New Economic Study Finds California’s $20 Fast Food Minimum Wage Caused 18,000 Job Losses

“New data from the federal Bureau of Labor Statistics was released Thursday, revealing a staggering 36,565 fast food jobs have been lost since September 2023 when the $20 per hour minimum wage law, AB 1228, was signed into law,” the Globe reported in June.

There is yet another new study out, this one is by the National Bureau of Economic Research in Cambridge Massachusetts:

“AB 1228 increased wages substantially in California’s fast food sector,” the new economic study by the National Bureau of Economic Research finds. But the study finds something else as well:

California’s non-minimum-wage-intensive employment was on a slower growth trend than the rest of the United States prior to the implementation of its fast food minimum wage. Once again, the estimates using non-changing states as a comparison is larger in absolute value, with a simple triple-difference estimate of -2.6 percent and a detrended triple-difference estimate of -3.9 percent.

We document that AB 1228 increased wages substantially, with a roughly 8 percent increase in California’s fast food sector relative to the fast food sector elsewhere in the country. With respect to employment, we first show that California’s fast food employment was on a similar path as the rest of the United States prior to AB 1228’s enactment. Following AB 1228’s enactment, employment in the fast food sector in California fell substantially, with estimates ranging from 2.3 to 3.9 percent across specifications, even as employment in other sectors of the California economy tracked national trends.

Combining the wage and employment effects we estimate, the implied own-wage em- ployment elasticities range from -0.29 to -0.49. These elasticity estimates exceed the median own-wage elasticity in the literature as summarized by (Dube, 2019). Because CA’s statewide fast food minimum wage rose by 25% (i.e., from $16 to $20), the implied elasticities of fast food employment with respect to the minimum wage range from -0.09 to -0.16.12 These are lower bounds on the effect of a sector-wide minimum wage increase of 25 percent, how- ever, for two reasons. First, several large jurisdictions within California had minimum wages in excess of $16 at the time of AB 1228’s implementation. Second, many limited-service restaurants were not affected by AB 1228 due to its focus on large chains. Put differently, the effective increase in California’s statewide fast food minimum wage was smaller than the statutory increase and only part of the sector was affected, indicating that the implied elasticities on affected restaurants was larger.

The Employment Policies Institute released data in May showing AB 1228, California’s $20 wage law for fast food workers, cost non-tipped restaurant workers 250 hours of work annually, equating to up to 7 weeks of lost work – up to $4,000 in lost potential income, the Globe reported.

As the Globe warned, thousands of fast food employees lost jobs, employees’ hours were cut, and business owners had to do more with less.

The data comes just over one year after AB 1228’s implementation, and as Los Angeles considers a drastic union-backed $30 wage hike for hotel and tourism workers that would follow the fast food wage law’s precedent of economic destruction, EPI reports.

The Globe reported the fast food minimum wage timeline and economic devastation:

Before the actual implementation of April 1, 2024, thousands of fast food jobs were shed by companies in anticipation for the higher costs, including Pizza Hut who let go 1,200 drivers alone. In addition, lawmakers knew that there was suddenly going to be a lot of lost jobs, and hastily brought in exemptions for fast food restaurants in airports, stadiums, theme parks and other major public areas.

Nonetheless, job losses quickly mounted after April 1st of last year when the law came online. Not only job losses either – many workers found that they were now working fewer hours or lost a shift as a result. In addition, restaurants automated what they could to avoid the higher wages, including investing in touch screen kiosks over having more traditional cashiers. Some fast food restaurants also closed, as the 25% wage increase from $16 to $20 ruined their thin profit margins.

By June 2024, Stanford University found that over 10,000 fast food jobs were already lost. The Governor’s office swiftly denounced this figure, saying that the number of fast food jobs actually went up. They even went so far as to admonish many media outlets, including the Globe, for reporting the 10,000 job loss figure. While the Governor’s office tried for a few more months to convince Californians that AB 1228 actually brought about fast food job gains, they stopped by the fall when it became apparent that federal data wasn’t on their side. By November, the losses stemming from AB 1228 irked voters so much that they voted soundly against Prop 32, which would have raised the minimum wage statewide to $18.