California’s new $20 minimum wage for fast food workers, up from $16, goes into effect today and it is already having negative consequences. The bad news comes on top of Pizza Hut’s announcement last fall that they will cut all their delivery drivers.
“We are definitely going to pass this on,” says Chipotle’s CFO. That means customers will be paying more for their meals, which Chipotle estimates to be in the form of “a mid-to-high single-digit” percentage price increase.
In addition to Chipotle, McDonald’s, Starbucks, Jack in the Box and Shake Shack are planning to raise menu prices. They won’t be alone.
Alexander Johnson, whose family owns ten Auntie Anne’s and Cinnabon locations, has reduced his staff by about ten employees. To save even more on labor costs, his 73-year-old parents have returned to working in their stores. The new wage law will cost Johnson roughly $470,000 each year and he will be forced to raise prices anywhere from 5 to 15 percent. No longer hiring or seeking to open new locations in California, Johnson states, “This law is really hitting our operations hard. I have to consider selling and even closing my business.”
El Pollo Loco told investors recently it was automating some of its salsa-making to mitigate wage rises. Jack in the Box is testing fryer robots and automated drink dispensers, according to the report.
Expect others to follow.
Georgetown University Professor and former Labor Department chief economist Harry Holzer predicts: “Where they can automate, they will automate more. Maybe some franchises will move out of state.”
Automating jobs could have a ripple effect across the country. The CEO of International Franchise Association says If California fast food automates, franchise owners will “want the customer experience to be identical . . . . That could have an impact on employment nationwide.” McDonalds in Texas is testing out the concept of delivering food from a conveyor belt rather than human beings.
Some estimates say up to 51 percent of quick-service restaurant tasks will be automated by 2025; full-service restaurants expect 27 percent.
Studies have shown that increasing the minimum wage tends to decrease employment, overall take-home pay, fringe benefits, and training opportunities for employees. Often, employers are forced to reduce worker hours. One study found that Seattle, for instance, saw overall wages decline by an average of $125 per month due to cut hours after a minimum wage hike.
In most cases, many businesses find themselves cutting employees, investing in automation, and in the worst cases, filing for bankruptcy and/or closing their doors. And those who aren’t directly mandated to raise their wages will be forced to do so in order to compete and retain their workers.
It’s the small business owners who are significantly impacted. They simply can’t absorb the costs.
One such small business owner in the Los Angeles area also asserts that these wage increases are “a silent tax on the public” because “the public will pay for the unemployment of the people that are let go” and “the public will pay the $26 now for the hamburger.” She also worries that the businesses which can’t make their loan payments will default, putting taxpayers on the hook. Her friend who owns seven McDonald’s franchises already plans to close four of them.
Perhaps without so much government interference in most day-to-day constituent affairs, such rash decisions could be largely avoided.
One California-based analyst suggests that these drastic minimum wage measures are the result of the politicians’ meddling. He says the elected officials do all they can to reduce housing affordability as well as increase the cost of living through high taxes, burdensome labor and environmental mandates, wasteful projects like the high-speed rail project, and other such laws and regulations. And then they “attempt to be saviors by passing still more laws to . . . . alleviate the situation they have largely created.”
Minimum wage laws tend to hurt the very people they aim to protect. Many California fast food workers are likely to see decreased hours and, in several cases, lose their jobs altogether. Restaurants will likely see reduced foot traffic since more and more customers will not be able to afford the increased prices. This legislation is bad news all around.
Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @ConsumerPal.