The minimum wage in the restaurant business in the United States will reach $20 per hour for the majority of workers in California starting on Monday. However, the pay increase is igniting a heated discussion, with labor groups praising the advantages of higher salaries while some restaurant owners fear job losses and increased client pricing.
The minimum wage in the restaurant business in the United States will reach $20 per hour for the majority of workers in California starting on Monday. However, the pay increase is igniting a heated discussion, with labor groups praising the advantages of higher salaries while some restaurant owners fear job losses and increased client pricing. (Photo : by Justin Sullivan/Getty Images)
Impact of New Minimum Wage Regulation on Fast-Food Industry in California
The new rule, which requires fast-food businesses with at least 60 locations worldwide to pay employees at least $20 per hour, was signed into law by Governor Gavin Newsom last October and will go into effect on April 1. This implies that the 553,000 fast-food employees in the state will make more money than the $16 minimum wage for all other businesses.
The establishment of the new minimum wage coincides with the fast-food industry's explosive profit growth, since large chains such as McDonald's have had robust sales growth and expanded profit margins in recent times. This is partially because, according to a recent report from the nonpartisan think tank Roosevelt Institute, menu prices have greatly exceeded inflation, with fast-food expenses rising 47% over the previous ten years compared with an average of 29% for all other categories.
There are restaurant operators in California who claim that increased labor expenses will result in higher prices for patrons and maybe even less employment. Smaller operations would likely suffer, but larger fast-food chains may be able to withstand such charges.
The new wage regulation applies to Johnson's firm since its parent franchisors run over 60 outlets nationwide.
Wage Increases and Restaurant Dynamics in California
Johnson said the salary increase coincides with slower sales at his eateries, which he blames on depleted customer funds from two years of high inflation and California's high cost of living. Johnson anticipates raising prices by around 10% this year, which he intends to do in two smaller increments to counterbalance the new $20 minimum wage.
According to the Save Local Restaurants organization, which cited figures from a McDonald's owner association, the average California business will need to pay an extra $250,000 a year in order to offset the wage boost that took effect on April 1. Restaurant owners are represented by this association. Chipotle's 3,400 US outlets may face a 1% price hike in order to make up for it.
Starbucks informed the Los Angeles Times that, among other things, company intends to raise pricing to make up for the increased pay.
The wage law's detractors claimed that greater expenses would result in hiring reductions and layoffs. According to state labor documents, several Pizza Hut outlets in California have already announced plans to reduce staff. A request for comment was not immediately answered by Pizza Hut.
In order to lessen his reliance on human labor, Johnson stated that he is not currently hiring and that he intends to implement further automation, such as ordering kiosks. In order to concentrate on operating restaurants in Nevada, where expenses are cheaper, he is also considering selling his franchise sites in California.
Labor activists claim that the new rule would benefit fast-food employees, who, according on official data, make an average of $16.60 per hour, or little over $34,000 annually. In California, it is below the poverty level for a household of four.
According to Tia Orr, executive director of the Service Employees International Union California, a labor organization that supported the legislation, the increased pay is "a transformational step toward an economy that works for all, not just billionaires," as she told the Associated Press.
The fact that Newsom disregarded the idea that fast-food workers are mostly teens when he signed the legislation last year highlighted how many homes rely on these employment for financial support. Business Insider reports that the average age of a fast-food worker is around 26 years old.
Numerous states and municipalities have increased their minimum salaries in recent years, despite the federal baseline remaining at $7.25 per hour, a number that hasn't changed since 2009. According to certain economic studies, salary increases have the benefit of giving workers financial stability and increasing consumer spending, both of which promote overall economic development. However, wage increases do not cause job losses.
Experts point out that during the previous several years, firms in California have had to withstand various wage increases while still managing to run their operations.
