When California passed a law in April raising the minimum wage for fast-food workers to $20 an hour, restaurant owners predicted job cuts and steep price increases. However, a new study suggests these fears have not come true, while workers are seeing significant income gains.
The law, which applies to fast-food chains with more than 60 locations nationwide, was expected to lead to reduced staffing and higher menu prices as businesses tried to absorb the increased labor costs. However, research conducted by the University of California, Berkeley’s Institute for Research on Labor and Employment found no significant job losses or extreme price hikes since the law took effect on April 1.
According to the study, titled “Sectoral Wage-Setting in California,” the number of fast-food workers in California remained nearly unchanged, with about 750,000 employed in July 2022, and a similar figure reported in July 2023. This stability contradicts the warnings of many business owners, who had predicted that raising the minimum wage from the state’s standard $16 to $20 would force them to reduce staff.
The study also highlighted that wages for non-managerial fast-food workers increased by an average of 18%. This rise has significantly benefited more than 90% of covered workers.
While critics of the law had warned that higher wages would result in dramatically higher menu prices, the study found that the impact on consumers has been more moderate. Price increases were estimated to be around 3.7%, translating to just 15 cents added to the cost of a $4 hamburger. This is much lower than earlier predictions, which estimated price hikes between 7% and 10%.
Additionally, the study noted that about 62% of the increase in labor costs was passed on to customers through higher meal prices. The remaining costs were absorbed by restaurant owners, whose profit margins were previously higher than competitive levels. This finding suggests that many restaurants were able to handle the wage increase without significant harm to their profitability.
California Governor Gavin Newsom had praised the law when it was introduced, calling out opponents for spreading “false claims” about its potential damage to the fast-food industry. The study’s findings support his view, indicating that the law is benefiting workers without leading to the feared collapse of the sector.
However, not everyone is convinced. Some critics of the wage increase point to federal data that shows California’s fast-food sector lost about 2,200 jobs between April and August. Other government reports suggest that the sector gained 11,000 new jobs during the same period, leading to mixed conclusions about the law’s impact on employment.
Franchise owners may also disagree with the study’s suggestion that increased menu prices and existing profit margins helped them absorb the wage hikes without issue. Franchisees often pay a fixed percentage of their revenue in royalties to parent companies, which may mean that the benefits of increased prices flowed more to corporate headquarters than to local business owners.
The study’s conclusions are particularly relevant as California considers further wage increases. Proposition 32, a ballot measure set for November, aims to raise the state’s general minimum wage from $16 to $18 by 2026. If passed, the measure would extend the conversation about higher wages beyond fast-food workers to include a larger portion of the state’s low-wage workforce.
As the debate continues, the findings of this study may serve as a key reference point, suggesting that higher wages in California’s fast-food industry have so far brought more benefits than drawbacks.
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