money or money for college or, for senior workers, to save for a vacation, pay for some “extras,” or even to make ends meet in their retirement. “Flippin’ burgers” is not intended to be a career path for adults in their prime working age. Such jobs were never intended to support a family or even a single individual with no children. Legislation under the guise of social justice is misplaced and arguably harmful to the workers, who won’t pursue better job skills if they are “getting by” on a burger-flipper’s salary, and they are obviously harmful to consumers. They’re also harmful for the young people who would otherwise hold those jobs and need to develop basic employment skills. (As an employer, would you rather hire an adult who needs the job to pay his or her rent or a high schooler who might call in sick because he has a trigonometry final the next day?)
But, then again, these fast-food minimum wage rules are wholly performative, a veritable admission by the states’ elected leaders that they have failed at basic governmental responsibilities of delivering the sound, basic education and job skills necessary to obtain well-paying work. It’s also an admission they have failed to adopt economic, tax, and trade policies that promote a growing economy and a healthy environment for the commerce and businesses that provide such work.
If state leaders wish to promote economic equity and social justice by raising living standards of the working poor, they should raise taxes, appropriate funds, and pay the cost of food stamps, rent supports, and other grants-in-aid from state tax revenues. That way, taxpayers can see what a miserable job the leaders have done educating youngsters and promoting commerce.
But don’t try to obfuscate policy failures behind the higher cost of a Big Mac and a large fries.
The people aren’t that stupid.
