If you want to understand why businesses are leaving California, investors are looking elsewhere and common-sense economics seems to have disappeared from public policy, look no further than Los Angeles.
In a move that should surprise absolutely no one familiar with California politics, Los Angeles leaders approved a plan to push hotel and airport worker wages to $30 per hour. Supporters call it the “Olympic Wage,” arguing that workers should benefit from the economic activity generated by the 2028 Summer Olympics. While that may sound compassionate, it reveals a fundamental misunderstanding of how businesses operate and how capitalism works in America.
The problem isn’t that politicians want workers to earn more money. Everyone wants workers to earn more money. People need a decent living wage.
The problem is that Los Angeles continues to believe it can create wealth by passing laws instead of creating conditions that allow businesses to thrive.
LA HOTELS HIT BY LARGEST JOB LOSSES IN A DECADE AS ‘OLYMPIC WAGE’ MANDATES BITE, DATA SHOWS
That’s not economics. That’s fantasy land. As an owner of six small businesses, I’m the last person who wants government to dictate the margins in my business.
Here’s the reality politicians refuse to acknowledge right now. Wages are not created by city councils. They are created by owners who become successful in free market society and pay those employees who help them get there along the way. Businesses pay people more when they generate more value, earn more profit and compete for talent. That’s how free markets work. Higher wages are typically the result of successful businesses, not government mandates.
When government mandates that labor costs rise dramatically, business owners don’t simply absorb the expense and carry on as usual. They are forced to make difficult decisions. Some raise prices on consumers. Others reduce staffing levels, cut employee hours, delay expansion plans or accelerate investments in automation. And in a state like California, some simply decide their next investment, expansion or hiring decision will happen somewhere else, like Nevada, Florida or Texas.
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There is no magical scenario where labor costs rise by double digits, prices stay the same, profits remain untouched, businesses hire more workers and everyone somehow comes out ahead. That’s not economics for Los Angeles, it’s wishful thinking.
Every business operates with finite resources. When politicians increase one expense, something else must give. The question isn’t whether employers will respond to a $30 minimum wage. The question is how they will respond and history suggests the answer is never in the way politicians promise.
What’s particularly frustrating is that Los Angeles keeps making the same mistake over and over again. The city struggles with affordability, homelessness, public safety concerns, budget pressures and a business climate that many employers already view as hostile. Yet the response from elected officials is almost always the same playbook of more mandates, more regulations, and higher costs for the private sector.
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It’s as if city leaders believe businesses have an unlimited ability to absorb new expenses without consequences.
They don’t.
The local hotel industry has already warned that higher labor costs could reduce hiring, delay renovations, limit future investment and, ultimately, make Los Angeles less competitive as a tourism destination. It’s happening already despite the Olympics. Airlines, hotel operators and business groups have repeatedly sounded the alarm that policymakers are ignoring basic economic realities in favor of political talking points.
LA HOTELS HIT BY LARGEST JOB LOSSES IN A DECADE AS ‘OLYMPIC WAGE’ MANDATES BITE, DATA SHOWS
The irony is that Los Angeles is preparing for one of the greatest economic opportunities in its history. The 2028 Olympics should be a chance to attract investment, create jobs, expand tourism and showcase the city to the world. Instead, city leaders seem determined to use the event as an excuse to impose policies that could discourage the very businesses responsible for creating those opportunities in the first place.
What many politicians fail to understand is that capital is mobile. Entrepreneurs are mobile. Businesses are mobile. Investors can choose where they deploy their resources and, increasingly, they are choosing places with lower taxes, less regulation and leaders who understand that businesses are partners in economic growth and not enemies to be managed.
The pattern is becoming painfully familiar. The same politicians who create the problems act surprised when companies choose to expand somewhere else. The result is a weaker business environment, fewer opportunities for workers and, ultimately, a smaller tax base to fund the very programs those politicians claim to support.
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The best way to create higher wages has never changed. Encourage entrepreneurship. Reduce unnecessary regulation. Reward investment. Help businesses grow. When companies succeed, workers benefit. When businesses compete for talent, wages naturally rise.
That’s how America became the most prosperous economy in the world.
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Los Angeles appears committed to testing a different theory in a bizarro world that politicians can simply vote prosperity into existence.
Unfortunately for taxpayers, workers and business owners, reality always gets the final vote.
Los Angeles doesn’t have a wage problem.
It has a leadership problem.
