As always, the world is quite messy and one study doesn't really tell us very much. Maybe the Californian fast food sector is just having a tough time for unrelated and coincidental reasons.
However, the theory always said that a minimum wage rise reduces the number of jobs so it is a strong chance that around 20,000 people were put out of work by this policy.
Small decrease in employment in exchange for ~25% higher wages for those employed? Did I get that right? Obviously every single row in the dataset is a unique human, but overall sounds like a big success?
First, 2.3 to 3.9% decrease in fast food employment in a year isn't really small given only a fraction were affected by increase.
Second, the effective wage increase for fast food employment was actually quite a bit lower than 25% since several large municipalities had higher minimum wages and not all fast food restaurants were affected.
> Small decrease in employment in exchange for ~25% higher wages for those employed?
It's a 25% higher minimum. It doesn't mean everyone was making the minimum before the law. Certainly not all were. (It would be interesting to know actually how much the wages went up on average.)
Also, do we know if prices went up? Because that could have a negative effect on the rest of the local population.
One issue with a minimum wage is there isn't a great economic theory for what it should be. So even if this one had good effects, it doesn't mean $25 per hour would also have positive effects. It's also possible a personally beneficial outcome was a net-negative.
The study is sound, pretty small impact considering the increase in living conditions. What surprises me is people arguing that somehow a business is more important than livable wages. Americans and slavery really is a love story
Some things often overlooked in minimum wage discussions:
- Wages often go over or close to the minimum anyway, due to market forces, and do so without costly bureaucracy/enforcement/taxation/distortion
- Minimum wages make everyone whose marginal value is less than the minimum wage unemployable (since you would choose not to hire someone for $20/hour if their marginal value is $15). This is disastrous for someone who'd love to work at $x/hour, but who lives in a state which legislates a minimum wage > $x/hour, since they go from being employed at a low wage to unemployed.
The marginal value being too low is just the company being bad at optimizing. Yes, contrary to fairy tales, companies are not so good at this because internal politics and/or poor management.
My country switched from 39 to 35 hours maximum working time per week, some years ago, in order to reduce unemployment (we are talking about around 25M workers). The net result was that companies did not hire more people (or less than expected), they figured out ways to make their working force more productive.
> This is disastrous for someone who'd love to work at $x/hour
This does not exist, period. If x is below the cost of housing and eating in the area, it's not worth working, or it is a last ditch job that delays dying on the streets - that's the reality we are talking about. I am pretty sure that the minimal wage they set is just above that, unless I missed the memo and California became socialist.
So, this cut out the least fit for work. One group heavily cut out would be those without work experience such as kids and other first entering the marketplace.
Fast food is a stepping stone job, and if employeers have to pay more for labor then they will be pickier about it.
Let's think about the reverse. If we cut minimum wage, the sector would be much more loose about hiring first time workers, convicts, or people just not fit for other jobs. The people could grow their skills and contribute more to society, a society where low end business constantly complain about how hard it is to find skilled workers.
High minimum wage contributes to more people on social safety nets living on low fixed incomes because the gulf between that and paid employment becomes too great and there is no low wage on ramp for them.
Any charts on numbers of gig employees? I see help wanted signs at fast food places all the time, but it may be that these workers are shifting to gig work.
In Europe the discussion about minimum wage vs unemployment is going on since the 90s. The results show that there is a small correlation. If the former happens in small steps the latter remains stable.
Some greedy employers will lose an extra butter, a few will fire someone and all employees win.
It's still a net loss of jobs. I'm certain the future will involve increasing automation to further reduce headcount. A McDonald's recently opened near me with no seating, and orders can only be placed through the app or at the drive thru. I spoke with the owner who mentioned two main reasons for this setup: first, ongoing issues with the local homeless population and second, a desire to minimize staffing. Fewer employees are needed when there's no dining area to clean or counter to staff. I’m pretty sure this is the direction things are headed in California.
That's the direction every company is headed everywhere. It's far more prominent in locales with very high labor costs, but once those technologies are easily scalable they will roll out everywhere, even places with cheap labor.
I currently live in a petty remote area and we have literarily zero homeless folks in our hamlet area. (We actually have a fairly robust program that provides housing for folks in need). We have one fast food restaurant in the area and it's a McDonalds. It was one of the main hangouts for folks in the area. We would have weekly meetups there. After Covid, they closed the seating area and installed the touch screens. They went from employing around 7 to 9 folks down to only 3 and talking with the franchise owner, they're not planning to ever hire back up and re-open seating. He did mention that the gross revenue is way down, but net revenue is about the same and his stress in managing the location is way reduced with the headcount reduction and simplification of the business.
We need to detach from the "jobs at any cost" mentality behind your first sentence.
By that logic ending child labor is "still a net loss of jobs."
I mean, here you are talking about a business owner having issues with the local homeless population who are homeless because their jobs don't pay enough to afford housing.
All these business owners race to the bottom paying their employees scraps and then wonder why they have empty dining rooms with no customers to afford their products sold at record-high profit margins.
Obviously, minimum wage doesn't really fix the economy on its own, but it is a very important tool in a toolbox for ensuring that capitalism is restrained from following its worst instincts.
People like to think that employment is pretty much the only good that does not result in a mismatch of supply and demand from a price floor.
Take for instance a proposal that says "no one is allowed to sell their used car for less than $10k". Maybe the justification is poor people are desperate and sell their car too cheap and all these dealerships and buyers are a monopsony underbidding the real value of the car, profiting off these uninformed, unorganized individual sellers.
Does anyone think this is a good idea? Would anyone bother reading studies contemplating the effect this may have?
No, of course not. Everyone knows that this would essentially mean many cars that would have sold under $10k would just not get sold. Sure some people would benefit, maybe getting a higher price for their car. Some things would shift, maybe people would opt for scooters or e-bikes or something.
But I wouldn't want this price floor if I was on either side, trying to offload a bad car or buying one.
I just can't understand McDonald's long term strategy. I can either go to them or to a locally owned burger place near me, and spend about the same. Waiting times are the same, and every other metric is worse at McDonald's. I went to McDonald's last week because I haven't been there for over a year and well, I won't be going for the next few years again. If they can't compete on price, speed or taste, they only compete on location and/or their current customer base. I just don't see how that is a viable long-term strategy.
> A McDonald's recently opened near me with no seating, and orders can only be placed through the app or at the drive thru.
I personally know a couple of Uber Eats restaurants whose only physical presence is literally a garage in a residential neighborhood, and they only take orders from the app. I also know of a Uber Eats competitor whose business model includes rider hubs that stock on a limited set of high volume products for quick delivery.
I wouldn't call them net loss of jobs per se. I see those as entirely different businesses with completely new business models. It's more a kin to ordering groceries online than to going on a night out.
I guess I'm a minority but when I generally dislike McDonald's but one of the reasons I continue to go there is because they often employee so many people from different demographics. It's been a redeeming quality trait of theirs. They give young people a start with work experience , 20-40s some managerial experience and sometimes elderly people a job too.
Once I'm just ordering a shitty burger from a machine, I have probably lost any reason to give them my money at all, there is just way better alternatives.
"Relative to employment in the fast food sector elsewhere in the United States" .. could drive a truck through that "elsewhere".
In 1992, New Jersey made just such an increase in minimum wage at fast food restaurants. Card & Kreuger ("Myth and Measurement") analyzed data in adjacent areas in NJ & PA. They found that employment in the NJ area actually increased. Take a look at the first chapter of "Economics in America" by Angus Deaton (Nobel 2015).
Comparing CA to elsewhere in the US (where? everywhere?) looks a bit shady. Given the government agencies are being led by political hacks these days, I don't trust it one bit.
I would hope so, since if it didn't everything we know about economics would be wrong. But this question only makes sense if you value all employment equally. If the state lost a tiny amount of jobs, and most of those were among the lowest paying, then I'd want to know A) what's been the impact on cost of living and B) what's been the impact on government welfare spending, before I could begin to assess if it was a positive overall for the state economy.
if employment reduced, did the industry contract? Or did it maintain its size and make do with less employees?
It's not good for the individuals, but in broader economic terms, an industry that delivered the same value with less people is effectively increasing productivity which is economically generally a good thing. Of course one industry is not a closed system, whether those unemployed people go and contribute somewhere else in the economy or sink into unemployment is a critical question.
If the industry contracted then it's harder to argue it's a good thing.
FRED (the Federal Reserve Bank of St. Louis), has useful data.
First, all food/beverage hospitality workers in California.[1] Huge COVID transient, followed by recovery to almost the pre-COVID level. But no further increases.
Full-service restaurants had a similar transient, but never came back to pre-COVID levels. Employment peaked in mid-2023, and has declined since. Full-service restaurants didn't get the $20 fast food minimum wage. But workers there may have tip income.
California does not have a lower "tipped minimum wage", and all tips go to workers.
What FRED calls "limited service restaurants and other eating places" shows about the same curve as full-service restaurants.[3] This includes both the fast food chains and the fast-casual restaurants. If you have to order at a counter, it's "limited service", even if they bring out the food later.
So, the part of the restaurant industry that wasn't affected by the increase shows about the same trend as the part that was. Basically, post-COVID, onsite eating never fully came back. Food delivery became a much bigger part of the industry.)
Those stats are regardless of business size. California's minimum wage law for "fast food" applies only to businesses with at least 60 locations. But it also includes such
things as 7-11 stores that sell hot dogs and pizzas heated up on site. So, not an exact match to the FRED categories.
Overall, the COVID transient and its aftermath is bigger than all other visible effects.
As frustrating as it is as an employee to lose hours, customers are also frustrated by this as quality and speed are reduced. You have fewer employees being forced to perform the same quantity of work. Everything goes downhill and then people eat less fast food, causing the business to lose income and then reducing staffing and the cycle continues.
I avoid all fast food now except for Chick Filet not due to the food itself, which isn't great but just due to the terrible customer service I get everywhere else.
My kid asked me for McDonalds the other day and for once I said yes, we pulled in at 10:20am and ordered 3 chicken biscuits before breakfast ended at 10:30am. They of course asked us to park and after 15 minutes I went inside and asked what was going on. they apologized and said they were out of chicken as they got a rush when I ordered and it takes 7 minutes to cook.
There were a grand total of 4 employees in the store sitting at a busy intersection with a double drive through line and an indoor eating area. Just utter lack of management and employees and customers pay the price.
its 10 minutes before breakfast ends, I'm pretty confident the same rush happens every day at that time. Just such a terrible experience. Definitely saying no next time my kids ask for McDonalds, its not worth 30 minutes of my life to drive through and order a chicken sandwich.
I’ve seen some interesting research suggesting that higher minimum wages lead to lower turnover, which can lead to some very real cost savings. I had an interesting epiphany while watching a business lecture about calculating costs associated with hiring, that there are very real points in the minimum wage curve (which should be laffer shaped) where raising the minimum wage has the potential to both increase labor participation and decrease total labor costs.
I now like to joke that minimum wage laws are subsidies for businesses too dumb to factor in hiring and turnover costs.
This is in stark contrast to the Berkeley Institute for Research on Labor and Employment study that claimed the law had no negative effects on fast-food employment.
The Berkeley study has been cited quite heavily by policy makers.
In my medium size CA town, the Burger King just flat out closed.
Other than long johns silver in the 1990s, I've never seen a major franchise just quit and close.
If there is a correlation, and the correlation is causal, I'm not sure how this matches with every fast-food restaurant near me having "hiring, start immediately, no experience needed" posters outside.
It's not that people shouldn't have a minimum standard of living, it's whether we are going to take easy and ineffective routes to solve the problem that look good on paper and in commercials or whether we can have the adult discussion about the monetary system and how it affects citizens.
I'm unsure you can make any conclusions here. The employment in the fast food industry went down, but we don't even know if it caused more unemployment. Those workers might have all found a better or similar paying job in another sector.
Without that information, there's nothing to learn here, exception those still employed in the fast food sector now make more money.
While pitched as “helping people,” California’s fast-food minimum wage law has a different goal: reshaping the state’s tourism appeal. By making dining out feel more distinctive (and by nudging the market toward small restaurants and local chains) it’s a strategic play to make California a cooler place to visit and eat.
That’s how I’ve interpreted it - because otherwise, it makes little sense why the wage for the same work would vary based on the size of the company.
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[ 2.3 ms ] story [ 54.3 ms ] threadHowever, the theory always said that a minimum wage rise reduces the number of jobs so it is a strong chance that around 20,000 people were put out of work by this policy.
It depends on how many hours were worked. Which the paper did not measure.
Second, the effective wage increase for fast food employment was actually quite a bit lower than 25% since several large municipalities had higher minimum wages and not all fast food restaurants were affected.
Third, employment appears to still be dropping.
It's a 25% higher minimum. It doesn't mean everyone was making the minimum before the law. Certainly not all were. (It would be interesting to know actually how much the wages went up on average.)
Also, do we know if prices went up? Because that could have a negative effect on the rest of the local population.
Would that be incomplete? Higher minimum wage could cause higher employment in other sectors or raise their revenue and wages.
- Wages often go over or close to the minimum anyway, due to market forces, and do so without costly bureaucracy/enforcement/taxation/distortion
- Minimum wages make everyone whose marginal value is less than the minimum wage unemployable (since you would choose not to hire someone for $20/hour if their marginal value is $15). This is disastrous for someone who'd love to work at $x/hour, but who lives in a state which legislates a minimum wage > $x/hour, since they go from being employed at a low wage to unemployed.
My country switched from 39 to 35 hours maximum working time per week, some years ago, in order to reduce unemployment (we are talking about around 25M workers). The net result was that companies did not hire more people (or less than expected), they figured out ways to make their working force more productive.
> This is disastrous for someone who'd love to work at $x/hour
This does not exist, period. If x is below the cost of housing and eating in the area, it's not worth working, or it is a last ditch job that delays dying on the streets - that's the reality we are talking about. I am pretty sure that the minimal wage they set is just above that, unless I missed the memo and California became socialist.
Fast food is a stepping stone job, and if employeers have to pay more for labor then they will be pickier about it.
Let's think about the reverse. If we cut minimum wage, the sector would be much more loose about hiring first time workers, convicts, or people just not fit for other jobs. The people could grow their skills and contribute more to society, a society where low end business constantly complain about how hard it is to find skilled workers.
High minimum wage contributes to more people on social safety nets living on low fixed incomes because the gulf between that and paid employment becomes too great and there is no low wage on ramp for them.
Some greedy employers will lose an extra butter, a few will fire someone and all employees win.
> all employees win
By that logic ending child labor is "still a net loss of jobs."
I mean, here you are talking about a business owner having issues with the local homeless population who are homeless because their jobs don't pay enough to afford housing.
All these business owners race to the bottom paying their employees scraps and then wonder why they have empty dining rooms with no customers to afford their products sold at record-high profit margins.
Obviously, minimum wage doesn't really fix the economy on its own, but it is a very important tool in a toolbox for ensuring that capitalism is restrained from following its worst instincts.
Take for instance a proposal that says "no one is allowed to sell their used car for less than $10k". Maybe the justification is poor people are desperate and sell their car too cheap and all these dealerships and buyers are a monopsony underbidding the real value of the car, profiting off these uninformed, unorganized individual sellers.
Does anyone think this is a good idea? Would anyone bother reading studies contemplating the effect this may have?
No, of course not. Everyone knows that this would essentially mean many cars that would have sold under $10k would just not get sold. Sure some people would benefit, maybe getting a higher price for their car. Some things would shift, maybe people would opt for scooters or e-bikes or something.
But I wouldn't want this price floor if I was on either side, trying to offload a bad car or buying one.
This is the REAL issue.
More money in low wage jobs is mostly spend and not saved and can lead to more jobs in other sectors.
I personally know a couple of Uber Eats restaurants whose only physical presence is literally a garage in a residential neighborhood, and they only take orders from the app. I also know of a Uber Eats competitor whose business model includes rider hubs that stock on a limited set of high volume products for quick delivery.
I wouldn't call them net loss of jobs per se. I see those as entirely different businesses with completely new business models. It's more a kin to ordering groceries online than to going on a night out.
Once I'm just ordering a shitty burger from a machine, I have probably lost any reason to give them my money at all, there is just way better alternatives.
In 1992, New Jersey made just such an increase in minimum wage at fast food restaurants. Card & Kreuger ("Myth and Measurement") analyzed data in adjacent areas in NJ & PA. They found that employment in the NJ area actually increased. Take a look at the first chapter of "Economics in America" by Angus Deaton (Nobel 2015).
Comparing CA to elsewhere in the US (where? everywhere?) looks a bit shady. Given the government agencies are being led by political hacks these days, I don't trust it one bit.
It's not good for the individuals, but in broader economic terms, an industry that delivered the same value with less people is effectively increasing productivity which is economically generally a good thing. Of course one industry is not a closed system, whether those unemployed people go and contribute somewhere else in the economy or sink into unemployment is a critical question.
If the industry contracted then it's harder to argue it's a good thing.
First, all food/beverage hospitality workers in California.[1] Huge COVID transient, followed by recovery to almost the pre-COVID level. But no further increases.
Full-service restaurants had a similar transient, but never came back to pre-COVID levels. Employment peaked in mid-2023, and has declined since. Full-service restaurants didn't get the $20 fast food minimum wage. But workers there may have tip income. California does not have a lower "tipped minimum wage", and all tips go to workers.
What FRED calls "limited service restaurants and other eating places" shows about the same curve as full-service restaurants.[3] This includes both the fast food chains and the fast-casual restaurants. If you have to order at a counter, it's "limited service", even if they bring out the food later.
So, the part of the restaurant industry that wasn't affected by the increase shows about the same trend as the part that was. Basically, post-COVID, onsite eating never fully came back. Food delivery became a much bigger part of the industry.)
Those stats are regardless of business size. California's minimum wage law for "fast food" applies only to businesses with at least 60 locations. But it also includes such things as 7-11 stores that sell hot dogs and pizzas heated up on site. So, not an exact match to the FRED categories.
Overall, the COVID transient and its aftermath is bigger than all other visible effects.
[1] https://fred.stlouisfed.org/series/SMU06000007072200001SA
[2] https://fred.stlouisfed.org/series/SMU06000007072251101A
[3] https://fred.stlouisfed.org/series/SMU06000007072259001SA
I avoid all fast food now except for Chick Filet not due to the food itself, which isn't great but just due to the terrible customer service I get everywhere else.
My kid asked me for McDonalds the other day and for once I said yes, we pulled in at 10:20am and ordered 3 chicken biscuits before breakfast ended at 10:30am. They of course asked us to park and after 15 minutes I went inside and asked what was going on. they apologized and said they were out of chicken as they got a rush when I ordered and it takes 7 minutes to cook. There were a grand total of 4 employees in the store sitting at a busy intersection with a double drive through line and an indoor eating area. Just utter lack of management and employees and customers pay the price.
its 10 minutes before breakfast ends, I'm pretty confident the same rush happens every day at that time. Just such a terrible experience. Definitely saying no next time my kids ask for McDonalds, its not worth 30 minutes of my life to drive through and order a chicken sandwich.
I now like to joke that minimum wage laws are subsidies for businesses too dumb to factor in hiring and turnover costs.
The Berkeley study has been cited quite heavily by policy makers.
https://irle.berkeley.edu/publications/brief/effects-of-the-...
Without that information, there's nothing to learn here, exception those still employed in the fast food sector now make more money.
That’s how I’ve interpreted it - because otherwise, it makes little sense why the wage for the same work would vary based on the size of the company.