California Raises Minimum Wage for Fast Food Workers to $20

Categories: California Business NewsCalifornia News

The impact of rising wages on California's fast food industry reflects challenges and opportunities.

News Summary

California has officially increased the minimum wage for fast food employees to $20 per hour as of April 2024, the highest in the nation. This change is linked to Assembly Bill 1228 and has led to menu price hikes and concerns over job losses in the industry. While some franchise owners report reduced operating hours and staffing, others see a surge in job applications. As the fast food sector adapts, the impact on sales and customer visits remains complicated, raising questions about the long-term effects of wage increases.

California has implemented a significant increase in the minimum wage for fast food employees, raising it from $16 to $20 per hour as of April 2024. This change has made California’s fast food wage the highest in the nation and has spurred responses across the industry, including adjustments to menu prices and reports of job losses.

Major fast-food chains such as McDonald’s, Subway, Chipotle, and Burger King have reacted to the new wage law, known as Assembly Bill 1228, by raising their menu prices to offset the increased labor costs. The California Chamber of Commerce and other trade groups have highlighted concerns about widespread job losses within the fast-food sector following this wage hike, citing employment declines across the industry.

Despite the claims from trade groups, Governor Gavin Newsom’s office has argued against the notion of drastic job loss resulting from the wage increase. In examining individual business outcomes, franchise owner Mike Keung, who operates seven McDonald’s locations in Los Angeles County, reported a 16% reduction in restaurant operating hours since the wage hike, alongside a decrease in his workforce from 413 to 384 employees—approximately a 10% reduction. Although Keung has not implemented layoffs, he has noted a significant drop in hiring, with only 140 new employees brought on post-wage increase compared to 317 hires made in the same timeframe before the adjustment.

Interestingly, while hiring has decreased substantially, Keung’s franchises have seen a 40% increase in job applications, attributed to the heightened wages. On average, they are now receiving about 50 applications each day, and the quality of applicants has reportedly improved, with more experienced candidates, including teachers and individuals from other sectors, seeking additional employment opportunities. Meanwhile, the employee turnover rate at Keung’s restaurants has shown promising improvement, dropping from 85% to 40% as better wages and benefits foster enhanced staff retention.

However, the overall business landscape remains challenging. Keung has experienced a 16% decrease in gross sales and customer visits compared to the previous year, with many customers reportedly holding back on dining out due to anticipated price increases. Efforts to attract customers using value meal promotions have produced mixed results and are not sufficient to counterbalance the financial burdens created by AB 1228. Notably, the average check per customer has declined by 10% from last year, further constraining revenue.

As a result of tightening budgets, Keung has found it necessary to reduce community support initiatives and employee benefits, compromising the perks once offered to staff. This situational context reflects a broader trend in California’s fast-food sector, where the employment rate at limited-service restaurants has declined by 3.1% since the minimum wage increase, marking a loss of over 22,600 jobs statewide.

While economists are divided on the implications of the minimum wage hike, attributing job losses to various factors beyond the wage increase—including slower economic growth and population loss—2023 saw calls for further wage increases, with workers advocating for a raise to $20.70 per hour to keep pace with living costs and inflation in the state.

Owner-operated franchise restaurants, of which there are approximately 635 in Southern California run by 90 families, challenge the perception that the fast-food industry is dominated by large corporations. Despite the notable wage increase, California’s fast-food workers now earn more than other minimum wage employees, contributing to greater financial stability for some but simultaneously leading to reduced hours and job losses for many others.

The establishment of the Fast Food Council by the state allows for annual adjustments to the minimum wage based on inflation or a set increase of 3.5%, highlighting the ongoing conversation surrounding wage legislation in California’s fast-food industry amidst evolving economic conditions.