Assembly Bill 1287, signed into law by Gov. Gavin Newsom last September, has set off ripples across the state’s fast-food industry reports The Hoover Institution.

The bill, which mandates a $20 minimum wage for fast-food workers and establishes a regulatory council empowered to annually adjust this wage, has sparked debates and raised concerns regarding its impact.

California Notes Decline in Fast-Food Employment

California has witnessed a sharp decline in fast-food employment since the bill’s enactment.

As of April, about 9,500 jobs had been shed, marking a 1.3% reduction from September 2023. And, in a June report from The Hoover Institution stated that 1,250 more jobs were lost in the fast-food industry. This decline has been attributed to the increased labor costs borne by employers in compliance with the new minimum wage.

The $20 minimum wage has also precipitated further job losses, with major fast-food chains like Pizza Hut and Round Table Pizza announcing the termination of nearly 1,300 delivery positions.

In addition, companies such as El Pollo Loco and Jack in the Box are expediting the adoption of robotics to offset rising labor expenses.

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Consumer Prices Have Raised Since Wage Hike

The repercussions of the wage hike are shown in consumer prices. Wendy’s, Chipotle, and Starbucks, among others, have raised prices by about 8%.

California now boasts the highest-priced fast food in the nation, sparking concerns about the sustainability of further price escalations.

Critics have questioned the rationale behind imposing a significantly higher minimum wage on the fast-food industry, which predominantly employs younger workers. Approximately 60% of fast-food workers are aged 24 or younger, contrasting sharply with other sectors where only about 13% are in that age bracket.

This demographic, characterized by lower experience levels and higher turnover rates, poses challenges for employers grappling with recruiting and training costs, The Hoover Institution said.

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Narrow Industry Profit Magins

The industry’s narrow profit margins, averaging between 5% and 8%, offer limited recourse for absorbing the impact of the $20 minimum wage without resorting to workforce reductions or price hikes.

While labor advocates champion a “living wage,” critics argue that such mandates overlook the financial realities faced by business owners and investors.

The origins of Assembly Bill 1287 highlight the complex intricacies of legislative decision-making. The involvement of the Service Employees International Union and the inclusion of exemptions tailored to specific interests, such as the bakery exemption benefiting one of Newsom’s donors who owns Panera Bread franchises, have drawn scrutiny.

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As California grapples with the ramifications of its wage policy, the debate surrounding labor standards in the fast-food industry continues to evolve.

Read more at the The Hoover Institution.