What would happen to the fast food industry if it had to pay its workers something closer to a living wage?

California decided to find out. In September 2023, the state enacted a new law that required fast food restaurants with more than 60 locations nationwide to pay workers a minimum of $20 per hour — a $4 per hour increase. The new minimum wage went into effect in April 2024. More than 700,000 people work in California's fast food industry.

Almost immediately, Americans nationwide were told the new law would devastate California's fast food industry. In November 2023, before fast food chains in California were even required to pay higher wages, Good Morning America aired a segment warning that customers of McDonald's and Chipotle could be faced with higher prices.

In April 2024, Good Morning America ran another piece about the "stark realities" and "burdens" restaurants would face due to the new law. The segment quoted an owner of several El Pollo Loco franchises, who claimed that she would have to "reduce hours by roughly more than 10%, simplify menus, and implement new technologies such as automated ordering kiosks." An April 2024 piece in the Wall Street Journal, citing two weeks of data after the new wage went into effect, claimed that "fast-food and fast-casual restaurants in California have increased prices by 10% overall." It also relied on anecdotes from people like John Matthews, a "62-year-old project manager" who " believes the fast-food wage law is a drag on the state economy." Matthews told the paper that he "shifted his roughly $600 in monthly restaurant spending to independent, sit-down restaurants and away from McDonald’s, Chipotle and other chains.”

Now, we have actual data about the impact of the law. The Shift Project took a comprehensive look at the impact that the new law had on California's fast food industry between April 2024, when the law went into effect, and June 2024. The Shift Project specializes in surveying hourly workers working for large firms. As a result, it has "large samples of covered fast food workers in California as well as comparison workers in other states and in similar industries; and of having detailed measurement of wages, hours, staffing, and other channels of adjustment."

Despite the dire warnings from the restaurant industry and some media reports, the Shift Project's study did "not find evidence that employers turned to understaffing or reduced scheduled work hours to offset the increased labor costs." Instead, "weekly work hours stayed about the same for California fast food workers, and levels of understaffing appeared to ease." Further, there was "no evidence that wage increases were accompanied by a reduction in fringe benefits… such as health or dental insurance, paid sick time, or retirement benefits."

While workers enjoyed significantly higher wages, the impact of prices was modest. A separate study by the Institute for Research on Labor and Employment (IRLE) used Uber Eats data to compare prices at fast food chains before and after the new minimum wage took effect. The IRLE study found that prices increased about 3.7% after the wage increase — or about 15 cents for a $4 hamburger.

The restaurant industry's bogus jobs data

In June 2024, the California Business and Industrial Alliance, an industry lobbying group, ran a full-page ad in USA Today claiming that the fast food industry cut about 9,500 jobs as a result of the $20 minimum wage.

This is a lie.

Notably, the data cited a report by the Hoover Institute in April 2024. But, as Michael Hiltzik noted in the Los Angeles Times, the Hoover Institute report was based on a Wall Street Journal article from March 2024. The Wall Street Journal claimed that, between September 2023 and January 2024, employment at fast food restaurants in California decreased by 1.3% or 9,500 jobs.

The data from the Wall Street Journal covers a period before the new wage went into effect. But the industry claims these job cuts were made preemptively, in preparation for the wage increase. The bigger issue, explained in detail on Barry Ritholtz's blog, is that the Bureau of Labor Statistics (BLS) data cited by the Wall Street Journal was not seasonally adjusted.

Every year, there is a modest decline in employment at fast food restaurants from November through January, “when many people travel for holidays like Thanksgiving or Christmas and spend time cooking and eating with family.” So, employment didn't decline between September and January because of the wage increase. It consistently declines during that period every year, which you can see reflected in the red line in the chart below. That's why the BLS offers seasonally adjusted data, represented by the blue line.