California’s Minimum Wage Hike May Cost Thousands of Fast-Food Workers Their Jobs California is raising the minimum wage for fast-food employees from $16 an hour to $20 beginning April 1


Whenever restaurant owner Anthony Josephson weighed replacing workers with technology that could automate their jobs, the math never added up.

“Up until this point, whenever you would go and run the numbers, it did not make sense,” he said.

Now that Josephson, who owns dozens of Burger King and Popeyes franchises in California, will have to pay his employees a minimum of $20 per hour starting April 1, that changes that calculus.

Earlier this year the state’s legislature increased the minimum wage for workers at fast-food chains from $16 an hour to $20 beginning in April.

Research shows that raising the minimum wage doesn't necessarily result in big job cuts. But the advent of delivery services like Uber Eats and DoorDash, combined with sophisticated artificial intelligence and robots capable of flipping burgers or topping pizzas, changes that equation, experts say.

“As technology advances and costs and prices go down, you are going to see more job losses in fast food,” said Lee Ohanian, a senior fellow at Stanford’s Hoover Institution.

In California “it may have already started,” he said.

Ohanian noted that the Bureau of Labor Statistics tracked a 10% drop in employment in California’s fast food industry between 2019 and 2022, the last year for which statistics were available. The state’s wage floor went from $12 per hour to $15 per hour in that time.

While multi-national restaurant companies like McDonald’s and Wendy’s earn billions in annual profits, most individual franchise owners operate on razor-thin margins, said Keith Miller, director of public affairs for the American Association of Franchisees and Dealers.

“There's a lot of franchise owners who don't make any money,” he said.

Tight Profit Margins

In the past, tight margins worked in employees’ favor.

If a burger-flipping robot is $5,000, “you’re going to look at your checking account, and there might not be $5,000 in it,” said Jacob Vigdor, a professor of public policy at the University of Washington who studied Seattle’s minimum wage hike.

Historically, restaurants closed earlier or cut workers’ hours to deal with increased costs, he said.

Staring down a 23% raise for the lowest paid workers changes that, Miller said, especially as the cost of staple ingredients such as beef is on the rise.

“We're not against workers making more money, but we have to make the numbers work,” he said.

Machines and computer programs can’t fully replace humans, experts stressed.

“Current AI systems are really good at repetitive tasks that have really well-defined patterns,” said Heather Whiteman, an assistant professor at the University of Washington who specializes in the future of work. “They struggle with anything nuanced, and they can’t handle unexpected situations.”

Displacement Worries

While Whiteman believes artificial intelligence can change the workplace for the better, she said workers who handle uncomplicated chores like taking orders should worry about displacement.

“There is no economic model in which a higher minimum wage doesn't at some point start to result” in fewer jobs, said Jeffrey Clemens, an academic economist at the University of California San Diego.

But the loss of employment following an increase in the wage floor is typically small, say researchers. Although it tends to increase over time, Ohanian said.

“Once labor gets to the point that there is a substitute that is more profitable, (workers) are going to lose out,” he said.

The most noticeable effect is on prices. For every 10% raise afforded to the lowest-paid workers, costs rise by 2%, according to Michael Reich, a professor of economics at the University of California at Berkeley who has spent years analyzing minimum wage hikes

However, a self-service kiosk means a restaurant can take customer orders without paying a cashier $20 an hour.

Restaurants in the Golden State are already cutting corners at the expense of their workers.

Two franchisees who own dozens of California Pizza Huts said earlier this month that they plan to lay off delivery drivers and replace them with drivers like UberEats and DoorDash, which are not subject to California’s new pay floor for fast food workers.

Delivery Drivers At Risk

Delivery drivers require travel compensation and liability insurance, and “the owners made the decision that it was no longer worthwhile to have (delivery) in-house,” Miller said.

Researchers stressed that the technology to replace restaurant workers was on its way well before California’s pay increase, but with artificial intelligence and robotics growing more advanced every day, “it’s all pushing in the direction of AI becoming a better option,” Clemens said.

Proponents of a minimum wage increase note the runaway inflation of the last few years has rendered some regions of the country unlivable to workers at the bottom of the pay scale.

Sergio Valderrama, who works at a Del Mar Jack in the Box, said he'll get his first pay raise in at least 7 years when the new minimum wage takes effect in April. That will help him better provide for his 15-year-old daughter, he said.

"Practically it's not going to do much, but at least it's going to help," he said.

A $20 per hour minimum wage equals $41,600 per year, roughly on par with the Golden State’s average annual earnings, according to U.S. Census data. California is an expensive place to live. Of the 25 major U.S. cities with the highest cost of living, 12 are in the West Coast state, according to U.S. News and World Report.

Valderrama said he’ll still be scraping by on that salary but said the pay bump will at least give him some “breathing room.”

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