On April 1, California raised the minimum wage for fast-food chain restaurants to $20 an hour.
That 25% increase, literally overnight, and for a specific industry rather than the workforce as a whole, was a shock to the system. And in the past several months, there have been reports connecting this event with massive industry layoffs and store closures.
The reality is more complex than that. But we can say two things: There haven’t been any real, widespread job cuts and store closures can’t be blamed on the wage.
Not yet, anyway.
According to data from the U.S. Bureau of Labor Statistics, limited-service restaurants have actually increased job count over the past year. They employed 741,000 workers in California in April, according to a preliminary estimate, up from 734,400. These are not seasonally adjusted numbers, and restaurants do hire more during the summer months.
And overall employment has been up consistently in the months since the fast-food wage was passed, when the state’s chain restaurants were supposed to be preparing for the oncoming increase.
The same is true for the broad industry in California, which has been adding jobs for months, rather than shedding them. Here’s a look at total jobs and at limited-service restaurant jobs in the state:
But, while job numbers are up, the rate of job growth has definitely slowed in both cases. Here’s the rate of growth since the start of 2023. The trend line is clear, though it’s probably due more to a broad slowdown in industry traffic and performance rather than the $20 fast-food wage.
That said, fast-food traffic is down in California.
Fast-food restaurant traffic had been running ahead of the national average until April, when it turned south, according to the retail traffic data firm Placer.ai. It is now running lower than the national average. McDonald’s traffic is 250 basis points lower than the chain’s national average in California.
But the impact of that lower traffic, and the higher costs, was always going to take a while. And the jobs numbers if anything reflect just how difficult it is for operators to deal with this challenge.
Restaurants are not in a good position to start slashing workers, not to any great extent, as long as people keep coming in. If anything, the data demonstrates just how limited operators’ options really are.
Restaurants are not like other businesses that can eliminate inefficiencies or add a few robots and replace jobs. An individual restaurant’s employment level is dictated by the demand that day or that season.
Some operators clearly did take some steps, as a pair of large Pizza Hut franchisees in the state ditched self-delivery for third parties. But most restaurants can’t take that kind of step because they don’t do their own delivery. (It will be interesting to see whether other major pizza chains follow suit eventually, but that may be another story.)
Technology is not coming to the rescue, either. Kiosks—despite popular belief—are not big replacements for staff, and if anything, they create more work because the restaurant gets larger orders when they add them. At McDonald’s, which has years of kiosk experience, the devices require more workers.
Drive-thru AI might replace one person. But it is a technology still very much in its infancy, so good luck to those brands relying on it for some order taking.
In other words, the only real solution restaurants have to deal with the problem is to raise prices, which is what they’ve done. But the impact of that takes place over several months, not immediately.
Store closures are also not a good indication of California-specific issues because store closures as a rule are typically the result of last year’s problems, not this year’s problems. They tend to be a lagging indicator of conditions. Rubio’s 48-store closure was due to its past issues, not because California raised wages.
None of this is to say closures won’t happen, or that it could lead to job cuts. Both can and probably will, given the state of the economy and the operating environment. But the California $20 wage was never about what’s happening right now. It’s about what will probably happen tomorrow.