Mon, Jul

Gavin Newsom Has Betrayed California’s Working Class


LABOR WATCH - Since Gavin Newsom took office as Governor of California in 2019, the condition of the state’s working class has steadily deteriorated. From the rising cost of living to increased tax bills from the beginning of this month, Newsom’s purportedly “progressive” policies have actually undermined the interests of workers and impeded the upward mobility of Californian citizens.

For example, shortly after Christmas Pizza Hut announced the termination of over 1,200 delivery drivers in the state. The decision coincided with the upcoming increase in California’s minimum wage, which is set to rise from $16 to $20 per hour for fast-food workers, impacting an estimated 500,000 workers. Other major fast-food companies have threatened to follow suit, with McDonald’s and Chipotle cautioning about potential repercussions such as higher prices and closures.

Despite these policies being introduced to assist lower-wage employees, Newsom fails to understand that, really, they have the reverse effect. As wages rise, so do costs. And if labour costs rise too quickly, companies may end up switching to automation, resulting in further closures. For instance, self-checkout machines have already replaced cashiers at many grocery stores. And just this week, the world’s first fully AI-powered burger restaurant opened in Pasadena.

Recent data from the Bureau of Labor Statistics indicates that California currently holds the third-highest unemployment rate in the United States at 4.9%, but this new law could push the figure even higher. The state also holds the unfortunate distinction of leading the nation in poverty, surpassing all other states with a rate of 13.2% — more than a third higher than the national average. And even when adjusted for cost of living, California still boasts America’s highest poverty rate, due to its exceptionally high costs of essentials such as housing, fuel, utilities, and other consumer necessities. 

Proponents of a higher wage floor stress the need to help lift the poor, yet any positive gain on income for workers is quickly counteracted by the state’s rising costs of living, particularly in housing. California is home to seven of the 10 most expensive cities in America for renters. What’s more, electricity and gas in the state are higher than anywhere else in the US thanks in large part to Newsom’s green energy initiatives.

Originally marketed with the intent of “holding billion-dollar corporations accountable”, Assembly Bill 1228 (AB 1228) was signed into law by Newsom last September. Now, it is hurting franchise restaurants, the majority of which are actually small-scale enterprises operating with narrow profit margins. Minorities represent 30% of franchise owners in California, and this new law is anticipated to have a disproportionate impact on them, leading to potential layoffs and closures.

Elevated unemployment rates can precipitate adverse effects on the economy, including an increased demand for public assistance, a reduction in consumer spending, and diminished productivity, ultimately resulting in lower incomes. These factors pose a significant threat to California’s pursuit of a “workers’ paradise”, especially considering the state’s record budget deficit, which has now reached $68 billion due to unexpectedly low tax revenues in recent months.

Newsom’s failure to comprehend the inverse correlation between escalating wages and heightened costs presents a tangible threat to California’s economic sustainability. Despite its adverse impact on businesses, this situation serves as a significant political victory for both the Governor and the unions. This outcome allows him to champion his labour-related achievements on a national stage. In an election year, this could provide a crucial foundation for advancing his far-from-subtle political aspirations.

(Soledad Ursúa (@SoledadUrsua) is a finance professional and elected board member of the Venice Neighborhood Council. She holds an M.S. from The New School for Management and Urban Policy. This article was featured in City Journal.)