At the Foundation for Economic Education Jon Miltimore says that the consequences of California’s new $20/hr fast food minimum wage are already being felt: it’s reducing the number of jobs paid to minimum wage employees in fast food.
Records submitted to the state show Pizza Hut and Round Table Pizza plan to sack nearly 1,300 delivery drivers. Other chains are taking similar actions, and many restaurants have stopped hiring new workers.
This is not unexpected. Critics of the law predicted it would result in less employment, and that’s exactly what has happened.
“California had 726,600 people working in fast-food and other limited-service eateries in January,” the Wall Street Journal reports, “down 1.3% from last September, when the state backed a deal for the increased wages.”
This is not the only way restaurants will reduce labor costs, of course. Benefit cuts, fewer hours, and a shift toward automation are also on the table. But the layoffs at California restaurants are what is currently generating the most attention, and for good reason.
I can only speculate what California lawmakers intended to accomplish with their fast food minimum wage. A key issue is that the margins at fast food franchises are quite tight, they are limited in their ability to raise prices, and even when they do raise prices it a) may cause a loss in business and b) the price increases will fall hardest on the poor.
However, it their intention was to swell the rolls of the unemployed, mission accomplished!
C’mon, Dave. Their intentions are clear. Stick it to “rich” business owners, and subsidize low skilled labor with overpriced wages.
It’s easy to do in a bourbon drenched bar. But in the real world they just fucked over the very people they say they want to help.
Advocates of policies like these are not just economically illiterate, they have personality and character defects. Primarily, envy.
Some time ago I published the actual balance sheet from a fast food franchise. It illustrated a couple of things. First, the owner was actually realizing little from the franchise. Second, low wages were a critical success factor.
My point in posting that was NOT to defend fast food franchises but to illustrate how the notion of rich owners was a stretch. I’m sure there are actual rich fast food franchise owners but that doesn’t characterize all franchise owners.
My own view is that fast food franchises are an artifact of a period when a lot of young, unskilled workers were entering the market and are presently dependent on a reliable supply of new immigrants. IMO they’re one of the areas of the economy in which we’re overinvested due to the subsidies.
Winning at policymaking:
https://x.com/brian_callaci/status/1775291695116030292?s=20
Seriously though. My kids have worked at fast food, and what I’ve come to understand from them is that the franchises they work for actually own several stores. So they have economies of scale and resources are prioritized for the most profitable stores the franchise owner owns. For example is the ice cream and shake machines at McDonalds. They break frequently. My son works at McDonalds and the owner also owns 5 other stores. My son’s store is like 3rd in the priority pecking order.
There’s also centralized training. When my son was hired, he was trained at a different store—the franchise owner does all the training at one store.
Basically, the market is responding precisely as neo-classical microeconomics would predict. Said another way price increases and job losses are not surprising.
Scott Sumner wrote on this recently. The average pay for fast food workers in Texas is now $17/hour. In Louisiana it’s about $13. In CA the current minimum wage is $16/hour and the average they actually pay is somewhere between about $17-$18. As Sumner notes, the federal minimum wage is essentially irrelevant and gone. Labor shortages drove up the wages in California over the $16 mark.
So the increase to $20 will be fairly small and the economic literature has shown that small increases often dont really affect job numbers which suggests that even though the effect is real it is either small or related to the size of increase. Also of note, the same microeconomics would suggest that owners would already be looking to decrease labor costs with them having already risen so much.
https://www.econlib.org/is-the-natural-rate-of-unemployment-turning-higher/
Steve
Dave – I understand.
Now, for this useful idiot.
You know, steve, you can always cite a whacko to support your views.
And you do. But this is reality:
https://redstate.com/jenniferoo/2024/04/03/the-ca-minimum-wage-hike-goes-as-expected-with-layoffs-restaurant-closers-and-higher-fast-food-prices-n2172250
You are a doctor/administrator in an industry characterized by monopoly and subsidy. Ahem. You know nothing.
This expected result was Dave’s point. Its my point. Its any sane person’s point. Are you just that economically illiterate? Or just so partisan that anything Democrat must be supported, no matter how bizarre?
And how do you justify your support of the butt-fucking of the least able to deal with this insane policy?
So I wasted my time and went to a Red State site. Lots of anecdotes, no data. That’s what counts for evidence on the right anymore. Did you go to engineering school during some period when they decided math wasn’t needed anymore?
Anyway, maybe I was too subtle. It’s clear around the country that labor shortages have driven up pay for fast food workers. MacDonalds already had its ordering kiosks in response. Pizza delivery was already competing with GrubHub. It will take a while to sort out the effects of this small wage increase vs the already in place effect of increasing wages. As I noted, the empirical literature has shown that small increases in the minimum wage have had small or no effects on employment.
Steve
And other empirical literature has found that for every 10% increase in workers’ wages you can expect a 2% increase in prices.
BTW “small increase” does not describe the difference between $7.25 and $15 or the difference between $15 and $20. Those are both substantial increases and the literature is consistent about large increases.
Vast majority of people are not conditioned or prepared to be self employed, better off as part of a team.
Minimum wage laws are pushing workers into the Uber/ Instacart industry where the absence of any benefits saves retailers money and pushes the social costs decades down the road.
IMO, bad mistake.