California's War on Fast Food Jobs
Higher prices created by a $20 minimum wage for burger joints will lead to fewer customers, reduced profits, fewer restaurants, and a loss of jobs.
During a recent meal at a family-run restaurant in a small town, I noticed that the owners included in the menu an apology note to customers for the high prices they were charging. We all understand the owners' predicament, as inflation has driven up the costs of pretty much everything, especially groceries. Nevertheless, customers who try to live within their budgets have little choice but to pare back their unnecessary restaurant trips.
I'm not the only one doing so. "Rising labor and food costs, ballooning interest rates, and corporate brand owners' demands for upgrades and operational improvements have strained profitability for a number of fast-food chain operators," according to a recent Bloomberg Law article focusing on increasing numbers of restaurant franchise bankruptcies. Inflation is hitting every industry, but those reliant on discretionary spending will suffer the most.
One would have expected the California Legislature to have recognized this industry's ongoing, post-COVID problems before adding to their burden. Lawmakers need only wander around the Capitol and notice the large number of long-time eating establishments that have shuttered. And yet one of their signature legislative accomplishments this year will only hasten restaurant closures and job losses.
No matter what happens in broader society, we can always count on the California Legislature to do the bidding of the state's powerful unions, which are committed to little else beyond boosting their membership rolls—whatever that might mean for the broader economy. And so the state recently agreed to a deal that will dramatically increase fast-food wages and make it more difficult for private companies to set their own operating policies.
In 2021, the Legislature introduced the Fast Food Accountability and Standards (FAST) Act, which echoed the European sectoral-bargaining model whereby a government commission sets the wages and working conditions in an industry. This radical idea would have essentially given unions control over the industry—saving them the difficulty of actually organizing workers.
Although that effort failed, the Legislature in 2022 passed two nearly as significant laws, per the pro-union OnLabor website: First, Assembly Bill 102 revived the moribund Industrial Welfare Commission and gave it the powers of a sectoral-bargaining commission. Second, Assembly Bill 1228 would have raised fast-food minimum wages to $22 an hour with an annual upward ratchet.
It also "would have made franchisors jointly liable for labor violations—a long sought-after provision that was taken out of the final version of the FAST Act," On Labor added. The wage hike was problematic, but making national fast-food companies liable for labor violations at independently owned franchises would have destroyed the franchise model in California.
These laws posed existential threats to the restaurant industry, which then qualified a referendum on AB 1228 for the 2024 general election. In September, Gov. Gavin Newsom announced a "truce." The industry pulled its ballot measure and agreed to a $20 minimum wage. In return, Newsom and unions limited the power of the Fast Food Council and removed joint-liability provisions.
The restaurants spared themselves a multimillion-dollar ballot fight, gained a lower wage, and preserved franchising, but the net result will be the same. A government agency will grab many management powers. Wages will go up early and often. Labor costs account for one-third of fast-food costs, so prices will rise. McDonald's and Chipotle already have announced higher prices for next year.
The unions are claiming a victory for workers, but it's not hard to guess the result. Higher prices will mean fewer customers and reduced profits. That means fewer restaurants and fewer jobs. Although the legislation only applies to fast-food chains with more than 60 outlets, it will drive up costs for mom-and-pop restaurants. They will have to compete for workers with chains that must pay a much-higher wage.
That's not the only bad news. "Making it illegal to pay less than a given amount does not make a worker's productivity worth that amount—and, if it is not, that worker is unlikely to be employed," wrote famed economist Thomas Sowell. In other words, restaurants will not hire people who aren't productive enough to justify the wage.
It will be tougher for young workers who lack job skills and for disabled people to get these jobs. I'm already noticing a higher percentage of older workers at fast-food establishments. I'm also noticing far more kiosks. Let's be blunt: Fast-food work isn't meant to be career work for most people. These are great ways to earn quick cash and learn basic skills, which can then be leveraged into better jobs as people build better lives for themselves. Unions and progressives want to take this approach to other industries.
For most of us, the higher prices will mean a little less pocket cash and a lot more home-cooked meals. But think about the lost opportunities for people who need them the most. Unfortunately, the Legislature and governor won't be providing any apology notes.
This column was first published in The Orange County Register.
