California turns to minimum wage hikes to offset high living costs. There’s a downside

There are three immutable aspects of economic life in California today.

No. 1, Californians face the nation’s highest cost of living. It is 11% higher than the national average, according to the federal Bureau of Economic Analysis, including rents 53% higher than average and utilities 63% higher. It’s why California also has the nation’s highest poverty rate.

No. 2, the high cost of living, especially for housing, is the most important factor in the out-migration of Californians to other states. It has led to a net loss of 900,000 people since 2015, according to the Public Policy Institute of California.

No. 3, California’s unemployment rate, currently 5.3% of its labor force, has been among the highest of any state for the last half-decade, with more than a million jobless workers. It rises to 10.1% when it’s broadened to discouraged job seekers and those who work part-time but want full employment. This alternative measure is also the nation’s highest.

The response to these economic conditions from the state’s mostly Democratic politicians has been an amalgam of high concept policy changes, one-time or short-term allocations of relief money and micro-managing wages.

Gov. Gavin Newsom and the Legislature, for example, have enacted dozens of laws and administrative directives aimed at making it easier to build new housing, especially for low- and moderate-income families and, in theory, tempering housing costs.

However, the actual rate of new housing construction of all kinds has been stuck at about 100,000 units a year. Newsom’s latest state budget projects only fractional gains, to about 115,000 units, through 2030.

When the budget’s revenues allow — or at least appear to allow — the state has appropriated funds for direct relief to Californians mired in poverty, such as an earned income tax credit or even cash distributions.

Increasingly, state and local officials also have responded to ever-increasing costs of living by increasing minimum wages.

A new report from the Virginia-based Employment Policies Institute reveals that California is the most active state in setting new and higher wages for specific economic sectors. It has 8 of the nation’s 10 largest local minimum wage increases taking in effect in July.

When California, after much political angst, decreed a $20 minimum wage for fast food workers three years ago and created an agency to oversee that industry’s employment conditions, it ignited a debate over impact that’s still raging.

Proponents have ginned up studies that purport to prove that the higher wages had little or no negative effects on employment and consumer prices. Critics have countered with studies saying that $20 wages forced fast food operators to raise prices and reduce their staffs.

Newsom and the Legislature also set higher wages for healthcare industry employees. Local city and county officials have decreed new wage levels for particular economic segments, such as the hotel industry in Los Angeles and amusement parks in San Diego.

The Los Angeles City Council set a $30 minimum wage for hotel and airport workers on the theory that travelers from elsewhere would bear the costs, but last month postponed implementation until after the 2028 Olympics. In return, the business community canceled a ballot measure to eliminate the city’s gross receipts tax, a major city revenue source.

The tactic of raising minimum wages to offset rising living costs shows no signs of abating. Currently, for example, the Service Employees International Union is sponsoring legislation, Senate Bill 1203, that would increase the training requirements for private security guards but also empower the state Industrial Welfare Commission to set new and presumably higher minimum wages for such guards.

This may be a circular economic firing squad. Higher wages can lead to higher consumer costs, which increases pressure for higher wages and pushes those caught in the middle, trying to survive, to lower-cost states.