BRG_Impacts of $20 Min Wage Report_2.18.25_FINALpdf
BRG_Impacts of $20 Min Wage Report_2.18.25_FINALpdf
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  1. Impactof the $20perHour Minimum Wage onCalifornia’s FastFood Workers:Early IndicationsFebruary 18,2025Kevin W. ChristensenAndreas GroehnBill Hamm
  2. 1Executive Summary•Assembly Bill1228(AB 1228)raised the minimum wage for certain fast foodworkers by 25% to $20 per hour, effective April 1, 2024.•Bedrock economic principles hold that a minimum wage increase–particularly one this large and without a phase-in period–will reduce the number of jobs available to, and the number of hours worked by, the workers the increase is intended to help. Similarly, economic principles hold that consumer prices typically increase in response to such a large wage increase. •The U.S. Bureau of Labor Statistics(BLS)is the authoritative source for the labor market in the United States.However, BLS sector classifications do not perfectly align with the specific fast food restaurants subject to the $20 per hour minimum wage.BLS Quarterly Census of Employment and Wages (QCEW) tracks 34,300 Limited-Service Restaurant establishments, and only 70% of this sector is directly affectedby the minimum wageincrease. BLS Current Employment Statistics (CES) reports on an evenbroader sector, "Limited-Service Restaurants and Others."oThe BLSCESdatashows that from December2023 to December2024, the most recent month for which BLS publishes data as of January 2025, employment declined by 0.2%. oThis decline sharplycontrastswiththe sector’s historicallycompounded annual growth rate of 2.5%and marks the only Decemberyear-over-year decline in fast foodemployment this century–excluding the Great Recession (2009) and the COVID-19 pandemic (2020).oTheBLSQCEW –the dataset that most accurately reflects employment trends in the restaurants impacted by AB 1228 –shows the California Limited-Service Restaurant sector lost 10,700 jobs (-1.9%)between June 2023 and June 2024.•A survey of restaurant operators that collectively own more than 1,000 fast foodrestaurants impacted by California’s 25% wage increasefound that during the first threetofour months after the $20perhour minimum wage took effect, nearly 89% reduced employee hours to help offset increasedcosts.1The survey also found that 35% of the operators reduced supplemental employee benefits.2According to the survey, a majority of these operators expect to make further reductions in hours (87%) and benefits (51%) during the next twelve months.3•Menuprices at California’s fast foodrestaurants increased by 14.5% between September 2023 (the monthAB 1228 was signed into law) and October 2024, nearly double the national average (8.2%).•In April 2024 alone–the month AB 1228 took effect–menu prices at California’s fast foodrestaurants jumped 2.92%, the highest increase for any state.•California fast foodrestaurants also increased automation and technology adoption to offset rising labor costs. Thereforeit should not be surprising that the number of employees per restaurant is declining.•Thus, Californians are bearing the cost of the minimum wage increase through fewer available jobs and higher food cost. 1Employment Policies Institute, “Crisis in California: A Survey of Fast-Food Employers’ Responses to California’s $20 Minimum Wage” (July 2024), p. 6. This survey was conducted during June and July 2024.2Ibid.3Id., p. 7.
  3. 2About the AuthorsKevinW.ChristensenKevin W. Christensen, Ph.D.,regularly uses economics to provide insights and answers to public policy and business questions. On public policy matters, he has estimated the economic and tax revenue impactsof proposed infrastructure investments, tax changes, and regulatory rules. He has advised clients in the oil and gas, pharmaceutical, biotechnology, medical devices, banking, automobile finance, wholesale distribution, transportation, consumer packaged goods, agriculture, building materials, tourism, andgaming industries.Dr. Christensen is adjunct faculty in the economics department at the University of Richmond.Andreas GroehnDr. Andreas Groehn combines client data with public statistics and data collected through surveys to answer pressing business questions. He regularly conducts economic impact assessments to assess policies and investment projects. He has advised clients in North America, Europe, Africa, Australia, and the Middle East out of Brussels, Frankfurt, London, and Washington, DC.Bill HammWilliam G. Hamm, Ph.D., is an economics consultant with high-level experience in both business and government.An expert on banking and public finance, Dr. Hamm was the executive vice-president/chief operating officer of a AAA-rated $50-billion bank. He also ran a $1.5-billion loan servicing business unit for an S&P 500 company.Prior to entering the private sector, Dr. Hamm headed the non-partisan Legislative Analyst’s Office in California, where he earned a nationwide reputation for objectivity, expertise, and credibility on public policy issues ranging from taxation to healthcare. He also spent eight years in the Executive Office of the President in Washington, DC, where he headed a division of the Office of Management and Budget responsible for analyzing the programs and budgets of the Department of Labor, Department of Housingand Urban Development, the Veterans Administration, and other federal agencies.Dr. Hamm specializes in helping courts, legislative bodies, and the public develop a sound understanding of complex economic and public policy issues. Dr. Hamm has a BA from Dartmouth College and a PhD in economics from the University of Michigan where he specialized in labor economics. He is a member of the American Economic Association and the American Law and Economics Association. He is a fellow of the National Academy for Public Administration. For nineteen years, he was a director of the Grameen Foundation and its predecessor, international not-for-profit organizations that develop innovative, sustainable solutions to fight global poverty and hunger.
  4. 3Table of Contents1Introduction...........................................................................................................42Expected Consequences of an Increase in Minimum Wage in the Labor Market..........53Impact on Employment...........................................................................................64Impact on Other Key Labor Market Metrics...............................................................95Broader Impact on the California Economy............................................................125.1Retail Prices...................................................................................................125.2Replacing Workers with Technology................................................................13FiguresFigure1-Employeesin Limited-Service Restaurants and Other Eating Places, 2021-2024.........................................................................................................8Figure2-Employees in Limited-Service Restaurants and Other Eating Places, Growth Year-Over-Year, December2000-2024.......................................................9Figure3-Average Wages in Limited-Service Restaurants 2020-2024.........................11Figure4-Menu Price Indexes for Fast Food Restaurants for Select States, August 2023 –October 2024........................................................................................13Figure5-Employees Per Establishment in Limited-Service Restaurants2020-2024...14
  5. 41IntroductionCalifornia recently took theunprecedented step ofincreasingthe minimum wage for a single category of workers: those employed by certain fast foodrestaurants.4Assembly Bill (AB) 1228 raisedthe minimum wage for these workers by 25%,to $20per hour, effective April 1, 2024. This increase followed a minimum wage increase of 50 cents per hour for all California workers (including fast foodemployees) that raisedthe minimumwagefrom $15.50to $16.00, effective January 1, 2024.5In this paper, we analyze the economic effects of AB 1228’sminimum wage increase from the standpoint of fast foodworkers’ economic well-being. This is appropriate because AB 1228’s proponents seek to justify the sharp increase in the minimum wage as a means to raise worker income and standard of living. The $20perhourminimum wage will also have significant economic effects on two other important groups: (1) owners and operators of fast foodrestaurants, whichface higher operating costs as a result of the higher minimum wage;and (2) consumers who arepayinghigher prices when they order meals at these restaurants. Some advocates for the fast foodminimum wage have already branded the 25% increase a success. According to them, not only have fast foodworkers receivedhigher paybecause ofthe increase, but the number of jobs available to these workers has increasedas well.However, theseclaims are not supported by reliable data –and arelikelywrong –for at least threereasons:•US Bureau of Labor Statistics (BLS)employment trends in California’s Limited-Service Restaurants sector have significantly weakened in 2024, making it the worst performing year outside of a recession during this century–compelling evidence that the 25% minimum wage increase has reduced the number of jobs available.•The BLSLimited-Service Restaurants and Other Eating Places datacovers a broad category of food service establishments, including restaurantsthat arenot directly impacted by the wage increase.Employment gains in non-affected establishments may mask job losses among fast foodrestaurants subject to the $20 minimum wage.4Only fast foodrestaurants that are part of a restaurant chain having at least sixty (60)establishments nationwide are subject to the fast foodminimum wage. Other fast foodrestaurants are subject to the statewide minimum wage but not the fast foodminimum wage.5Thus, over a three-month period, the minimum wage for employees in certain fast foodrestaurants increased by 29%.
  6. 5•Higher wages do not guarantee higher total income for workers if employers reduce hours to offset costs–a reduction most economists would expect to occur as fast foodrestaurants act to reduce costs in the face of the $20 per hour minimum wage. Survey data confirms that nearly all fast foodrestaurants have already cut, or plan to cut, employee hours, reducing the overall earnings of workers. If these reductions are large enough, workers could end up with less total income, despite the wage increase. Reliable data on hours worked by fast foodemployees following the AB 1228implementation date (April 1, 2024)is not yet available.In the remainder of this paper, we discuss each consideration that will influence how policymakersshould evaluate economic impact of AB1228 on fast foodworkers.The authors of this study were retained by Save Local Restaurants–a coalition led by the International Franchise Association and the National Restaurant Association–to assess whetherCalifornia’s fast foodminimum wage increase has had any discernable positive or negative effect on the number of jobs in the fast foodsectorand the income earned byfast foodworkers. We requested and were given the independenceneeded to complete an objective analysis of the economic effects of the $20perhour minimum wage and present ourfindings. Hence, our findings and conclusions may not necessarily reflect theviews of Save Local Restaurants, the International Franchise Association,or the National Restaurant Association.2Expected Consequencesof an Increase in Minimum Wagein the Labor MarketBedrock economic principles statethe higher the price, the lower the quantity demanded.As applied to the fast foodrestaurants covered by AB 1228, supply and demand principles would hold that, other things equal,a25%increase in the minimum wage will:•reduce the number of jobsavailable for lower-skilledworkers,such as those without a high school diploma or equivalent, whomay not meet the qualifications for ahigher-wage position;•reduce the number of hoursworked (especially premium-rate hours) by employeeswho still have their jobs;•accelerate automation, replacing labor-intensive roles like cashiers with self-serve kiosks and automated ordering systems, further reducing job opportunitiesfor workers;•reduce employee benefits, as employers seek to offset wage increases by lowering non-wage labor costs; and•increase employee workloads.
  7. 6The results of empirical studiesof real-world minimum wage increases are broadly consistent with these predictionsbut there are exceptions.6According to one survey of the economic literature, 79% of scholarly papers document employment decreases as the minimum wage increases–as predicted by the law of demand –while 21% of papers do not.7These exceptions have helped to sow confusion about what the body of research literaturesays and the types of policies the research literature does and does not support.The same phenomenon is playing out as policymakers attemptto assess whether the increase in the minimum wagehas been a policy success or policy failure. Some advocates of the minimum wage increase have declared “mission accomplished”and stand ready to push for additional increases to the fast foodsector minimum wage. Not surprisingly, critics are ready to declare AB 1228 a failure. Confusingly, each side pointsto official BLSdata that seemingly supportsits position.Given this supposed data-driven stalemate, what conclusions shouldpolicymakers reach about the effectivenessof AB 1228 to date?Toanswer this question, this report investigates the main sources of data used to study the economic impact of minimum wage increases, such asdata on the number of jobs availablein the fast foodsector(Section3). We find that as of now, thesedata do not support the assertion that the minimum wage increase has benefited fast foodworkers. Instead, we find the available data supportsthe claim that fast foodworkers have suffered job lossessince AB 1228 became law. Further, available data show that2024 saw the worst trend in fast foodemployment of any year since at least 2000,other than years in which California was in the midst of a recession.These findings are tempered, however, due to the limitations in the datacurrently available. 3Impact on EmploymentBLS is the primary source fordata on the numberof jobsby industry sector.8BLSpublishes both monthly and quarterly employmentdata for California’sfast foodrestaurants. However, BLSsector classificationsdo not perfectly align with the specific fast foodrestaurants subject to the $20perhour minimum wage.9This can best be assessed by reviewing the number of establishments in the sector.6For asummary of these studies,see, e.g.,Neumark, David, and Peter Shirley. “Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?,”Industrial Relations: A Journal of Economy and Society61: 4 (2022): 384–417.7Id., pp. 386–387.(“In its totality, this body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected toreveal these negative employment effects most clearly,” p. 387.)8BLS, “Overview of BLS Statistics on Employment (last modified June 10, 2021). https://www.bls.gov/bls/employment.htm.9BLS, “Industries at a Glance” (last modified January 29, 2025). https://www.bls.gov/iag/tgs/iag722.htm.Limited-service restaurants include establishments where customers pay at a register before eating; US Department of Agriculture, “Quarterly Food-Away-From-Home Prices –Documentation (updated February 23, 2016).https://www.ers.usda.gov/data-products/quarterly-food-away-from-home-prices/documentation/.
  8. 7Approximately 24,120establishments in California are subject to the $20minimum wage.10BLS Quarterly Census of Employment and Wages (QCEW) tracks 34,300 Limited-Service Restaurant establishments, meaning approximately 70% of this sector is directly affected. BLS Current Employment Statistics (CES) covers a broader "Limited-Services Restaurants and Others" sector butdoes not disclosethe number of establishments in this sector. Applying the ratio of employees to establishments in the QCEW series, we can estimate that this CES sector has approximately 45,200 establishments.11Other sources estimate that there are 48,710 fast foodrestaurants matching the BLS’CES definition in California.12Hence, only 49.5%to 53.3% of establishments in theCESsector are subject to the $20 minimum wage.13In addition, not all employees within affected restaurants are subject to the minimum wage,as more senior employees can earn substantially more than the minimum wage. Therefore, growth in other subsectors might mask the true extentof the employment decline in the affected restaurants due to the impact of the $20 minimum wage.Figure 1shows the BLS CES and QCEWseries sidebyside. While the CES data is available through December 2024, the QCEWdata–which more accurately reflects employment trends in restaurants impacted by the $20 minimum wage–is only available through June 2024.Unlike the CESdata, which includes a broader range of food service establishments, the QCEW data tracks a more narrowly defined sectorthatbetter aligns with the restaurantsimpacted by the $20 minimum wage. The QCEW data shows a decline in employment in the early summer of 2024, a period whenseasonal hiring typically increases overall employment.Between June2023 and June2024, the QCEW datasetshows a sharp decline of 10,700 jobs or 1.9%in the fast foodsector.10https://www.edgewortheconomics.com/insight-nearly-half-CA-restaurants-minimum-wage.1145,233=744.7∗34,300564.7based on CES and QCEW data for June 2024.12https://www.edgewortheconomics.com/insight-nearly-half-CA-restaurants-minimum-wage.1349.5%=24,12048,710,53.3%=24,12045,233
  9. 8Figure 1Employees inLimited-Service Restaurants and Other Eating Places, 2021-2024Sources: Federal Reserve Bank of St. Louis, “All Employees: Leisure and Hospitality: Limited-Service Restaurants and Other Eating Places in California (SMU06000007072259001).” https://fred.stlouisfed.org/series/SMU06000007072259001; Federal Reserve Bank of St. Louis, “All Employees: Leisure and Hospitality: Limited-Service Restaurants and Other Eating Places in California (SMU06000007072259001SA).” https://fred.stlouisfed.org/series/SMU06000007072259001SAEconomists regularly analyze year-over-year employment trendsto account for seasonal fluctuations. IfAB 1228 hada favorable impact on employment, as proponents claim, the data should show a larger increase in employment in 2024 than in years without a major minimum wage increase.However, the opposite is true.Figure 2shows year-over-year employment trends in the “Limited-Service Restaurants and Other Eating Places”sector during the month of Decemberfrom 2000 to 2024. While the compounded average annual growth rate over this period is 2.5%, from December 2023 to December 2024, employmentin thissector shrank by 0.2%.This marks the only year-over-year decline in December employment this century, aside fromthe Great Recession (2008-2009) and the COVID-19 pandemic (2020).14These findings directly contradict claims that AB 1228 led to job growth and instead indicate a net decline in employment following the wage increase.14According to NBER, recessions occurred from March toNovember 2001, December 2007to June 2009, and February 2020to April 2020. NBER, “US Business Cycle Expansions and Contractions” (last modified March 14, 2023). https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions.
  10. 9Figure 2EmployeesinLimited-Service Restaurants and Other Eating Places, Growth Year-Over-Year, December2000–2024Source: Federal Reserve Bank of St. Louis, “All Employees: Leisure and Hospitality: Limited-Service Restaurants and Other Eating Places in California (SMU06000007072259001SA).” https://fred.stlouisfed.org/series/SMU06000007072259001SAIn sum, when we take predictable seasonal ebbs and flows in employment into account, the best data we have available today indicates that fast foodemployment has declined–not increased–since the $20 per hour minimum wage took effect. Additionally, the true extent of job losses may beeven greater thanFigure 2 indicates because employment growth in other non-covered sub-sectors may obscure the full impact on restaurants subject to the $20 minimum wage.4Impact on Other Key Labor Market MetricsWhile total employment is an important indicator of the minimum wage’s impact on low-wage workers,it is not the only relevant metric.Because proponents tend to justifyhigherminimum wagesas a means to increase worker incomeand thereby raise workers’ standard of living, economists must alsoconsider the higher minimum wage’s impact on workers’total income, which is determined bythe hourly wage,the number of hours worked,and workers’ non-wage income (employee benefits).
  11. 10Other things being equal, most economists would expect employers faced with a mandatory 25% increase in hourly wagesto cut back on the number of jobs, employee hours,and employee benefits, to offset the rising wage costs.15In fact, a survey of restaurant operators, that collectively own more than 1,000 fast foodrestaurants impacted by the $20 minimum wage, found that during the first threetofour months after the $20perhour minimum wage took effect, nearly 89% reduced employee hours to help offset the added costs resulting from the 25% wage increase.16The survey also found that 35% of the operators had reduced supplemental employee benefits during the same period,17and a majority expect to make further reductions in hours (87%) and benefits (51%) during the next twelve months.18If large enough,the combination of job eliminations and reductionscould leave workersearning less incomeas a result of $20 minimum wage. For example, even if no jobs are eliminated (a dubious assumption given the BLS data discussed above), a 20%reduction in hours worked with no overtime increaseswould erase the financial gains from the25% hourly wage increase, leavingworkers with the same or even less total income.BLS data covering the first three months of the $20perhour minimum wage shows that the totalweekly earnings in the Limited-Service Restaurant sector have increased (Figure 4). However, this data alone does not allow economists to concludethat workers covered by AB 1228 have seen net income gains after accounting for job and hour reductions.15As noted earlier, the 25%increase is on top of an earlier increase. The combined effect of these two increases is 29%.16Employment Policies Institute, (2024), p. 6. Thesurvey was conducted during June and July 2024.17Ibid.18Id., p. 7.
  12. 11Figure 3AverageWages inLimited-Service Restaurants 2020–2024Source: BLS, “Quarterly Census of Employment and Wages.” https://data.bls.gov/cew/apps/table_maker/v4/table_maker.htm#type=17&from=2020&to=2024&qtr=2&own=5&ind=722513&area=06000&supp=1As noted earlier, not allbusinesses in the BLS dataset are subject to AB 1228. In fact, 30% of establishments in the QCEW survey are unaffected by AB 1228.Additionally, many covered workers already earned more than $20 per hour before AB 1228took effect.Their wage increases likely reflect broader labor market conditions and the need to pay managers at covered establishments more to compensate them for taking on more workload,rather than the minimum wage increase.Consequently, policymakers currently lack government data on the total hours worked by covered employees and changes to employee benefits since the $20 minimum wage took effect. Without this data, it is impossible to determine the net effect of AB 1228 on workers' overall income. Finally, policy makers are likely interested in knowing not only the effects of the $20perhour minimumwage in general, but also which groups of employees will most experiencethese effects. If a 25%increase in the minimum wage for fast foodworkers disproportionately reduces job opportunities for lower-skill workers, and if skill deficiencies are over-represented in certain groups such aspopulations with less than a highschool diploma or equivalent, teenagers, and minority youths, members of these groups will be most adversely affected by the minimum wage increase.Data on the impact of AB 1228 on these groups –large or small–will not be
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