Any time government has to do for a person what he or she can do for themselves, it is a failure in governing. If government has to forcibly increase the minimum wage by law, it admits that the government has failed to care for the economy properly. The reason is, when there is an abundance of jobs wages rise accordingly because there is competition to fill those positions. One of the best ways to secure talent is to offer competitive or above competitive rates. That’s how wages should rise and not by the heavy hand of government imposing regulations. These solutions of legislative wage increases merely excuses their incompetence.
An example of that economic and political connection can be seen in the recent law that was passed in California increasing the minimum wage to $15. Clearly, Governor Brown and the California Democrats were under tremendous pressure from unions, their powerful allies in the state who took to the streets with placards demanding $15. As appeasement, he gave them what they wanted; no more, no less. He demonstrated his political skill by increasing it gradually, with 10% increase the first year and then $1.00 every year thereafter for another 5 years.
The long term consequences of the new law is difficult to determine. But there are at least two scenarios that will be the focus of strategic thinking for many of the state’s business leaders. First, the law has all but ceded the position of low-cost manufacturer to other states or countries. If it ever was, California will no longer ever be competitive to China and the new world’s emerging manufacturers, such as Vietnam for low-end products.
Second, companies will look at automation to reduce its labor force for repetitive tasks. The biggest barrier to this is the capital outlay required to procure these robots and machines. Because of the customization required, it will be cost prohibitive to many of these companies. But, it will be just a matter of time before enterprising financiers and banks are able to introduce financing solutions that make business sense. There will still be countless jobs that will require low-skill labor, that being the service sector and others that rely on manual labor. However, purely low-end manufacturing companies will have to consider the inevitable move to automation or find other states that will be more welcoming to their labor requirements.
For most California businesses, the cost of the new law will have to be passed on to consumers. Those who are in the lowest economic strata will likely be affected the most. These are the people who rely on value meals and cheaper alternatives to daily use products. A $5.00 foot long sandwich that goes up in price to $6.00 sees a 20% increase in the final cost of the meal.
What the government should have done was to find a way to incentivize training for higher paying occupations, leaving the entry-level jobs to the young people entering the workforce. They are the ones that will need work experience. In the end, how can a business justify paying someone without work experience $30,000 per year without being coerced? Companies will likely look for someone with commensurate skills or go out-of-state or off-shore.
Among the growing list of Democrat legislative monstrosities that include ObamaCare and Dodd-Frank Finance Reform Law, the California $15 minimum wage law should be repealed. Furthermore, the California unions should be reminded what they did to Detroit. It is true that cars are still being made in America, but mostly in the southern states, where most of California’s jobs may now be heading.