California’s Minimum Wage Backfire

The $20 fast-food mandate is harming workers and business

WSJ editorial. 

"The laws of economics continue to exist even when politicians ignore them. The latest illustration is the unfolding damage from California’s increase in the fast-food minimum wage to $20 an hour.

We recently reported on the employment impact, but California Gov. Gavin Newsom’s office claimed we were “pushing a false narrative.” Now others in the press are catching on to the reality.

An Associated Press dispatch last week reported that California fast-food franchises have been cutting worker hours after the wage mandate took effect in April, a 25% increase from the statewide $16 an hour minimum. A Wendy’s franchise owner said he used to schedule nearly a dozen workers for an afternoon shift. Now only seven. He also raised prices 8%.

A Del Taco manager slashed the number of workers for each shift by half. A Jersey Mike’s franchise owner reduced morning and evening shifts, reduced his staff by 20 workers, and raised prices. His turkey subs that previously sold for less than $10 now cost $11.15. Customers struggling to swallow the higher prices are ordering fewer items.

Meantime, California’s famous burger chain In-N-Out—which has long paid more than the state minimum—last month said it raised starting wages to between $22 and $23 an hour to attract and retain its best workers. It also increased prices. The raises are good for those workers, but the price is paid by customers or other workers in fewer hours.

Last month we noted that California’s higher minimum wage creates an incentive to cut worker hours. The franchise owners offer anecdotal evidence to back this up. Yet Mr. Newsom’s office asked for a retraction, pointing to data showing increased employment in April at “limited-service restaurants.” Many of these operations aren’t covered by the fast-food wage mandate because they aren’t chains. This data also isn’t adjusted for seasonal effects, and restaurants typically hire more workers during the spring and summer.

From March to June, employment at California limited-service restaurants increased by 1.3%, the smallest increase since 2001 (excluding the 2020 Covid lockdown), and it has declined over the past year. This reinforces our point: California’s higher minimum wage is causing employers to cut back on labor.

Need more evidence? Research shop Beacon Economics recently found that California’s minimum wage—up from $11 to $12 an hour in 2019—does particular harm to teenagers. In the past two years, unemployment among 16- to 19-year-olds nearly doubled to 19.2% from 10.8% in California, versus 11.9% from 10.5% nationwide.

Higher minimum wages often price teens out of the job market because they have the least skills and experience. Teens then miss out on valuable training and don’t learn important life lessons, such as showing up on time and being courteous to customers. Instead of flipping burgers, more California teens will be flipping through TikTok videos.

By the way, last week’s inflation report for June showed that restaurant prices in Los Angeles have risen 2.4% since March, more than double the nationwide increase. Coincidence or another result of the higher minimum wage? Perhaps Mr. Newsom can explain if he decides to compete for President this year."