California’s controversial new $20-an-hour minimum wage for workers at large fast-food chains has not led to widespread job losses or steep menu price hikes, according to a new report from UC Berkeley’s Institute for Research on Labor and Employment.
Assembly Bill 1228, which took effect on April 1, raised wages for hundreds of thousands of employees who had been earning an average of $16.21 per hour.
As of July, the state had approximately 750,000 fast food jobs, roughly 11,000 more than when the law took effect, according to the U.S. Bureau of Labor Statistics.
“We find that the policy increased average hourly pay by a remarkable 18 percent, and yet it did not reduce employment,” the researchers concluded.
Industry trade groups and lobbyists, however, argue the data does not paint an accurate picture of employment in California’s fast-food sector.
“One thing that is not included [in the BLS data] … is a net change,” Rebecca Paxton, Director of Research at Employment Policies Institute, recently told KTLA 5 News. “So, it’s not measuring the number of folks who have lost their jobs, gained their jobs, or turnover. It’s also not measuring folks that have been reduced. They’re still employed, but their hours have been reduced.”
Impact on Menu Prices
The researchers scraped online data and determined that menu prices at California fast food restaurants increased only by about 3.7% overall, or roughly 15 cents on a $4 hamburger since AB 1228 took effect.
“About 62 percent of the increased costs were passed on to consumers in higher prices, suggesting that restaurant profit margins, which were above competitive levels before the policy, absorbed a substantial share of the cost increase,” researchers said, arguing the price hikes likely boosted restaurant revenue.
Customers, however, have found some price increases to be more significant. For example, Irvine-based In-N-Out raised its burger prices by 25 cents. Chipotle raised the price of its Chicken Burrito by 8.3%.
Despite that, KTLA consumer reporter David Lazarus says it appears the industry has largely weathered the minimum wage storm.
“The study suggests the fast-food industry’s shrieks that the sky is falling were a bit over the top,” Lazarus says. “The fact that employment remained steady after the wage hike indicates fast-food restaurants saw no catastrophic increase in operating costs, at least nothing that couldn’t be addressed with a modest price hike.”
In recent months, many fast-food chains, including McDonald’s, Wendy’s and Popeyes, have launched new low-cost value meals to court customers who may have balked at rising prices over the past several years.
California voters will decide in November whether to approve Proposition 32, which proposes raising the minimum wage for all employees to $18 an hour by 2026. The minimum wage at fast food chains would not be affected.
