News Summary

A recent study by the National Bureau of Economic Research reveals that California’s decision to implement a $20 minimum wage for fast-food workers has resulted in the loss of around 18,000 jobs, representing a 3.2% decline in the sector. The increase, enacted in April 2024, contrasts sharply with employment gains in other states. While the state aims to improve wages, critics argue that the wage hike has negatively impacted job stability in the fast-food industry.

California – A recent study published by the National Bureau of Economic Research (NBER) has concluded that the state’s $20 minimum wage for fast-food workers, enacted in April 2024, has resulted in the loss of approximately 18,000 jobs in the fast-food sector. This setback represents a significant 3.2% decline in employment within California’s fast-food industry, contrasting starkly with growth trends seen in other parts of the United States.

The research, conducted by scholars Jeffrey Clemens, Olivia Edwards, and Jonathan Meer, estimates that the job losses could have been avoided if the minimum wage had not been raised. The analysis indicates that while California’s fast-food employment experienced a downturn, other U.S. states reportedly saw an increase of about 0.10% in fast-food employment during the same period.

The $20 minimum wage represents a considerable jump from the previous hourly rate of $16 and was institutionalized through Assembly Bill 1228, passed in September 2023. This legislation established the California Fast Food Council, which is empowered to set and modify fast-food minimum wages. The impact of this legislation was immediately felt, with employment in the sector declining by as much as 3.9% after the law took effect on April 1, 2024.

Industry Response and Employment Trends

Prior to the implementation of AB 1228, the growth trajectory of California’s fast-food sector mirrored that of the national trend, indicating that the stringent wage increase may have disrupted what was a flourishing employment landscape. Post-implementation statistics show a stark contrast: declines in employment have ranged from 2.3% to 3.9% within the state, accentuating the adverse effects of the wage hike.

Critics of the minimum wage increase have pointed to historical examples where wage controls failed to produce the anticipated positive economic outcomes, arguing that the law may have inadvertently harmed employment opportunities. California Governor Gavin Newsom has stood by the minimum wage policy, viewing it as a crucial step toward securing fairer wages for workers and empowering them within the fast-food industry.

Despite these assertions, rebuttals have emerged regarding the study’s conclusions. The deputy communications director for Governor Newsom has contested the findings, indicating that the NBER is linked to a think tank with a history of questionable data interpretation on related issues.

Wage Increases vs. Employment Effects

In addition to the NBER research, a separate study conducted by a UC Berkeley professor contrasted the findings, suggesting that covered fast-food workers experienced wage increases of around 8-9% without a corresponding decline in employment among non-covered workers. Furthermore, officials have noted that menu prices only rose by an average of 1.5% following the implementation of the new wage, which might indicate limited inflationary pressure resulting from the wage increase.

Notably, the provisions of AB 1228 did not extend to smaller fast-food chains with fewer than 60 locations, suggesting that the impact of the wage hike on overall employment trends may have been constrained. Following the increase, there were reports of decreased median weekly hours for fast-food employees, leading to significant annual income reductions for many workers within the sector.

Current Economic Landscape

Despite the challenges faced by the fast-food industry, employment trends throughout California’s broader economy remain consistent with national patterns. However, the marked decline in the fast-food sector highlights the complexities and potential ramifications of rapid wage increases on employment stability. As more data emerges, analysis surrounding the effects of California’s minimum wage hike will continue to evolve, providing critical insights into its long-term implications.