New Pepperdine Study Reveals How Fast-Food Minimum Wage Increases May Lead to Job Losses

California’s decision to raise the minimum wage for fast-food workers to $20 has stirred up quite a debate. Recent studies reveal that this change led to notable job losses, contradicting earlier claims that the wage hike would have little effect.

A recent analysis from economist Christopher Thornberg found that California’s fast-food industry lost over 23,100 jobs in just the past year after the Fast Act took effect in April 2024. Thornberg argued that these findings challenge the optimistic views presented by some pro-labor groups, which suggested minimal impact from the wage increase.

The California Employment Development Department recently updated its employment statistics, showing a decrease of 92,100 jobs statewide from the previous 18 months. A significant portion of this loss—21,500 jobs—came from limited-service restaurants, which include many fast-food chains. This decline represents a 2.5% drop in that sector, starkly contrasting with the national trend where fast-food jobs rose by 0.8% during the same timeframe.

Thornberg emphasized that the delayed recognition of these job losses in official statistics was somewhat predictable. The revised numbers reflect actual payroll records rather than estimates, which often overlook finer details. He noted that the swift increase in labor costs forced many businesses to adapt over time, revealing the negative impacts more slowly.

Interestingly, about half of the restaurants included in these figures are not part of chains and aren’t subject to the new wage law. This means the reported job losses may not fully capture the law’s broader effects.

The Fast Act, which raised the minimum wage for franchised fast-food restaurants to $20 an hour, was a result of a fierce negotiation between labor unions and the fast-food industry. Initially, a proposed law aimed for a $22 minimum wage but was adjusted after pushback from the industry, leading to the compromise that created the Fast Food Council for overseeing working conditions and wages.

Economists have long debated the effects of minimum wage increases. While many believe such laws create a negative impact on employment, others maintain that the effects are negligible. Prior to these recent job loss findings, some organizations, including Harvard’s Kennedy School and researchers from UC San Francisco, had claimed that rising wages did not lead to job cuts or changes in work hours. Their studies suggested that California fast-food workers saw an average hourly wage increase of at least $2.50 without significant adverse effects on staffing.

California Governor Gavin Newsom supported these claims, arguing that investing in workers ultimately benefits everyone. However, Thornberg warned that these positive conclusions about the Fast Act may have been drawn prematurely. He urged the Fast Food Council to pause any further decisions until more comprehensive research is available, as the fast-food industry grapples with potential disruptions beyond just job losses.

In summary, while some argue that raising the minimum wage can thrive alongside job growth, the latest statistics prompt a reevaluation of that belief in California’s fast-food sector. Conversations about the long-term impacts of such wage laws continue, making this a topic to watch in the coming years. For more detailed insights into the ongoing discussions around minimum wage, check the California Employment Development Department.

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