Commencing Monday, the majority of California fast-food workers will now receive a minimum of $20 per hour — establishing the highest minimum wage within the U.S. restaurant sector. Nevertheless, this wage increase has ignited heated debates, as some restaurant owners are cautioning about potential job cuts and increased prices for customers, while labor advocates are championing the advantages of higher wages.
The recent legislation, endorsed by Governor Gavin Newsom last autumn, will be enforced on April 1, mandating that fast-food chains with a minimum of 60 locations nationwide compensate employees at least $20 per hour. This signifies that the state's 553,000 fast-food workers will now earn more than the state's $16 minimum wage for all other industries.
This new foundational wage emerges as the fast-food industry is observing a surge in profits, with major chains like McDonald's experiencing substantial revenue growth and broader profit margins in recent years. This is partially attributed to menu prices that have significantly surpassed inflation, with fast-food expenses escalating by 47% over the past decade, in contrast to an average of 29% for all other prices, as detailed in a recent analysis from the Roosevelt Institute, a nonpartisan think tank.
Impact of Minimum Wage Increase on Fast-Food Industry
With the recent increase in the minimum wage to $20, some fast-food companies are facing challenges in adjusting their operations to cover the higher labor costs. Experts suggest that despite the higher operating costs, larger corporations may be better positioned to absorb the impact compared to smaller franchisees.
Prior to this wage hike, Washington State held the record for the highest paid fast-food workers with a minimum wage of $16.28 per hour.
Challenges Faced by California Restaurant Owners
Some restaurant owners in California anticipate that the rise in labor costs will result in increased prices for consumers and could potentially impact hiring practices. Small franchisees, in particular, express concerns about their ability to cope with the new wage law.
One franchisee, Alex Johnson, who owns multiple restaurants in the San Francisco area, emphasized the financial strain faced by smaller operators compared to larger corporations. Johnson plans to gradually raise prices by approximately 10% to offset the effects of the $20 minimum wage.
"Raising prices at this time couldn't be worse," expressed one individual.
According to the Save Local Restaurants coalition, the typical California restaurant is now looking at an extra cost of $250,000 annually due to the wage hike that took effect on April 1. This information was sourced from a McDonald's owner association, which the coalition represents.
"We understand that we will have to make significant adjustments with a roughly 20% increase in wages," mentioned Chipotle's Chief Financial Officer Jack Hartung during a recent earnings call discussing the California law.
Hartung also mentioned that Chipotle's 3,400 locations across the U.S. might need to raise prices by 1% to make up for the added expenses.
Starbucks informed the Los Angeles Times that they intend to increase prices to counterbalance the higher wages, among other strategies.
"There isn't a single quick-service restaurant owner in California who can easily manage an immediate 25% wage increase for all their employees," stated Mike Whatley, the vice president of state affairs and grassroots advocacy for the National Restaurant Association, a trade organization representing the industry, to CBS MoneyWatch.
He further mentioned, "Customers are beginning to notice this in menu prices, and employees throughout the state are also starting to feel the impact."
Some opponents of the wage law have raised concerns that the increased costs will result in job cuts and hinder new hiring. Recent reports indicate that certain Pizza Hut establishments in California are considering staff reductions, as shown in state labor filings. Pizza Hut has not responded to requests for comments so far.
Johnson mentioned that he is currently refraining from hiring and is looking to implement more automated systems, like ordering kiosks, to minimize the necessity for human workers. He is also contemplating selling his franchise locations in California to shift his focus to restaurants in Nevada, where operating costs are more affordable.
"I put in a lot of effort to ensure fair treatment of employees, but there are repercussions to these actions that drive up costs - we are not hiring anymore, and I am thinking about shutting down or selling my restaurants," Johnson expressed. "It's a somber period."
"Advancing towards an inclusive economy"
Advocates for labor argue that the new legislation will benefit fast-food workers, who typically earn an average of $16.60 per hour, translating to slightly over $34,000 annually, based on government statistics. This figure falls below the poverty threshold for a family of four in California.
The increased wages represent "a groundbreaking stride towards an economy that caters to everyone, not just the wealthy elite," remarked Tia Orr, the executive director of the Service Employees International Union California, a labor organization that advocated for the law, in a statement to the Associated Press.
When the law was signed last year, the idea that fast-food jobs are mainly held by teenagers was dismissed by Newsom, emphasizing that many households rely on these jobs for income. The average age of fast-food workers is approximately 26, as reported by Business Insider.
Despite the federal minimum wage remaining at $7.25 an hour since 2009, numerous states and localities have increased their minimum wages in recent years. Some economic studies have shown that higher wages do not result in job losses, but rather offer financial stability to workers and boost consumer spending, thereby stimulating overall economic growth.
Despite facing multiple wage hikes in recent years, California businesses have managed to adapt and continue operating, according to experts.
"California has seen minimum wage increases for over a decade now," Bustamante remarked. "Opening a business in California comes with the expectation of minimum wage hikes."
