Fast-food prices aren’t necessarily abnormally higher in California since the state started requiring chains to pay at least $20 an hour to their workers.
But that doesn’t mean the state isn’t expensive.
At least that’s according to our own examination of pricing data, using information from Technomic’s Price Pulse. Prices at both fast-food and full-service restaurants in California are about 15% higher than the national average, with only about a half-point difference between the two industry sectors.
We compared items at the 10 largest fast-food chains with items from 10 of the largest casual-dining brands, both in California and in the U.S. as a whole. We also looked at the same items in New York state, another place where the cost of doing business is higher than average.
Our theory was that the $20 fast-food wage, which took effect just more than a year ago, would drive up fast-food prices at a much higher rate than their full-service rivals, where such rules do not apply. We used large chains with substantial presences outside of California, to avoid skewing either piece of data.
There are plenty of potential holes in our methodology. Our data does not go back far enough to perform a comprehensive price change analysis. Also, California does not have a tip credit, so servers in the state make at least $16.50 an hour, and full-service brands likely are paying higher rates for back-of-house staff.
In other words, fast-food pricing levels may have caught up with the rate charged by full-service brands.
In addition, this look was not fully comprehensive.
That said, the average pricing gap between chains in California and the nation was relatively consistent among both limited and full-service chains.
Fast-food prices were 14.94% higher in California, on average, than the nation.
At full-service chains, prices were 14.57% higher in California than the nation.
We looked at the same items in New York, and the gap between prices there and the national average was actually wider: New York prices were 8.57% higher than the national average, while full-service chain prices were 5.98% higher.
California’s fast-food wage law took effect last April, which created a council overseeing regulations on limited-service chains. That also established a wage of at least $20 an hour. Restaurant and franchise lobbying groups agreed to the council, fearing the potential that the state would approve a law that would have led to the unionization of franchised brands there.
We’ve been skeptical of the wage, because raising wages on one industry requires it to pay higher rates without necessarily reaping the benefits of a population that just received a raise, which can drive up sales, thus paying for the higher wages.
Economists have differed over the impact. Christopher Thornberg, a research fellow with the Pepperdine School of Policy, noted that fast-food employment declined by 3.2% since the law was enacted compared with 0.8% growth nationwide.
Thornberg also suggested that the policy would lead to reduced hours, closed restaurants and reduced benefits, all of which may be happening already. All that is likely, particularly these days as sales and traffic at fast-food restaurants nationwide has lagged behind other sectors.
That said, the law gave fast-food workers a raise of 8% to 9%, according to economist Robert Reich with the Institute for Research on Labor and Employment earlier this year. That study found a 1.2% increase in fast-food prices compared with the national average.
The total impact of California’s fast-food wage law won’t be known for a while. Fast-food brands may be using more technology and cutting labor in the process. It’s also likely many restaurants are reducing worker hours to make up for the higher wages.
Other factors also drive up the cost of doing business there, notably real estate costs, which influence wages because people must be able to afford housing, after all. But it’s clear California is a high-cost state. It’s just doesn’t cost much more at fast-food restaurants.