California’s Fast-Food Employment Sees Significant Drop

The impact of wage increases on California's fast-food employment sector.

News Summary

A new study reveals that California’s $20 minimum wage for fast-food workers has led to a loss of approximately 18,000 jobs, marking a 3.2% decline in the workforce. While other states have seen stability or growth in fast-food employment, California is facing challenges following the wage increase implemented on April 1, 2024. Critics suggest that such policies can adversely affect employment levels, raising concerns among economists and policymakers.

California has witnessed a significant downturn in its fast-food employment sector, as a new study by the National Bureau of Economic Research (NBER) indicates that the state’s $20 minimum wage for fast-food workers has led to the loss of approximately 18,000 jobs. This decline represents a concerning 3.2% drop in California’s fast-food workforce, particularly when compared to similar sectors across the country, which have remained stable or even observed slight growth.

Implemented on April 1, 2024, the $20 minimum wage marked a substantial increase from the previous wage of $16 per hour. Researchers Jeffrey Clemens, Olivia Edwards, and Jonathan Meer conducted the study, attributing these job losses directly to the wage hike. They estimate that in the absence of this increase, these positions would have continued to exist, suggesting a notable correlation between wage policies and employment outcomes in the industry.

The data shows that while California’s fast-food employment saw a contraction, the sector in other states managed to grow by about 0.10%. The contraction in California ranged between 2.3% and 3.9% in various aspects of the fast-food industry after the enactment of Assembly Bill 1228 (AB 1228), which established a Fast Food Council with the authority to set and adjust minimum wage rates.

Before the implementation of this law, the fast-food sector in California was experiencing growth that mirrored trends across the United States. However, following the wage increase, employment figures sharply declined, raising concerns among economists and policy makers. Critics of the wage hike argue that historical evidence suggests such wage controls can lead to adverse employment effects, as seen in other states during similar reforms.

California Governor Gavin Newsom had endorsed the minimum wage increase, asserting that it was a critical move towards ensuring fairer wages and providing a stronger voice for workers in the fast-food industry. In response to the recent findings, Newsom’s deputy communications director, Tara Gallegos, contested the study’s conclusions. She mentioned the NBER’s affiliation with a think tank that has faced scrutiny for its credibility in economic research.

In an effort to counter the negative implications of the NBER study, independent findings from a UC Berkeley professor indicated that workers impacted by the minimum wage increase experienced wage hikes of 8-9% without noticeable negative effects on employment levels among workers not covered by the new wage law. Additionally, the increase in menu prices, which averaged around 1.5% post-wage hike, suggests that fast-food chains adapted to the new wage floor without significant financial strain.

It is also noteworthy that the implementation of AB 1228 exempted smaller fast-food chains with fewer than 60 locations, which may have diluted the overall impact of the wage hike on employment at larger establishments. This legislative nuance could be a factor in the employment figures observed in the industry.

Moreover, statistics reveal that after the wage increase, the median weekly hours for fast-food workers have declined, resulting in substantial potential income losses for some employees. While overall employment trends in California remain consistent with national patterns, the fast-food sector’s unique challenges following the wage hike highlight the ongoing debate surrounding minimum wage policies and their impact on job availability.

As California navigates the aftermath of its minimum wage increase, the research findings serve as a critical touchpoint for ongoing discussions about wages, employment, and the future of the fast-food industry in the state. Stakeholders will need to consider these factors as they weigh the benefits of fair compensation against the reality of job loss in a sector that employs millions across the country.