Why did California’s minimum-wage boost fail?

Californians, who have historically supported efforts to raise the minimum wage, were not swayed this time around.

After two weeks of postelection uncertainty, Proposition 32, the initiative to increase the state’s minimum wage to $18 an hour, was defeated by a narrow margin.

The rejection was “a pretty poignant sign of the times in a state like California,” said John Kabateck, state director of the National Federation of Independent Business, which had urged voters to vote no. “It is certainly sending a message that Californians across the political spectrum are fed up with higher costs and greater uncertainty on Main Street.”

Proposition 32 was declared defeated after falling just short, with 49.2% voting “yes.” The Associated Press called the race on Tuesday evening.

The outcome was the latest indication of a rightward shift in the reliably blue state, which saw a number of surprising results from the Nov. 5 election. Voters overwhelmingly supported a ballot measure to undo a decade of progressive criminal justice reform, and rejected an initiative that would have banned forced prison labor.

Opponents and economists said that by striking down the proposed minimum-wage increase, voters signaled that they were nervous about businesses raising prices to offset their added labor expenses. The prospect of paying more for consumer goods was especially unappealing after years of high inflation, which has led to a persistent feeling among many people that they’re on shaky financial footing.

“Arguments about the minimum wage are always very emotional,” said Till von Wachter, an economics professor at UCLA. “Economic issues are top of mind right now, and that can lead to a rejection of a higher minimum wage.”

Voters were closely divided on the proposition, which would have raised the minimum wage to $17 an hour immediately for larger employers and to $18 an hour starting in January. Smaller employers with 25 or fewer employees would have been required to do the same but at a slower rate: $17 an hour next year and $18 an hour in 2026.

The initiative received support in counties including Los Angeles, Santa Barbara and all nine that make up the San Francisco Bay Area. Higher-income counties were more likely to have voted yes, according to a Times review of voter results, although Orange and San Diego counties voted no.

California already has one of the highest minimum wages in the country, trailing just the District of Columbia and Washington. The state’s minimum wage has doubled since 2010, most recently increasing to $16 from $15.50 in January.

Many cities — including Los Angeles, West Hollywood, Santa Monica and Pasadena — have even higher minimums. Meanwhile the federal minimum wage has sat at $7.25 for 15 years.

As such, voters might have felt that another wage hike was unnecessary, said Chris Thornberg, an economist who founded Beacon Economics, a research and consulting firm in Los Angeles. The outcome was in part a reflection of the overall swing to the right nationwide, he said, and also about a sense of “fairness.”

“As you continue to push the minimum wage up, people are less empathetic,” he said. “The California public is at that point where they think this is just not fair to the rest of us.”

In practice, the effects of raising the minimum wage on inflation and on unemployment are complex and hotly debated.

Supporters of Proposition 32 argued that increasing the minimum wage stimulates the economy, improves the standard of living for lower-income workers and reduces employee turnover. A new standard, they said, was necessary to cope with the state’s exorbitant cost of living.

The campaign estimated that more than 2 million California workers stood to benefit from the measure, which was spearheaded by millionaire investor and anti-poverty activist Joe Sanberg.

“The fight for higher wages and economic dignity for millions of California workers doesn’t end here — we’ll continue until every California worker earns enough to live and thrive,” Sanberg said in a statement Tuesday evening. “While today’s outcome was not what we expected, we are hopeful for the work ahead.”

Opponents said the measure was bad for consumers — and for workers. They worried companies would pass on the extra labor costs to customers through higher product prices, and would try to save money by laying off staff, slashing employee hours and replacing workers with automation.

“It was a very easy call to vote no on it,” said Bill Bender, 70, a restaurant operations consultant from San José. “It’s too much, too fast for the industry to absorb.”

California had a recent real-world case study in raising the minimum wage to consider, which may have factored into voters’ decision-making: In April, the state’s fast-food workers saw their pay jump to a minimum of $20 an hour, an increase established by Assembly Bill 1228.

Many cashiers, line and prep cooks, counter attendants and baristas saw as much as a 25% raise overnight thanks to the new law, which applies to California fast-food workers employed by any chain with more than 60 locations nationwide, and covers corporate-owned and franchised locations.

Even before it kicked in, fast-food giants including Chipotle, McDonald’s, Starbucks, Jack in the Box and Shake Shack warned that they were planning to raise menu prices as a result, leaving customers to eat the cost.

“Fast-food consumers are very frustrated by the price increases that they’re seeing,” said Jot Condie, president and chief executive of the California Restaurant Assn., which opposed Proposition 32. “They were just connecting the dots and saying, ‘This $18-an-hour minimum wage is going to increase prices across the board.’”

Michaela Mendelsohn operates six El Pollo Loco locations in Los Angeles and Ventura counties. She believed that raising the state’s minimum wage would have led to a jump in prices, but said she supported Proposition 32 because it would have narrowed the gap between what she and other fast-food operators are required to pay their employees and what non-fast-food companies pay.

Since the state moved to $20 an hour for fast-food workers, Mendelsohn said transactions at her six stores are down 5% to 8% from a year ago and she has trimmed total labor hours by 8% to 10%.

David Neumark, a UC Irvine economist and national expert on minimum wages and their economic effects, said he was surprised by the outcome and that it was hard to pinpoint a single factor for the measure’s defeat.

His research over the years has shown there’s an economic tradeoff in pushing up the minimum wage: Some lower-income workers benefit from increased pay, but overall jobs are reduced as employers cut back due to higher costs, which hurts the financial well-being of the working poor and those with fewer skills.

Although it’s a commonly accepted theory that a boost in the minimum wage could lead to job loss, von Wachter of UCLA said that isn’t always the case.

“The argument that higher wages lead to lower employment does not have a lot of evidence going for it,” he said. “Instead, in situations where employers have some market power, higher minimum wages can raise employment.”

California voters are heavily Democratic and a high minimum wage generally aligns with left-wing values, but voters on both sides of the aisle didn’t adhere to typical party-line trends when it came to Proposition 32.

Randy Jeffs, a Republican from Irvine, said he didn’t vote for a presidential candidate last week. But he did vote yes on Proposition 32 after calculating that a worker paid at the higher rate would still only make $37,440 a year on a full-time, 40-hour-a-week schedule.

“If prices rise a little to pay for an $18-an-hour minimum wage, so be it,” Jeffs, 70, said. “If the wealth is to be spread about, what better way than to those willing to learn [and] work?”

But in the end, most voters decided that “enough is enough,” Condie said.

“The state’s voters continue to support so-called progressive policies,” he said, “but are drawing the line when it impacts their cost of living or quality of life.”