The continued pressure on businesses in California emanating from Sacramento will have disastrous effects on our economy and will particularly hurt the least educated and most vulnerable in our society. This will have the effect of causing more unemployment and more stress on our social services and result in the need for more tax dollars to be taken from a shrinking pool of tax providers. This is what you might call and economic death spiral.
The most recent example is the raising of the minimum wage in the State of California. Numerous studies have shown that by raising the minimum wage it is made harder of those with low skills to enter the job force. A business can’t simply charge whatever it wants for its product or service. A business must charge a price for its particular product or service that the consumer is willing to pay.
If the cost of goods (the total of all costs needed to produce the product or service) is more than the consumer is willing to pay – the company goes out of business.
Raising the cost of labor is not an insignificant factor. The automation of the plants producing cars was driven by the cost of labor. As the union wages and benefits spun out of control the higher up-front cost of automating the plant became a more attractive option.
Did banks get into the ATM business because they were willing spend more money to serve you better …no. Banks went to ATM’s because the ATM eliminated the need for employees and therefore, the cost of goods went down.
By raising the minimum wage, the State of California just launched the next great wave of automation. Get ready for a computer to ask you if you want fries with that.