How will big government California recover from the COVID-19 shutdowns?


Running a business in California, particularly a small one, is hard enough in ordinary times. Now the task has become impossible for many. If lawmakers don’t start making wholesale policy changes soon, the future will be more grim than the present.

California is on its way to a $15 an hour minimum wage. Increases are coming in annual increments. The next scheduled boost, to $13 an hour for small companies and $14 for those with 26 or more employees, is due Jan. 1, 2021. The increased costs could be deadly for businesses struggling to return to normalcy after the pandemic lockdowns are removed. That especially important in Kern County, where a 2019 study found that Bakersfield was the “most livable city” in the nation for minimum wage.

That is, if they get that far. The California Restaurant Association believes that 20 to 30 percent of the state’s more than 90,000 restaurants will not be reopening after restrictions are lifted, and is asking lawmakers to delay the minimum wage increases as restaurants navigate the “scorched earth” left behind by the lockdown. That’s an estimated 18,000 to 27,000 business, and countless hospitality jobs, wiped out.

It’s reasonable to expect a significant portion of companies in all sectors will also be unable to reopen. A survey of small business owners found that 11 percent don’t believe they can survive a one-month shutdown; 43 percent say a six-month lapse will kill their companies.

Even before the pandemic, the smallest of small businesses, independent contractors and freelancers, had been closed out, their work outlawed by Assembly Bill 5. Before the law went into effect in January, nearly 2 million Californians relied on income from “gig” jobs. Add to those the more than 1.9 million who just in the initial stages of the state lockdown have filed for unemployment benefits, and the millions more who are likely to do the same, and the problems created by the law grow like compound interest.

If not for AB 5, many of these newly jobless Californians could use their ambition and talent to earn income working independently both now, and later, when their previous full-time employment is gone forever. The most humane act Sacramento could perform is to repeal, or at least suspend AB 5 indefinitely. Gov. Gavin Newsom could do so through his emergency executive powers.

Relief from oppressive occupational licensing laws, and the morass of business regulations that frustrate enterprise are also necessary for a healthy recovery.

Occupational licensing requirements impose significant time constraints and inflict heavy costs on rising entrepreneurs, says PRI senior fellow Wayne Winegarden, without producing public benefits. According to the Institute for Justice, roughly 2.5 million Californians need an occupational license before they can go to work.

No one is saying surgeons should be free to operate without some evidence of their education. But does a manicurist really need at least 400 hours of training before being allowed by the state to work? A cosmetologist 1,600 hours? Barbers 1,500? Licensing barriers to these occupations and others have cost the state nearly 196,000 jobs, and are likely to keep many more in the unemployment ranks after the stay-home order has been removed.

Meanwhile, the state’s regulatory regime is a perpetual obstacle to enterprise. California continues to be the worst state in the country in which to do business, its regulatory hurdles the second-highest in the country. A “complex regulatory state” such as California’s, says Winegarden, “wastes millions of hours of work on low-productivity compliance activities that overwhelms many small businesses.” If lawmakers would just lessen “the burden from regulations, including labor regulations, the government can help reinvigorate the entrepreneurial sector.”

“Stimulus” checks, bailouts and loans intended to mitigate the malign effects of the COVID-19 lockdown for workers and businesses outbreak aren’t a cure-all remedy. They’re a temporary fix. California businesses need long-term relief from the boot of government that makes it hard for them to keep their doors open, much less succeed, and workers want opportunities that the state won’t allow.

Instead of opening doors, though, it appears policymakers plan to close more. When asked during his April 2 press conference if he thought the COVID-19 shutdown presented a moment in which to launch a “new progressive era” at both the state and national level, Newsom said “absolutely we see this as an opportunity to reshape the way we do business and how we govern.”

“So, the answer is yes,” he said.

It took decades of progressive policy mistakes to bury California in the hole it languishes in. To use a deadly pandemic to entrench an existing punitive legislative and regulatory framework, and add even more roadblocks would be the ugliest, and most egregious, error yet.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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