Insight: SJ's fast food sector will take a hit in 2024, thanks to min wage boost
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This April, CA's big franchise fast food restaurants must start paying their workers minimum $20/hr. Reason magazine remarks that local cities should brace for messy consequences: on unemployment rates (did you know San Jose-Sunnyvale-Santa Clara already gained 8,000+ unemployed folks since January 2023?), prices for consumers, and companies relying on automated “workers.”
Last month, Gavin Newsom signed into law a California bill that will raise the minimum wage for fast food workers to $20 an hour starting in 2024. While the law has been hailed as a victory for low-wage Californians, the reality is much more complicated. …
While ensuring that fast food workers get better pay may sound like a victory for the working class, there are major downsides to such high minimum wages. While things might be better for those workers who manage to keep their jobs—many business owners will likely be forced to lay off employees in order to keep the lights on or raise prices for consumers.
"The economic literature on minimum wage increases has become murkier in recent years, but the overwhelming majority of economists agree that large minimum wage increases in excess of productivity gains means that employers will operate at a loss as far as the affected workers go," wrote Michael D. Tanner, a senior fellow at the Cato Institute following the passage of the FAST act. "Given that the average profit margin in the fast food industry is just 6–9 percent, those costs are almost certain to be passed along in terms of higher prices or lost jobs."
Another side effect of California's new minimum wage law could be the acceleration in fast food companies' turn towards automation in an attempt to save on labor costs.
"Over the last few years, many Americans, myself included, have been to McDonald's and used touch screens to place our own orders instead of interacting with cashiers," wrote Brad Polumbo in the Washington Examiner this week. "Well, the more arbitrarily expensive you make human labor, the more companies are incentivized to hurry up and embrace automation."
This article originally appeared in Reason. Read the whole thing here.
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