California fast-food wages at $20 do not mean job cuts, governor says

• California raised its minimum wage for quick-service restaurant workers to $20 in April.
• The California Business and Industry Alliance warned that this was costing jobs.
• But employment in the industry is seasonal and generally rises and falls throughout the year.

Since Governor Gavin Newsom first announced plans to raise wages for fast-food workers in California, restaurant chain executives and franchisees alike have warned about the impacts this could have on their businesses.

In addition to having to raise menu prices, some critics of the legislation warned that higher wages could lead restaurants to lay off some of their workers, or even close down.

Despite intense lobbying from the fast-food industry, the new $20-an-hour wage for quick-service chains with at least 60 locations nationwide went into effect on April 1.

The California Business and Industrial Alliance is not at all happy with the legislation. In early June, it took out a full-page ad in USA Today featuring fictional obituaries of brands it claims were “victims” of the new minimum wage.

CABIA said in the announcement that nearly 10,000 jobs had been eliminated between September, when Newsom signed the law, and January.

“Governor Newsom’s bad policy remains indefensible, and workers and businesses are suffering for it,” Tom Manzo, founder of CABIA, told Business Insider via email. “It’s obvious what’s happening to the fast food industry, no matter how Newsom’s team manipulates the numbers.”

CABIA’s announcement cited data from the Hoover Institution, a public policy think tank and unit of Stanford University that aims to “limit government intrusion into the lives of individuals.”

It’s unclear where the Hoover Institution got the 9,500 figure, though it did link to a Wall Street Journal report that said it used state figures.

Business Insider was unable to independently verify these numbers, as data from the California Employment Development Department and the US Bureau of Labor Statistics show a drop of about 11,600 jobs when not seasonally adjusted.

CABIA’s argument was based on a drop in employment between September and January. But BLS data show that employment in California’s limited-service restaurant industry drops in the winter. In every year for at least the past decade, employment has been lower in January than in the previous September.

It generally reaches its lowest level in January and its highest level in August.

The BLS data include employment in all limited-service restaurants, including those exempt from the new minimum wage.

Restaurants typically hire more workers during the summer months as tourism drives spending and people spend more time outside their homes.

Seasonally adjusted BLS figures, which take into account annual fluctuations, show that employment in California’s limited-service restaurant industry actually increased by about 6,000 people between September and January.

Newsom has responded to criticism of the new minimum wage

“California’s fast food industry has added jobs every month this year, including approximately 10,600 new jobs in the two months since Governor Gavin Newsom signed the fast food minimum wage into law,” his office said in a recent news release.

The chart below, produced from BLS data, shows that limited-service restaurant employment in California has been above 2023 levels in every month so far this year, when not seasonally adjusted.

However, Newsom’s statements should also be taken with a grain of salt. The year-over-year growth in limited-service restaurant employment is a continuation of a trend that was also seen before the pandemic, with total employment in the industry increasing each year.

And month-on-month job growth so far this year is nothing new. Employment typically grows in the months leading up to summer.

It’s clear that some fast-food chains have laid off workers in California, even closing restaurants in some cases, partly in response to the new legislation. Seasonally adjusted data from the Bureau of Labor Statistics suggests there has been a small drop in the number of workers in California’s limited-service restaurant industry (about 2,500) since January.

However, BLS statistics suggest the situation is not as dire as CABIA makes it out to be.

The $20 minimum wage was introduced to support workers in a state with a notoriously high cost of living. The fast food industry is known for its low wages, and some workers have to take on second jobs to make ends meet.

Analysts previously told BI that the legislation is also expected to boost wages in other industries as employers will face more competition for workers.

Have you been affected by California’s new $20 minimum wage? Email this reporter at [email protected].