State legislators and Governor Gavin Newsom have pushed California’s fast food industry into free fall, and it’s only been one week since the new $20 minimum wage mandate went into effect.
Since April 1, headlines have flurried out of California documenting the bloodbath local franchisees are experiencing. The $20 minimum wage, which generally applies to fast food restaurants with more than 60 locations nationwide (with some exemptions), has already forced restaurants to switch to automation, lay off employees, or even close down for good.
Just this week, restaurants and their employees are experiencing serious negative consequences of the new law:
- Price hikes: Chains including Starbucks, Chipotle, McDonald’s, Burger King, In-N-Out, and Jack In the Box have all signaled they will be forced to raise menu prices to adapt to the change. One analysis found the new wage could cost “regular” Starbucks customers $200 more in a year.
- Employment losses: Local Pizza Hut franchisees have already announced plans to cut up to 1,200 delivery driver jobs following the news of the new wage hike. Southern California Pizza Co., Round Table Pizza, and Vitality Bowls also announced layoffs.
- Restricted overtime opportunities: One employee told a local reporter that her restaurant will no longer allow its employees to work overtime shifts even if they want to.
- Shifting jobs to automation: Dave’s Hot Chicken announced this week it would explore future use of self-ordering kiosks in the wake of the wage hike, as price hikes alone would not make up for rising labor costs.
- Restaurant closures: One restaurant that shut down ahead of the increase said it would “not be able to absorb the wage hike.” Affected employees told reporters they would have preferred working at a lower hourly rate than losing their jobs entirely. After Mod Pizza closed five California locations, one former employee commented that the minimum wage hike “came at too high a cost.”
- Restaurant migration: One franchisee of Cinnabon and Auntie Anne’s locations in San Francisco told media he would “only invest in future franchise opportunities” in neighboring Nevada due to “so many different types of people telling you how to run your business” in California.
Customers are already feeling the pressure too: many California residents have indicated the new wage hike and subsequent price hikes may force them to reduce eating out at these restaurants.
Economists have warned against these consequences for decades, as Dr. David Neumark wrote in the Wall Street Journal this week. The overwhelming majority of economic research over the last thirty years indicates that minimum wage hikes cost jobs, especially for younger and entry-level employees. In a recent survey of over 150 American labor economists, three-fourths agreed wage hikes up to $18 an hour or higher as proposed in California would hurt employment.
Not only are these effects (which economists have warned about for decades) already materializing in California, state lawmakers can’t even communicate the mandate properly to its business owners. One ice cream shop owner reached out to the California labor department, who then directed her to seek guidance from the Service Employees International Union (SEIU) and Unite Here local unions that pushed the bill through the legislature last fall.
While it’s still early to grasp the full consequences of California’s misguided, disastrous $20 wage mandate, in just a few days, restaurants and their employees are already feeling the extreme heat.