You want hiring freezes with that? The effects of California’s minimum wage increase

California officially raised its minimum wage to $20 an hour last April in an attempt to help the state’s working poor. What those folks got were fewer minimum wage job openings, fewer hours of work at those jobs, and higher prices when they tried to order from those same restaurants.

Golden State lawmakers raised the state’s minimum wage to $20 last April, up from the previous rate of $16. Between December 2023 and December 2024, the employment in that state’s “limited service restaurants,” i.e., fast-food joints, shrank 0.2 percent. That may seem small, but the sector has had a historic growth rate of 2.5 percent. Overall, California fast-food restaurants shed 10,700 jobs. That’s according to a February analysis by management consulting firm BRG, based on Labor Department data.

On top of that, 89 percent of California’s fast-food workers had their number of hours reduced and 35 percent had supplemental benefits reduced.

Meanwhile, menu prices for Golden State restaurants went up 14.5 percent between September 2023 and December 2024, a rate that was nearly double the national rate of 8.2 percent for restaurants. Prices jumped up 3 percent alone in the month after the minimum wage hike went into effect.

None of this is surprising for anyone who has studied the issue of minimum wage increases. Policymakers who favor increases seem to see them as pain-free ways to help the poor, assuming that management will simply accept the higher labor costs and reduced profits. But real-life economics just doesn’t work that way. If labor costs go up, management will do what it can to mitigate those costs, either reducing labor budgets in other ways, such as layoffs, reduced hiring, and/or fewer hours, or by passing the costs onto customers.

Yes, parent corporations like McDonald’s and Wendy’s may be wealthy but their franchisees are typically small, independent businesses that merely rent out the corporate brand. These franchisees pay to get the benefit of the corporation’s advertising, business methods, and customer loyalty, but otherwise operate on their own. Most individual restaurants operate on slim profit margins, and they’re the ones that hire the workers. A higher minimum wage means upping those restaurants’ labor costs. Most don’t have any choice but to increase what they charge customers.

California policymakers used to understand this dynamic better. As recently as 2006, the state had a minimum wage that was just $6.75 an hour, compared with the then-federal minimum rate of $5.15 an hour. A few modest raises were implemented in the ’00s but starting in 2014, state lawmakers began implementing regular increases on the theory that this would turn the state’s minimum into a “living wage.” The main state-wide rate is now $16 with a special $20 rate directed at fast-food restaurants.

The data from BRG is only the latest proof that minimum wage increases are an ineffective means of helping the working poor. Why does nobody ever ask the question, “What can we do to get people jobs that pay better than the minimum wage?”