A higher minimum wage for me, but not for thee in California

OPINION:

When it comes to California’s budget concerns, Gov. Gavin Newsom has turned cautious about a pending $25 hourly minimum wage for health care workers. Yet for small businesses in the Golden State, exorbitant minimum wage increases get the governor’s stamp of approval.

Last fall, Mr. Newsom signed Senate Bill 525, requiring a $25 minimum wage for California health care workers as early as 2026 for some establishments. In addition to a 56% increase in hourly wage bills for affected health care employers, the mandate would also affect up to 3,000 state employees and associated health care costs managed by the Medi-Cal public insurance program. The state will also be required to reimburse local jurisdictions for the increased cost of statewide mandates such as this one.

The Newsom administration initially expressed concerns about the wage bill, but the governor signed it anyway, before he understood the full cost. Less than a month later, the state Department of Finance assessed the impact: The bill would cost $4 billion for just one year. The Los Angeles Times called it “one of the most expensive laws California has seen in years.”

Now Mr. Newsom is trying to pump the brakes, proposing to delay future minimum wage increases until budget gaps can be overcome. The state faces a projected $38 billion budget deficit.

It’s no shock that such a drastic rise in the minimum wage would produce alarming cost increases for employers. After all, California’s regular statewide minimum wage reached $16 per hour just this year. Yet when the burden falls on small businesses, Mr. Newsom doesn’t seem to mind.

Last year, Mr. Newsom also signed a supersized minimum wage mandate for fast-food workers in California. Assembly Bill 1228 created a $20 minimum hourly wage effective April 1 for fast-food outlets belonging to a brand with more than 60 locations nationwide.

The $20 mark represents one of the highest wage floors in the country and tops even local minimum wage rates that supersede the state’s regular wage ordinance.

Decades of economic analysis demonstrate that such a move will be disastrous for fast-food employees. An Employment Policies Institute survey of American labor economists found a strong majority oppose a $15 minimum wage, and most oppose higher targets, agreeing they will cut jobs, close businesses, and exacerbate existing inflation.

Companies and franchisees alike are bracing for the new pay raise by announcing price increases to absorb some of the extra labor costs.

Some larger brands have signaled they will raise menu prices, while individual operators are contemplating hiring freezes and reducing employee hours. Some have already made staffing cuts. While Pizza Hut operators have announced the end of delivery service and the layoffs of thousands of delivery drivers, El Pollo Loco will move toward automation with new self-ordering kiosks.

Mr. Newsom is spooked by the real cost of a drastic wage increase when he has to find a way to pay for it but is all in when it comes to saddling private businesses and their employees with the same fate.

As the mandates stack up in California, many are finding the state’s business environment is more trouble than it’s worth. Mr. Newsom is right to be concerned about the outsized negative effects of unbridled wage increases. If only he applied similar concerns across the board.

• Michael Saltsman is an owner and partner at Berman and Co.