Home Valley Beat California’s $20 minimum wage is killing thousands of jobs

California’s $20 minimum wage is killing thousands of jobs

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For eight years, Michael Ojeda delivered food for a Pizza Hut in Ontario, California, using the income he received to support his family.

In December, the 29-year-old received a letter from the pizza franchise informing him that his employment was being terminated in February. The news shook him. 

“Pizza Hut was my career for nearly a decade and with little to no notice it was taken away,” Ojeda said, whose story was recently highlighted by the Wall Street Journal.

Ojeda appears to be just one of the thousands of casualties of a new California law that will raise the minimum wage for fast-food workers to $20 an hour on April 1 for all restaurant chains that have at least 60 locations nationally.

Making $20 instead of $15 sounds like a win, but economics shows there’s no such thing as a free lunch. California lawmakers just proved it.

When the minimum wage goes up, the money to pay workers must come from somewhere, and it typically comes from three places: higher consumer prices, reduced labor costs in other areas (fewer workers, fewer hours, reduced benefits, etc.), and lower profits and capital expenditures.

Many minimum wage proponents want to focus just on that last item (profits) and ignore the other adverse consequences of the policy. But events unfolding in California show this is a mistake.

Restaurant franchises such as Chipotle, Jack in the Box, and McDonald’s have already announced they’ll be jacking up prices to cover increased labor costs, which are expected to increase by roughly $250,000 per location for many of these restaurants (though the economics here is nuanced).

But raising menu prices isn’t the only way California restaurants are responding. Records submitted to the state show Pizza Hut and Round Table Pizza plan to sack nearly 1,300 delivery drivers. Other chains are taking similar actions, and many restaurants have stopped hiring new workers.

This is not unexpected. Critics of the law predicted it would result in less employment, and that’s exactly what has happened.

“California had 726,600 people working in fast-food and other limited-service eateries in January,” the Wall Street Journal reports, “down 1.3% from last September, when the state backed a deal for the increased wages.”

This is not the only way restaurants will reduce labor costs, of course. Benefit cuts, fewer hours, and a shift toward automation are also on the table. But the layoffs at California restaurants are what is currently generating the most attention, and for good reason.

Work isn’t just a paycheck. For many, it’s something that brings meaning, an idea the author David Sturt explored in his bestselling book Great Work, which showed that even so-called “unglamorous jobs” often provide purpose and a sense of responsibility to those who work them.

This is one reason researchers say losing a job can be psychologically crushing. It destroys that sense of purpose while simultaneously taking away from people the single biggest antidote to poverty: a job.

This is not mere rhetoric. Data from the Bureau of Labor Statistics show that just 4% of people who spend at least 27 or more weeks per year in the labor force fall below the poverty line (compared to 12.4% overall). Census data show that the rate falls to 2.4% for those who work full-time year-round.

It’s not an exaggeration to say that a job is the single most important path out of poverty.

This is why so many economists lament minimum wage laws. They reduce employment by raising the cost of labor above the value the worker is able to bring to the employer. This is why minimum wage laws tend to fall hardest on the most vulnerable workers in society, consigning to the unemployment line those with the fewest skills and who can offer the least value to employers.

“There is only one way to regard a minimum wage law: it is compulsory unemployment, period,” the economist Murray Rothbard stated.

If you doubt this, consider Ojeda, who, after eight years as a driver for Pizza Hut, was unceremoniously axed. The wages and tips he received as a driver are gone, and he recently filed for unemployment.

How Ojeda will continue to provide for his mother and partner is unclear. But how he arrived here is: California lawmakers outlawed his job by presuming to know what a “just” wage is for restaurant workers.

Now, the California legislature is reportedly scrambling to carve out additional exemptions for restaurants.

For Ojeda and the thousands of other fast-food workers put out of work by California’s law, it’s already too late. And these job losses reveal the truth of economist Thomas Sowell’s famous adage: The real minimum wage is $0. 

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