April Fools: Minimum Wage Increases to $20

Starting on April Fool’s Day, the minimum wage for all workers in the fast-food industry in California will increase to $20 per hour. Apart from fast food workers employed at airports, hotels, event centers, theme parks and museums, the $20 affects all workers. Except for one small town near Seattle, Washington, this will be the highest minimum wage in the country.

California Governor Gavin Newsom recently said, “California is home to more than 500,000 fast-food workers who — for decades — have been fighting for higher wages and better working conditions. Today, we take one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table.”

The reality, though, is that a minimum wage of $20 per hour will end up hurting the very people he is trying to help. While it is true that unskilled workers who still have a job will benefit, more than half of minimum wage workers currently employed in the fast food industry will likely lose their jobs. The logic is simple.

Paying a completely unskilled worker $20 per hour results in an annual labor cost for the restaurant of at least $45,000. At that cost, the restaurants will employ far less workers. Those with jobs will be asked to work harder. And if they are getting paid more, shouldn’t they be more productive?

Most restaurants will find it is less costly to replace labor with capital. That means when a customer drives up to the takeout line, an artificially intelligent sign will greet them. The sign will ask for their order and put it into the system. No human worker is needed there.

Then the customer drives to the pay window. There they will be greeted by another AI-powered board. The customer will use their credit card or perhaps their phone powered with Apple Pay or something similar. Cash will also be accepted, and the AI board will be able to dispense change. Again, no worker needed.

Then the customer drives up to the pick-up window. A robot will greet them there and hand over the order. No worker needed there.

Even the customers who enter the restaurant will see differences. Orders will be taken by an electronic board which also accepts payment. These are already in place in many high labor cost areas. This replaces workers.

Looking into the restaurant to see how the burgers are flipped, one will find more robots doing most of the work. The result is that a fast-food restaurant who has eight workers per shift now, will need only two or three.

Some argue this move to automation will occur anyway. And that is true. But the higher the wages, the faster automation becomes mainstream.

The result of the high minimum wage will be a huge increase in the unemployment rate for unskilled workers, hurting exactly the people the law is meant to help.

Jot Condie, President and CEO of the California Restaurant Association, said the restaurant industry has notoriously low profit margins. “It’s going to be tough to absorb these labor costs without making some adjustments.” Condie said, “Their survival depends on it.”

Minimum wage jobs are meant for mostly young people as entry-level positions. Those wages will never support a family. A worker with absolutely no skills must take a minimum-wage job to learn some skills and to begin to understand how the business world works. Once they learn skills and see how valuable skilled labor is, they learn that they must acquire skills that are needed in the marketplace.

With skills, a worker will not take a minimum wage job but, rather, find a job where those skills can contribute to increasing the value of their output. That’s what leads to higher wages.

It is always best to allow the market to determine prices and wages. Setting wages above that market level will result in fewer jobs available and rising costs. That always leads to higher prices. Remember, we are trying to reduce the record high inflation that we have experienced for the past three years.

Raising the minimum wage will make the inflation problem worse. This is a terrible idea.

Or maybe it is just an April Fool’s joke.

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