California: Study reveals unintended effects of minimum wage hike for fast food workers

A University of California at Santa Cruz study found that the increase in the minimum wage in California for fast-food workers had "unintended consequences." According to their findings, since its implementation the measure brought collateral damage resulting in increased menu prices for consumers and the widespread elimination of overtime for employees, among other things.

In September 2023, Governor Gavin Newsom signed a minimum wage increase from $16 to $20 an hour for fast food workers. The measure went into effect in April 2024. In the following months, some restaurants such as Pizza Hut, Burger King, McDonald's, Rubio's and Blaze Pizza closed businesses and announced layoffs to cope with rising costs.

"No good deed goes unpunished"

In this context, the University of California at Santa Cruz published a report on the unintended consequences of the policy implemented by Newsom in 2024.

To conduct the study, researchers "interviewed owners and managers of more than 100 fast food franchises across the state, reviewed the financial and hiring records of these businesses, and observed their operations to understand how things have changed since the implementation of the minimum wage increase."

In addition, they spoke with owners of three restaurants in the city of Santa Cruz to learn how the impact of this legislation had spilled over into their day-to-day operations.

"Based on what we’ve found, I think this legislation is a classic case of no good deed going unpunished. There are unintended consequences and knock-on effects, and overall, I think the results have definitely not been as positive as policymakers had been expecting," said Stephen Owen, a professor of economics at the University of California, Santa Cruz and author of the study.

"The results indicate a plethora of negative outcomes, such as higher menu prices for consumers, reductions in employee working hours, widespread elimination of overtime, and loss of benefits for employees," he added.

The report was released a month after one produced by the Berkeley Research Group in February. According to their findings, which drew from Bureau of Labor Statistics data, 10,700 fast food jobs had been lost through June 2024. In addition, they noted that in-store prices jumped 14.5% after the new minimum wage law went into effect.