Los Angeles $30 Olympic wage reveals why businesses are fleeing California
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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 no one familiar with California politics, Los Angeles leaders have approved a plan to raise wages for hotel and airport workers to $30 per hour. Supporters call it the “Olympic Wage” and argue workers should benefit from the economic activity generated by the 2028 Summer Olympics. While this sounds compassionate, it reveals a fundamental misunderstanding of how businesses operate and how capitalism operates in America.
The problem is not that politicians want workers to make more money. Everyone wants workers to make more money. People need a decent living wage.
The problem is that Los Angeles continues to believe that it can create wealth by passing laws rather than creating conditions that allow businesses to thrive.
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This is not economics. This is fantasy land. As the owner of six small businesses, I’m the last person who wants the government to dictate the margins in my business.
Here is the truth that politicians currently refuse to accept. Fees are not established by city councils. They are created by owners who succeed in a free market society and pay employees who help them along the way. Businesses pay people more when they produce more value, make more profits, and compete for talent. That’s how free markets work. Higher wages are often the result of successful businesses, not government mandates.
When the government mandates that labor costs increase significantly, business owners don’t just cover the costs and continue business as usual. They are forced to make difficult decisions. Some raise prices to consumers. Others are reducing staffing levels, cutting employee hours, postponing expansion plans or accelerating investments in automation. And in a state like California, some decide their next investment, expansion or hiring decision will be elsewhere, like Nevada, Florida or Texas.
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There is no magic scenario where labor costs rise by double digits, prices stay the same, profits remain unchanged, businesses hire more workers, and everyone somehow comes out ahead. This is not economics for Los Angeles, this is wishful thinking.
Every business operates with limited resources. When politicians increase one expense, something else must also be given. The question is not whether employers will respond to a $30 minimum wage. The question is how they will respond, and history shows that the answer is never what politicians promise.
What’s especially frustrating is that Los Angeles keeps making the same mistake over and over again. The city is struggling with affordability, homelessness, public safety concerns, budget pressures and a business environment that many employers already view as hostile. But the response from elected officials is almost always the same tactic of more power, more regulation, 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.
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.
The local hotel industry has already warned that high labor costs could reduce hiring, delay renovations, limit future investment and ultimately make Los Angeles less competitive as a tourism destination. Despite the Olympics, this is already happening. Airlines, hoteliers and business groups have repeatedly sounded the alarm that policymakers are ignoring basic economic realities in favor of political talk.
LA HOTELS HIT THE BIGGEST JOB LOSSES IN THE LAST 10 YEARS AS ‘OLYMPIC WAGE’ IS MANDATORY, DATA SHOWS
The irony is that Los Angeles is poised for one of the greatest economic opportunities in its history. The 2028 Olympics should be an opportunity to attract investment, create jobs, expand tourism and introduce the city to the world. Instead, city leaders appear determined to use the incident as an excuse to impose policies that could deter the businesses responsible for creating these opportunities.
What many politicians fail to understand is that capital is mobile. Entrepreneurs are mobile. Businesses are mobile. Investors can choose where to allocate their resources, and increasingly they are choosing places with lower taxes, fewer regulations, and leaders who understand that businesses are partners in economic growth, not enemies to be managed.
The pattern was starting to look painfully familiar. The same politicians who cause trouble also act surprised when companies choose to expand elsewhere. The result is a weaker business environment, fewer opportunities for workers, and ultimately a smaller tax base to fund the programs politicians claim to support.
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The best way to create higher wages has never changed. Promote entrepreneurship. Reduce unnecessary regulations. Reward investment. Help businesses grow. When companies are successful, employees benefit. Wages naturally increase when businesses compete for talent.
This is how America became the most prosperous economy in the world.
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Los Angeles looks set to test a different theory, one in which politicians could vote for prosperity to exist in a strange world.
Unfortunately for taxpayers, workers and business owners, the final vote always comes down to reality.
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Los Angeles doesn’t have a wage problem.
There is a leadership problem.
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