California has become the testing ground for a variety of regulatory measures, with minimum wage being the latest issue under scrutiny. In a recent U.S. Senate debate, Representative Barbara Lee proposed a $50 minimum wage for California. She defended her proposal by citing a United Way study that indicated a family of four needed $127,000 to survive in the San Francisco Bay Area. The impact of this proposal on small businesses was questioned by the debate moderator, to which Rep. Lee responded that her previous experience as a small business owner indicated that businesses would not be negatively affected. However, it is important to note that Rep. Lee started her business in a very different economic environment compared to today’s California.
The current minimum wage law in California includes significant exemptions, demonstrating an acknowledgment of the challenges faced by some businesses in complying with higher wage requirements. Fast food businesses will be required to pay a minimum of $20 per hour starting April 1, 2024, but businesses that own a bakery are exempt from this requirement. Governor Newsom stated that the exemption for bakeries is not politically motivated, but evidence suggests otherwise, as large businesses like Panera Bread stand to benefit from this carve out. The impact of the minimum wage law varies among different industry sectors, with smaller businesses facing a disproportionate burden compared to larger corporations.
Large corporations, such as Amazon, have an advantage over small businesses in dealing with increasing labor costs, as they have higher margins and can absorb these costs more easily. However, 40% of small businesses are planning to raise wages in response to inflation and labor shortages, indicating the challenges they already face. Rep. Lee’s proposal of a $50 minimum wage would be devastating for small businesses struggling under these existing pressures. Small businesses, especially those in industries with a high percentage of minimum wage workers like restaurants and hospitality, would face significant challenges in adapting to such a drastic increase in labor costs.
Rep. Lee’s suggestion that businesses with well-paid employees are more productive overlooks the reality that many small businesses would struggle to stay open if faced with such a high minimum wage requirement. Entry-level jobs serve as valuable opportunities for individuals to gain experience and start their careers, but a $50 minimum wage would make these positions unaffordable for small businesses. Wages should be determined by market conditions, not government bureaucrats, to ensure the viability of small businesses and the opportunities they provide for workers. The upcoming U.S. Senate race in California highlights the importance of thoughtful and realistic policymaking to support the state’s diverse business landscape.
