California fast food wage hike has had detrimental impact, puts businesses in 'jeopardy,' critic says (2024)

California Gov. Gavin Newsom's successful push to hike the minimum wage for many of the state's fast food workers is having a devastating impact on businesses, who have been forced to cut labor costs to survive, critics say.

Prices at major brands like Chipotle, McDonald's and other fast food giants have increased in a move to keep up with the $20 per hour workers have been paid since the new wage went into effect on April 1. The rule impacts restaurants that have at least 60 locations nationwide, except those that make and sell their own bread.

The California Business and Industrial Alliance (CABIA) said nearly 10,000 jobs have been cut across fast food restaurantssince Newsom signed California Assembly Bill 1228into law last year. To highlight what it says are the unintended consequences of the law, CABIA has taken out an ad in Thursday's statewide edition of USA Today with mock "obituaries"of popular fast food brands.

Newsom's office took issue with the CABIA's claims about fast food job losses. A spokesperson for the governor cited the U.S. Bureau of Labor Statistics, claiming that 4,500 jobs were added in limited service restaurants in California from September 2023 through April 1. The governor's office said 6,600 fast-food jobs were added in the Golden State from April 2023 through April 1.

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A car goes through the drive-thru at a McDonald's restaurant in San Pablo, California. Fast food chain restaurants are being hurt by an increase in the minimum wage for workers, a trade group says. (Justin Sullivan/Getty Images / Getty Images)

CABIA's ad highlights multiple restaurants that have had to raise prices and lay off workers to stay afloat and, in some cases, shut down stores. The ad features news clips documenting changes made by brands like El Pollo Loco, Subway and Burger King across the state.

"California businesses have been under total attack and total assault for years," CABIA president and founder Tom Manzo told FOX Business. "It's just another law that puts businesses in further jeopardy."

When he signed the law, Newsom said the state was getting "one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast food workers a stronger voice and seat at the table."

Governments, unlike private businesses, have options when they run out of money, said Manzo, who said officials were living in a "fantasyland" by thinking that drastic wage increases will help workers or businesses.

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The California Gov. Gavin Newsom-approved $20 minimum wage is causing the "collapsing of businesses," says Los Angeles restaurant owner Angela Marsden. (Getty Images/Fox News Digital/Photo illustration / Fox News)

"You can only raise prices so much," he said. "And you're seeing it. People are not going to pay $20 for a Big Mac. It's not going to happen."

He noted that to comply with the law, some restaurants have cut employee hours and will most likely move toward automation in the future.

In the weeks before the wage hike went into effect, some California fast food owners began letting go of workers in anticipation of the increased labor costs. In December 2023, the Southern California Pizza Co., which owns multiple Pizza Huts stores, announced layoffs of around 841 delivery drivers across the state.

Meanwhile, the increase in pay comes as inflation has resulted in higher prices for fast food items. A recent survey conducted by LendingTree found 78% of consumers now consider fast food to be a "luxury" purchase due to how expensive the meals have become.

FOX Business has reached out to Newsom's office.

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Part of the push for the hike was to give fast food workers more financial freedom in a state known for its high cost of living. However, critics contend fast food jobs were meant for young people as a stepping stone.

"It's a starter industry," Manzo said. "You get a job as a kid working in a fast food restaurant and you learn some good work ethic and that takes you into life."