Starting Monday, most California fast-food workers will earn at least $20 an hour, the highest minimum wage in the U.S. restaurant industry. Yet rising wages are sparking furious debate, with some restaurateurs warning of job losses and higher prices for customers, while labor rights advocates tout the benefits of higher wages.
The new law, sign by Gov. Gavin Newsom last fall, takes effect April 1, requiring fast food chains with at least 60 locations nationwide to pay their workers at least $20 an hour. That means the state’s 553,000 fast food workers will earn more than the state’s $16 minimum wage for all other industries.
The new base pay comes as the fast food industry is experiencing booming profits, with major chains like McDonald’s enjoying strong revenue growth and wider profit margins in recent years. This is partly due to menu prices that have far outpaced inflation, with fast food costs rising 47% over the past decade, compared to an average of 29% for all other prices, according to a new analysis from the Roosevelt Institute, a nonpartisan study. reservoir.
“Prices have been so much higher than operating costs over the last decade that these companies have simply been able to absorb higher operating costs,” Ali Bustamante, a labor expert at the Roosevelt Institute, co-author of the analysis. “It’s about raising the floor and ensuring that the new $20 minimum wage gives workers a better economic basis to cover their household needs.”
Before the April 1 wage increase, the highest-paid fast food workers in the United States were in Washington state, where the minimum wage is $16.28 an hour.
What’s on the menu — price increases
Some California restaurateurs say higher labor costs will lead to higher prices for customers and even less hiring. A California franchisee told CBS MoneyWatch that while large fast food chains might be able to absorb such costs, smaller operators will struggle.
“We’re not these big companies with deep pockets — we’re not Wall Street, we’re Main Street,” said Alex Johnson, owner of 10 franchise restaurants in the San Francisco area, including Auntie Anne’s and Cinnabons.
Johnson’s business is subject to the new wage law because the parent franchisors operate more than 60 restaurants in the United States.
Alex Johnson
Johnson said the wage hike comes at a time when his restaurants are already facing weaker sales, which he attributes to consumers undermined by two years of high inflation and California’s high cost of living. To offset the new $20 minimum wage, Johnson plans to raise prices by about 10 percent this year, which he plans to do in two smaller increments.
“We couldn’t imagine a worse time to raise prices,” he said.
The typical California restaurant faces an additional expense of $250,000 a year to cover the April 1 wage hike, according to the Save Local Restaurants coalition, citing data from a McDonald’s owners association. The group represents restaurateurs.
“We know we have to accept a significant increase when you’re talking about a 20% wage increase,” Chipotle Chief Financial Officer Jack Hartung said on a conference call last month about the California law.
Chipotle’s 3,400 U.S. locations could see their prices increase by 1% to compensate, he added.
Starbucks told the Los Angeles Times that it plans to offset rising wages by raising prices, among other measures.
“No quick-service restaurant owner in California can easily afford an immediate 25 percent pay increase for all of their employees,” said Mike Whatley, vice president of state affairs and local advocacy for the National Restaurant Association , a trade organization for the industry, told CBS MoneyWatch.
He added: “Consumers are starting to see it in menu prices, and employees across the state are starting to feel it too. »
Some critics of the wage law said rising costs would lead to layoffs and reduce hiring. Already, some Pizza Hut locations in California are planning to cut jobs, according to state labor filings. Pizza Hut did not immediately respond to a request for comment.
Johnson noted that it is not hiring at the moment and plans to introduce more automation, such as ordering kiosks, to reduce its human labor requirements. It also plans to sell its franchises in California to focus on restaurants in Nevada, where costs are lower.
“I work very hard to treat employees fairly, but these actions have cost-increasing consequences: We are no longer hiring and I am considering closing or selling my restaurants,” Johnson added. “It’s a sad time.”
“An economy that works for everyone”
Labor advocates say the new law will help fast-food workers, who earn an average of $16.60 an hour, or just over $34,000 a year, according to government data. That’s below the poverty line for a family of four in California.
The wage increase is “a transformative step toward an economy that works for everyone, not just billionaires,” Tia Orr, executive director of the Service Employees International Union California, a labor group that has lobbied for the law.
When Newsom signed the law last year, he rejected the notion that fast food jobs are primarily filled by teenagers, pointing out that many households rely on these jobs for income. The average age of fast food workers is around 26, according to Business Insider.
In the meantime, dozens of states and localities have increased their minimum wage in recent years, even though the federal benchmark remains at $7.25 an hour – a rate that has remained frozen since 2009. Some economic research has shown that higher wages do not lead to job losses. employment, while having the advantage of ensuring financial security. to workers and boosting consumer spending, which spurs broader economic growth.
California companies have had to digest multiple wage increases in recent years, but have nevertheless continued to operate, experts point out.
“It’s now been over 10 years of minimum wage increases in California,” Bustamante said. “You don’t start a business in California without expecting an increase in the minimum wage.”
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