In August 2024, Gov. Gavin Newsom took an erroneous victory lap celebrating his policy to raise the minimum wage for fast food workers.
The law, AB 1228, effective in April, raised the minimum wage to $20 per hour for fast food workers. Citing preliminary federal data, Newsom claimed California gained 11,000 fast food jobs between January 2024 and July 2024.
“Despite those who pedaled lies about how this would doom the industry, California’s economy and workers are again proving them wrong,” Newsom said in a statement at the time.
A month or so after that, academics from UC Berkeley’s Institute for Research on Labor and Employment (IRLE) who studied the issue made similar claims.
“Contrary to fears expressed by restaurant groups, the wage increase did not lead to job cuts. Employment levels remained steady across the fast food industry,” read the press release.
Both turned out to be wrong.
Basic economic logic argues that the increased labor costs from minimum wage hikes will lead to higher costs for consumers, reduced hours for employees, lower profits for impacted businesses, and/or job losses. The reliable data confirmed these impacts.
Newsom was citing non-seasonally adjusted numbers from the U.S. Bureau of Labor Statistics. However, once the data was seasonally adjusted, which gives a more accurate picture, the state actually lost approximately 5,000 jobs over that time. The seasonally-adjusted numbers look even worse for California compared to 2023 numbers, when the state gained around 3,000 jobs from January through July.
IRLE’s claim that employment remained steady seems even more bizarre after reviewing the data, because whether jobs increased, as suggested by the non-seasonally adjusted numbers, or decreased, as suggested by the seasonally-adjusted numbers, in neither scenario did employment remain steady.
Researchers at the Employment Policies Institute took a dim view of the IRLE study, highlighting the seasonally-adjusted numbers showing a decline in fast food jobs. But EPI went a step further and noted that neighboring states Oregon and Nevada (the two states with available data) actually gained fast food jobs over the same period.
EPI conducted a survey of affected businesses and also found 89% of employers cut hours as a result of the law.
EPI also debunked IRLE claims that prices only increased modestly. One of the known effects of minimum wage increases is that the additional labor costs generally get passed through to consumers in the form of higher prices. These inflationary prices eat into the modest wage gains, and with fast food, where low-income workers disproportionately go for cheaper meals, this has the dual effect of raising food costs.
IRLE used a flawed methodology to determine a 3.7% increase in prices industry wide. But EPI cited data from industry researchers showing prices increases double and triple that, as well as citing survey data showing nearly all affected businesses expecting price increases.
“Regardless of various alternative data sources employed by researchers at the University of California-Berkeley and others, government data standardized across all industries and states reveals California’s unique fast food employment crisis,” EPI concluded in its study.
“In addition, news headlines and operator, employee, and consumer testimonials have revealed the true situation on the ground: residents are concerned about distinctly higher menu prices, operators are concerned about maintaining staff, and employees are concerned about getting enough scheduled hours or even keeping their jobs,” EPI added.
For fast food operators, it’s not just this latest minimum wage increase. Since 2013, their minimum wages have increased from $8 to $20, which is 2.5 times. It’s unsurprising that they’re slashing jobs, cutting hours and raising prices.
This also coincides with a major turn towards automation. Of course, automation is driven by many factors, not just increased labor costs – but they certainly don’t help.
California’s insistence upon pushing policies that cast aside sound economic principles, like the increased minimum wage for fast food operators, is not only hurting businesses but the very workers it seeks to help.
Matthew Fleming is the Pacific Research Institute’s communications director.
