The $20 fast food wage raised prices, automation, but cut jobs

from Dan WaltersCalMatters

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Two years ago, a hotly contested law went into effect imposing a $20-an-hour minimum wage on fast-food franchises.

legislation, Assembly Bill 1228came out of months of intense political conflictpitting fast-food giants like McDonalds against service worker unions, arguing not just over pay itself but what the industry saw as an attempt to undermine its business model.

The industry eventually agreed to a higher wage in exchange for the unions leaving the franchise system undisturbed and the creation of a commission to monitor wages and working conditions.

Since then, fast-food corporations and labor interests have battled over the law’s impact, both brandishing economic reports to bolster their positions.

The industry warned that the FAST Act, as it was called, would push fast food prices up and job opportunities down. Unions and their allies argued that this would benefit fast-food workers with few, if any, negative impacts.

The situation required an independent assessment not only to resolve the disputes, but also to provide guidance on the effects of political intervention on wages in each industry.

Fortunately, we may have this study.

On Wednesday, the University of California – Santa Cruz released a real world assessment on how the $20 mandate has affected fast-food franchise owners and employees. Stephen Owen, an economics professor, and a team of undergraduate assistants visited and surveyed more than 100 stores in Santa Cruz and the Central Valley and came up with data that appeared to confirm industry predictions of the effects.

“Implementation of the FAST Act and California’s $20 minimum wage for fast food workers under Assembly Bill 1228 has created multiple unintended negative consequences between government wage policies and economic reality,” the study states.

“Employees were affected by fewer job opportunities, reduced employee hours, elimination of overtime, and new eligibility challenges for health care and other benefits. Automation, such as order kiosks, mobile apps, artificial intelligence ordering systems, as well as other innovative assembly technologies, are being tested and implemented to reduce labor requirements.”

The study also found that local restaurants that were not directly affected were pressured to raise wages and raise prices to offset high labor costs, thereby affecting Californians, “especially low-income residents who rely on previously more affordable fast food.”

In a footnote, the study criticized a 2024 paper issued by a UC-Berkeley research team which proponents of the FAST Act have often cited.

“We find that the policy increased average hourly wages by a remarkable 18 percent, yet did not reduce employment,” the UC-Berkeley report concludes. “The policy increased prices by about 3.7 percent, or about 15 cents for a $4 (single) hamburger, contrary to industry claims of larger increases.”

The UC-Santa Cruz report criticized the UC-Berkeley study for not including the accelerated use of automation by fast-food restaurants as they cut staff.

“Based on what we found, I think this legislation is a classic case of ‘no good deed goes unpunished,'” Owen said in a statement accompanying the report. “There are unintended consequences and side effects, and overall, I think the results are definitely not as positive as policymakers expected.”

Owens’ reference to “unintended consequences” highlights another aspect of the FAST Act and its effects. This is a classic example of the legislature’s tendency to make sweeping policy decrees under the pressure of current events or in response to special interest demands without fully understanding—or even wanting to understand—their potential consequences or risks of negative consequences.

Much of what happens in the Capitol is trying to correct the adverse consequences of actions that should have been more thoroughly thought out beforehand.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.