California’s fast-food minimum wage is super-sizing job losses 

Minimum wage increases would be a fine idea if they worked the way that their fans assumed that they did: increasing the take-home pay of low-income workers and nothing else. The reality is that they typically do more harm than good, resulting in fewer jobs, fewer hours for workers who have jobs, and higher prices for consumers. This can be seen in the case of California’s recently-enacted $20 an hour minimum wage for fast-food workers.  

The $20 rate went into effect in the Golden State in April 2024, up from $16 previously. A working paper published this month by the National Bureau of Economic Research found that the increase caused employment in the state’s fast-food sector to decline by 2.7 percent. That translates to a loss of 18,000 jobs. 

That’s hurting the state’s overall employment situation. The national unemployment rate is 4.1 percent according to the Labor Department, but California lags behind at 5.3 percent. The state’s fast-food minimum wage isn’t the only reason for this, but it certainly contributes. 

The damage for California doesn’t stop at job losses, as CEI has noted previously. The vast majority of California’s fast-food workers, 89 percent, have had their work hours reduced. Another 35 percent have seen their supplemental benefits reduced. 

Customers suffer as well. Menu prices for Golden State restaurants rose 14.5 percent between September 2023 and December 2024, nearly double the national rate of 8.2 percent for restaurants. Prices jumped 3 percent in the month after the minimum wage hike went into effect. Americans across all income groups eat fast food, but the core consumers are low-income families according to the Morning Consult. Any price increase is going to hit them the hardest. 

This is all old news to anyone who has studied minimum wage increases. Raising the wage floor has always been an ineffective way of helping the working poor. Yet policymakers persist in the belief that they can help by mandating the wages be higher and that management will absorb the higher labor costs and reduced profits. Well, they don’t call economics “the dismal science” for nothing. If labor costs rise, businesses will do what they must to mitigate those costs, such as laying off workers, slowing hiring, cutting hours, and passing along the costs to customers.  

The food industry has long been a popular villain for policymakers. But franchise restaurants are typically small, independent businesses that merely rent out the corporate brand and operate on slim profit margins. A higher minimum wage means upping those restaurants’ labor costs. Most don’t have any choice but to cut back on hiring.  

Instead of raising the floor, policymakers need to ask the question, “What can we do to help people get jobs that pay more than the minimum wage?”