Last September, Assembly Bill 1228 was approved by Governor Gavin Newsom. This law mandated restaurants with 60 or more establishments across the country to increase the wages of the workers at their California locations to $20 an hour starting April 1, 2024, among a few other provisions.
That day has arrived.
This new floor is 25% greater than the general minimum wage in the state ($16) and 176% greater than the federal minimum wage ($7.25). In anticipation of Assembly Bill 1228 becoming active, some franchisees (independent owners operating one or more locations of a chain) have already laid off (or announced their plan to) some of their staff in order to cut costs and retain profits, such as the 1,200+ delivery drivers across a couple of Pizza Hut franchises that were laid off at the tail end of 2023. This corroborates the sources we looked at last week in our lesson about minimum wage increases, and highlights how such policy is almost always a trade-off between equity and employment. However, there may also be an outcome to this law that does not just result in layoffs en masse. Similar to what followed Seattle’s minimum wage hike, workers may simply clock fewer hours (saving employers some money) while still making more in a day than before the increase due to how substantial the raise is for many. There will inevitably be some jobs lost in either outcome, but the latter is the lesser of two evils in my opinion.
Something mentioned less in last week’s sources was the effect of minimum wage increases on the price of goods at businesses affected by the raises. In order to be able to pay workers more, restaurant companies are planning to raise prices (as if California living wasn’t expensive enough) in order to pay their employees what is required by the bill. Some restaurants have left it up to the discretion of franchisees, while some companies are planning to increase prices universally. Nothing has been rolled out yet to my knowledge, but this illustrates another trade off of minimum wage increases being equity and affordability.
Although many of these effects sound rather bleak, the increase will affect over 500,000 workers in a sector relatively accessible to those below the poverty line looking for a job. I am also optimistic (perhaps naively) about the Fast Food Council created by this bill, intended to develop standards regarding wages and working conditions for California fast food restaurants, as I might start looking for a job this summer and have heard many horror stories from those who have worked at these establishments.
For any prospective commenters:
Will you be affected by this increase? If so, positively or negatively?
Do you agree with Assembly Bill 1228’s changes?
18 comments:
For the first question: I don't work in fast food, so I don't directly benefit from a minimum wage increase. That said, as an avid Chipotle fan, it's possible I might have to pay higher prices for my burrito bowl.
Like Quincy mentioned, the bill's changes are pretty predictable (mass layoffs, higher prices, and more). Whether the positive effect of higher wages for fast food workers is worth the repercussions is debatable. Given that many low income families do rely on fast food, it wouldn't be surprising to see them be hit the hardest by increased prices and lower-quality service in the fast food industry.
Overall, trying to force an outcome could very well produce the opposite effect for many low income families that rely on the fast food industry (either for some of their meals or as a source of income that is lost due to job cuts).
Here's a report that explores how minimum wage generally might hurt those it tries to help (and ends up increasing the wealth gap): https://www.ppic.org/press-release/increasing-the-minimum-wage-doesnt-benefit-californias-poor-and-may-even-cost-them-study-finds/
For some reason my first instinct after reading this was, for better or for worse, to look at In-N-Out as a case study for higher wages in fast food, since they've always paid a couple dollars higher (and certain locations in California have been at or above $20/hour, not to mention how much more managers are paid) than other fast food chains/the minimum wage (and have corresponding higher employee retention and satisfaction rates), while still providing other benefits (like vision/dental) to full and part-time employees.
Yet, In-N-Out prices are still competitive and they remain popular despite these wages -- although a major difference in their business structure (they are privately owned rather than public like Chipotle or McDonald's which probably has notable influences on their control over the direction of the company and potential/advertised focus on quality over profits).
Tangent on In-N-Out aside (maybe I'm just hungry), I think it's very possible to maintain good business standards with higher minimum wages, just not likely for the profit-oriented businesses to do, as we've seen and as Vishal and Quincy have touched on.
Two slightly outdated but still interesting articles: https://www.businessinsider.com/in-n-out-employee-pay-2018-1
https://www.pbssocal.org/food-discovery/food/why-does-in-n-out-pay-so-well
I found it really interesting that the bill is going to raise the minimum wage for fast food employees to even higher than the regular California minimum wage. Usually, restaurants (although I'm not sure if fast food restaurants fall under this category) have a lower minimum wage because employees get tips, so I feel like it would drastically affect businesses to go from below the standard minimum wage to significantly above it. Like Vishal mentioned, I have a feeling the businesses will offload this cost onto consumers, impacting low-income customers who rely on cheap fast food the most.
This might be a bit of a stretch, but I feel like this will impact other restaurants as well due to the concept of related goods. Since other restaurants are a substitute for fast food, when the price for fast food increases the demand for those other restaurants will increase/shift right. I'm interested to see whether the restaurants cope with this by increasing their price, therefore keeping the quantity demanded the same, or keeping their price the same so the quantity demanded is greater. This might also affect the restaurant labor market--there will be more demand for jobs in fast food and less for jobs in other restaurants, which might cause other restaurants to also increase their wages to attract more employees. Either way, I think this bill will make significant changes to the restaurant industry, and since this is something almost everyone is involved in to some extent, I think it will have some noticeable impacts on many lives.
I find it off how certain articles dont highlight the negatives that raising the minimum wage for California's fast food workers can actually have a negative effect as like Quincy said, when you raise the minimum wage it can result in some or a majority of workers (depending on the size of the restaurant) having to lay off workers. For the first question in regards to how consumers will be impacted, similar to what the other comments said, consumers would most likely have to pay more for fast food. Something I find interesting is that California as a state will gain from raising the minimum wage of fast food workers through sales tax increasing. As wages increase prices of the goods (fast food) will increase, and the higher the cost means the more sales tax that is collected by the states.Lastly, in regards to the second question I feel stuck in the middle. Obviously raising wages for fast food workers is great but with that comes lay offs and the unemployment rate to rise.
https://www.kiplinger.com/taxes/california-minimum-wage-increase-tax-impact#:~:text=The%20California%20minimum%20wage%20increase,paychecks%20%E2%80%94%20and%20the%20state's%20budget.&text=The%2025%25%20increase%20to%20California's,revenue%20would%20lower%20that%20number.
As someone who doesn't work, I don't benefit off of the minimum wage benefit but would have to deal with the slightly more inconvenient prices from fast food places. I think that the bill can be viewed pretty clearly from both sides of the argument. On one hand people are able to benefit and have a better quality of life with the boost in income. Whereas on the other hand, others have been forced out of their jobs so employers could support the increased minimum wage. After reading the story about the delivery driver working at Pizza Hut for nine years and suddenly being layed off, I think that I lean more heavily against the changes in Assembly Bill 1228. This treatment towards some of the workers is unfair but becomes a reality when involving an increasing minimum wage. On another note, I think that the quality of food produced from fast food outlets will most likely increase. With the higher wage and large waves of layoffs, I think that restaurants and their workers will feel the need to produce better quality products with better treatment and benefits.
While the minimum wage increase will decrease the number of jobs, which could include layoffs of people who depend on such job, there is another perspective to this. There are people who take multiple jobs from the market, having to do so specifically to make ends meet. On average, they earn less than people with one job. As much as 5% of all workers take multiple jobs, and a big portion of them work low wage jobs. By increasing minimum wage, the number of jobs may decrease, but so would the number of people working multiple jobs as a result of the wage increase. As a result, the number of jobs people can take won't be impacted as much. As much as job loss may seem scary to some, it may actually be a benefit to some people, especially those who have to juggle so many responsibilities to make ends meet.
https://www.advisorperspectives.com/dshort/updates/2024/04/09/multiple-jobholders-are-5-3-of-all-employed#:~:text=Multiple%20jobholders%20account%20for%20just,illustrated%20in%20a%20pie%20chart.
https://www.census.gov/library/stories/2021/02/new-way-to-measure-how-many-americans-work-more-than-one-job.html
While I don't currently benefit from the increase in minimum wage, one thing I wanted to point out was the statistic that this $20 minimum wage is a 176% increase from the federal minimum wage. Granted, many state's minimum wage is significantly higher than the federal minimum wage, however, this figure is huge. Of course, for many reasons, California is vastly different from other states (in population, GDP, geography, etc.), but still,I believe that that difference should be noted. Despite us being a union with similar ideals and trajectory, the minimum wage in California is another stark contrast between many of the other more Central states in the nation. Also, I really enjoyed Rachel's comment about the In N Out Case Study in regards to Minimum Wage. I always see the "We're Hiring!" signs in front of In N Out, and every time, I take not of the fact that the wage is about 21.00 which is much higher than other fast food chains. (ie. Taco Bell/Mcdonalds.)
I agree with Quincy's analysis that the changes caused by the minimum wage increase match up almost perfectly with what we would've predicted just by learning the basics in econ, including layoffs and some inflation/hikes in prices. I think it would be interesting to know whether the workers that were laid off tend to be teens just working for extra income or adults working full time, because these two possibilities would definitely have different effects on the economy and whether or not minimum wage increases are a good idea.
Although I personally do not work in fast food, I do agree with earlier comments regarding how there will still be a small affect on those who do not inevitably reflected in the prices as companies will assumedly raise them, however I believe that this is marginal enough to most consumers that the amount of individuals hopefully pulled out poverty definitely outweighs such a negative. However, it seems as if we will have to wait and see how the economy, and California as a whole reacts to such a hike in minimum wage, because Bill 1228's changes as Quincy interestingly mentioned will likely to some level unemployment. I think like all things we should strive to find a healthy equilibrium between equitable wages and lack of inflation and lack of layoffs, but this that is much easier said than done.
Along with other commenters, I agree that the potential positives of this bill outweigh the negatives. Even if some weight does fall on the consumer, the potential of lifting many people out of poverty is far more beneficial in the long run. Raising people's living standards can often lead to increased access to higher education and more possibilities to take risks that benefit the economy (e.g. starting businesses). Also, it's worth noting that California has a MASSIVE GDP. If California were its own sovereign nation, it would be 5th in the world in terms of GDP. Although California is obviously a left-leaning state, its size and innovative policies often cause other states to follow suit. If this bill has clear benefits in the long run, I think other states may enforce similar policies.
Something that strikes me as a little fishy is the exception of fast food restaurants that have on-site bakeries, such as panera bread. It just so happens that panera bread's ceo is one of newsome's biggest donors and also a huge advocate against increasing the minimum wage... coincidence? I think not. Who knows tho.
I work at a bakery that could be considered fast food, so I'm not too happy about this exception too
source: "It doesn't apply to restaurants that have on-site bakeries and sell bread as a stand-alone menu item"
https://www.ocregister.com/2024/03/01/california-governor-pushes-back-against-criticism-of-fast-food-minimum-wage-law/#:~:text=California's%20minimum%20wage%20is%20%2416,a%20stand%2Dalone%20menu%20item.
When reading Vishal's comment, I didn't consider the negative impact that this bill has on low-income families. It sucks that the households that do rely on relatively cheaper places like McDonalds, may not be able to afford it because of the minimum raise. I feel like if fast-food workers are upset that they aren't getting paid enough, they should explore other job options, because perhaps their occupation isn't fit for them. The negative definitely outweighs the positive.
But I am wondering why specifically fast-food places are getting this minimum raise? What are the qualifications to receive one?
As someone who is benefitting from this increase in minimum wage, I definitely thought it was very positive at first. However, as I have thought more about it, I think this has a large negative impact overall on workers. First off, many companies will have to lay off many of their workers because they won't have enough money to pay all of them. This gives less opportunities to less skilled workers and will give less opportunities for them to get a job, and this particularly is worse for lower income families. Additionally, the company really doesn't have enough money to pay those in higher positions more money(such as shift leads) causing a small gap between what a lead gets paid versus a regular worker, which I think is unfair. Lastly, it will obviously cause an increase in how much fast food costs, which is just annoying. So, although I personally am excited to get paid more money, it is a little sad to think of how many others could be negatively impacted by this.
I think the minimum wage increase has its benefits and also its deficits. As someone who works a minimum wage job, I personally benefit from the increase, but I can also see how it would potentially cause problems. I work at an independently-owned small business, and that raise in wage could be the difference between me having a job and my boss potentially being forced to lay me off because he can't afford to pay me. Large corporations like McDonald's can almost certainly afford to pay their employees more without significantly raising prices, but I believe that small businesses and family-owned stores will be the most gravely affected, as many of those businesses don't make enough profit to be paying their employees more than they already are.
Sometimes, when I go to restaurants, they charge 3% (or similar) amount for "better living conditions for workers," and I thought this could be relevant to the discussion because it captures how businesses choose to raise their prices rather than decrease their profits when it comes to policy forcing wage increases. I always felt like this addition to restaurant bills are the way for the business to silently criticize the forced wage increases, making it clear that the consumers are the ones that are suffering from the law. However, I continue to support a raise in minimum wage because if the minimum is not a live-able amount, it will only encourage more poverty in the US. Although there is this transition period while businesses lay off workers to account for this change, the raised income could also lead to more spending and more need for production. In general, I still believe that, in the long-run, raising the minimum wage is a good idea.
This increase in minimum wage for fast food workers shows both positive and negative outcomes. It can also help those in poverty since many workers in fast food are either teenagers or those barely making it through. However, it could also lead to layoffs as previously stated by the other comments since an increase of 4 dollars is quite a lot, and those layoffs can include those people in financial difficulties as well. Despite these, I still believe there are more positive outcomes from this bill as helping those in poverty will increase living standards.
I have a feeling this bill will disproportionately affect many teenagers who are attempting to break into the job market. Many teens decide to work in fast food as their first job, but this bill will likely make that much more difficult. This is because the raise in wages will mean that many of these large fast food corporations will hire less workers, leaving there less available spots for teenagers to work. And since teenagers' employment is much more elastic than adults, this will likely impact teens, who will be discouraged by a more competitive entry-level job market. However, that is not to say there won't be many positives to this bill, especially for the adult workers living on these wages, as this will provide a significant increase in their quality of life. And with a higher income, these individuals will likely spend more money, further boosting the local economy.
Because this Bill affects large corporations of fast food, I don't feel as empathetic to the corporations having to pay their workers more. They already often cut costs in terms of quality of food and service, and are still incredibly profitable. The people who work will have more spending money, therefore boosting the economy and their standard of living which is great. This issue is of course complex because of all the layoffs it causes as the corporations don't want to pay. I agree with Zach, it will mostly be difficult for teens to work in chain businesses, (which isn't terrible, as they usually aren't living on minimum wage as their parents house them) however corporations may hire young people anyway and fire those older. For older more experienced workers who really need a higher income from a minimum wage job, this bill will certainly help them which is good. I agree with Taylor and I am curious to know if those laid off are younger or older- which is an important aspect to consider for future minimum wage increases.
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