An employee wearing protective gloves delivers an order to a customer through a drive-thru window at a McDonald’s restaurant in Oakland, California, USA, Thursday, April 9, 2020.
David Paul Morris | David Paul Morris Bloomberg | Getty Images
As fast-food chains in California begin paying workers higher minimum wages, other business owners across the state are looking at whether they need to raise their own wages to compete.
Starting Monday, California fast-food workers at more than 60 chains across the country will earn $20 an hour, above the state’s minimum wage of $16 an hour. The new wage floor stems from a state law passed in September that also created a nine-member commission that will determine future wage increases and recommend other guidelines on labor conditions in the industry. When Gov. Gavin Newsom signed the law in September, he said there were more than 500,000 fast food workers in the state.
Some affected chains have responded to the forced wage increases by cutting jobs and raising menu prices.Pizza chain franchisee papa johnroundtable and Pizza Hut laid off driver Early deadlines. McDonald’s, wing stop and Chipotle Mexican BBQ The chains said they will pass on higher labor costs to customers by raising prices on menu items.
“The consequence is that business owners – not franchisees of large companies, despite what the political backers of this law say – these are small businesses who are now facing higher costs. And those costs will be passed on to customers, There could be job losses.” Matthew Haller, president and CEO of Franchise Advocacy Group International Franchise Association told CNBC.
The law won’t directly affect California’s other restaurants — small coffee chains, mom-and-pop shops and upscale steakhouses — but they may still have to adjust salaries as they compete for the same workers. Industries that rely on hourly workers, such as retail and hospitality, may also face pressure to match wages or risk losing workers.
Daniel Zhu, chief economist at job site Glassdoor, told CNBC: “I think we’ll see spillovers in food service, but beyond that we should expect to see spillovers to other industries that are competing for this type of talent. .”
The law takes effect as job growth in the nation’s most populous state has slowed. According to the Bureau of Labor Statistics, California’s unemployment rate was 5.3% in February, higher than the U.S. unemployment rate of 3.9%.
Wages in California are already high
While the new fast food minimum wage is the highest in the country, California employers are used to paying higher wages for their workforce. About three dozen cities and counties in California have local minimum wages above the state’s $16 hourly minimum wage.
Even without a mandate, restaurants often pay above minimum wage to attract hourly workers. The industry has struggled for years with a tight workforce, with teenagers seeking internships instead of restaurant jobs and older workers turning to other industries with better working conditions and benefits.
Before the law took effect, the average wage for hourly food service workers in California was $17.89 an hour, according to Glassdoor self-reported data from Oct. 1 to March 28. But only 22% of hourly restaurant workers in the state make at least $20. That time is an hour.
Zhao said the wage increase will have a greater impact on fast-food restaurants in lower-cost-of-living areas such as Fresno. The gap between the previous wage rate and the new minimum wage is likely to be smaller in major metropolitan areas.
For example, at Andytown Coffee Roasters in San Francisco, non-tipped employees already earn more than $20 an hour, according to owner and CEO Lauren Crabbe. She said she’s “personally pleased” that fast-food workers at major chains will get higher wages in California, though she thinks the Legislature missed an opportunity to target other industry giants like retail.
“If a multinational company with multi-million dollar profits cannot pay the people who make their products and provide services to customers at least $20 an hour in 2024, then they don’t have a viable business model,” Crabbe said.
CEO of the company cheesecake factory Don’t worry about rising wages either. As a full-service restaurant chain, the company is not obligated to pay its California employees $20 an hour. But Chief Executive Matthew Clark said on the company’s February earnings call that the chain’s smaller positions are already making more, and he believes the same is true for fast-food workers.
“A lot of (fast food) urban stores in California are already paying $19 and $20,” he said. “We believe that’s part of the reason they agreed to do this in the first place.”
Companies outside the catering industry are also concerned about the growth in wages for fast-food workers.
Jennifer B. Perez runs Growing Roots in Long Beach. The company, which employs 13 people and has been in business since 2002, designs, installs and maintains indoor plants for commercial and residential clients.
Perez monitors growth in industries outside of her own to stay competitive. This year, she gave workers a pay raise ahead of the fast food raises. She said inexperienced workers make $19 an hour, which is the minimum wage on her pay schedule and more than two dollars more than the local minimum wage. They also have paid time off, vision insurance, dental insurance and health insurance.
“It’s a ripple effect because I’m not part of this industry,” Perez told CNBC of the growth of the fast-food industry. “I’ve always been over minimum wage, but since the minimum wage keeps increasing, a 25 percent increase from $16 to $20, it’s definitely something to consider.”
Like many business owners, Perez must consider how inflation affects his company’s labor costs and his clients’ budgets.
“Most small businesses cannot directly raise prices by 25% across the board, or raise prices across the board,” she said.
Advocates prepare to go even bigger
The California law, backed by the Service Employees International Union, has been controversial from start to finish.
The restaurant industry fought back against the original version signed into law by Gov. Gavin Newsom more than a year ago, gathering enough signatures to put on a referendum and let California voters decide on the matter. In response, SEIU supported a bill that would impose joint employer liability on franchises, holding franchisees like McDonald’s accountable for labor violations by their franchisees. The two sides reached an agreement in September that created the new law and abolished the joint employer clause.
Newsom faces criticism after Bloomberg in February report The governor’s donor, Greg Flynn, owner of Panera Bread franchise Flynn’s Restaurant Group, benefited from the elimination of restaurants that bake bread on-site. Newsom’s office denied that and said Panera would be required to pay its workers at least $20 an hour. Flynn later said that starting Monday, all of his California locations would increase pre-tip wages to $20 an hour or more.
After a controversial victory, SEIU is gearing up for more fights to get similar pay increases for fast food workers in other states. SEIU President Mary Kay Henry told CNBC that New York, Washington and Illinois are all potential battlegrounds in the future.
“It’s taken us 10 years to get to this point. And (workers) feel like they’re going to have a voice at work that they’ve never experienced before,” Henry said.
California will test how sector-specific minimum wages affect workers, their employers and the broader labor market. Fast-food chains, industry experts and economists will be watching to see whether gloomy predictions of job losses come true, or whether higher wages bring benefits, even to the businesses that pay them.
Glassdoor’s Zhao says A $20 wage might entice some workers who left restaurant jobs to return to work in Amazon warehouses or drive for Uber. Plus, those fast-food workers now have more money in their pockets.
“People who make more money can also spend more money, and that money is pumped back into the economy,” he said.
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