Residents in the Golden State are learning a basic yet painful lesson in economics: If you tax something, you get less of it.
That’s the upshot of reports from over the holidays that California restaurants have begun furloughing workers in response to an impending statewide mandate taking effect in April. At that point, fast-food establishments will have to pay a $20 minimum wage — up nearly 30 percent from the state’s current $15.50 per hour.
The California example provides practical confirmation of the theories behind a separate Congressional Budget Office (CBO) report on federal legislation increasing the minimum wage: namely, that hiking mandated wages encourages firms to operate more efficiently — by laying off and replacing workers.
Outsourcing and Price Increases
Approximately 1,200 Pizza Hut delivery drivers got a very unhappy present just before Christmas. Two franchisees told them they would lose their jobs due to the higher minimum wage. In a notice to federal authorities publicizing the layoffs, the franchisees said they had “made a business decision to eliminate first-party delivery services and, as a result, the elimination of [sic] all delivery driver positions.”
In other words, the restaurants are outsourcing their delivery options to places like DoorDash, Uber Eats, and GrubHub to avoid paying more workers the higher minimum wage. That change may help Pizza Hut minimize the cost effect of the new California mandate, but it could sock customers with additional charges and fees imposed by the new third-party delivery services.
Likewise, Business Insider reported that chain
