A recent study from UC Berkeley’s Institute for Research on Labor and Employment indicates that the contentious new $20 per hour minimum wage for workers at large fast-food franchises in California has not resulted in significant job losses or sharp price increases on the menu.
With the implementation of Assembly Bill 1228 on April 1, hundreds of thousands of workers who had been making an average of $16.21 per hour saw an increase in pay.
The U.S. Bureau of Labor Statistics estimates that as of July, there were around 750,000 fast food jobs in the state—roughly 11,000 more than there were before the law went into force.
The researchers came to the conclusion, “We find that the policy increased average hourly pay by a remarkable 18%, and yet it did not reduce employment.”
Industry trade groups, however, contend the statistics does not present a true 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 stated. “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.”
Effect on Menu Prices
Using data that was scraped from the internet, the researchers calculated that since AB 1228 went into effect, menu prices at California fast food restaurants have only gone up by around 3.7% overall, or about 15 cents for a $4 hamburger.
Researchers found that a significant portion of the cost increase was absorbed by restaurant profit margins, which were already above competitive levels prior to the policy. They also suggested that the price increases probably increased restaurant revenue. Approximately 62% of the increased costs were passed on to consumers in higher prices.
However, certain price hikes have been seen more substantial by customers. For instance, In-N-Out of Irvine increased the price of its hamburgers by 25 cents. The cost of Chipotle’s chicken burrito increased by 8.3%.
“The study suggests the fast-food industry’s shrieks that the sky is falling were a bit over the top,” Lazarus stated. “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.”
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Many fast-food restaurants, such as Wendy’s, Popeyes, and McDonald’s, have introduced new, inexpensive value meals in recent months in an effort to win back customers who may have objected to price increases over the previous few years.
In November, California voters will determine whether to adopt Proposition 32, which calls for increasing the state’s minimum wage to $18 per hour for all workers by 2026. There would be no impact on fast food restaurants’ minimum wage.
