California’s Restaurants Struggle to Stay Afloat Following the $20 Minimum Wage Increase

However, many business owners in the state are worrying about how they are going to pay for these forced wage hikes, with some threatening to cut worker hours or raise menu prices to compensate.

The bill also increased the minimum wage for healthcare workers starting in June 2024 to $18, $21, or $23 an hour, depending on their place of employment.

While the idea of the minimum wage increase to give workers a livable wage is a good one, Californians might not be prepared for all the consequences the wage increase will bring for themselves as customers and residents.

Many of the restaurants affected by the cuts are located in Los Angeles, Riverside, San Bernardino, Sacramento, Tulare, and Kern counties.

In response to an article detailing Pizza Hut’s proposed cuts he wrote on X (formerly Twitter): “California Pizza Hut operators are cutting all delivery driver jobs in 2024 due to a minimum wage increase. Governments still don’t get that being employed at $15.50 per hour is better than being unemployed at $20 per hour. The real minimum wage is zero.”

In the interview, he estimated that the new minimum wage law would increase his payroll costs by more than 30%. In response to these costs, he was implementing changes like increases in menu prices, cutting employee hours, and doing away with paid time off for workers.

For many businesses, it is not as simple as paying workers more; their business models might have to dramatically change to accommodate minimum wage mandates. This shift may cause their customers to think fast food isn’t worth it anymore.

With prices rising in such a short time, people may start abandoning fast food altogether for other options. If there are no jobs for people to work at, then it doesn’t matter what the minimum wage is for fast food workers.

Fewer employees on the job means a worse experience for customers because the remaining employees have to pick up the slack. This means longer wait times for customers, and rushed employees could translate to poor quality of service.

This would be bad for customers because talented people would leave for better employment, leaving lower-skilled workers in their place.

Big fast food restaurants like McDonald’s have implemented kiosks in their restaurants so customers can order their food without even talking to anyone at the counter. People can place pick-up orders through a phone app, reducing the need for a drive-through worker.

This increased wage cost may also just cause restaurants to go out of business. Many businesses were already struggling to recover from the effects of the pandemic and a high-inflation economy.

The Los Angeles Times reported in December that over 65 notable Los Angeles restaurants closed their doors in the area in the span of one year. Restaurants were struggling with rising food costs, and raising prices with customers ultimately did not help them stay in business.

In an interview with SFGATE Walter said “Neither of those restaurants were financially very strong coming into this year. I don’t know if we’ve seen the end of how the pandemic has affected restaurants. People are being more careful about where they’re spending their money.”

“We’re not looking to open a new restaurant in the next few months. Even chefs who’ve been in the business a long time and have helped to shape LA dining are struggling. It’s tough to get buzz for a new spot,” he said. (via SFGATE)

Jeremy Adler, a restaurant partner in Los Angeles said “That law puts pressure on independent restaurants as well. When the average profit margin at a restaurant is 5-7%, 1% really matters.” (via SFGATE)

However, forcing companies to pay higher wages has widespread effects on the economy that isn’t always positive, and may run counter to the intended goal. Economists remain divided on the efficacy of a minimum wage increase and its ultimate effect on the economy.

The study found that in certain cases the number of low-wage employees slightly decreased. It also found that companies tend to prefer to reduce their workforce size through hiring practices

For example, companies may decide to compensate for the increased payroll by doing something that is not easily measured, like adjusting employee schedules or cutting benefits that aren’t as easily calculated. To add to worries, external problems in the economy can make it hard to tell just how effective the minimum wage increase actually is.

The study authors’ reading of the data suggests that this minimum wage increase actually resulted in the total wage compensation of minimum wage workers falling by 13.6%

Typically, a worker needs to be employed at a certain threshold of hours per week to qualify for benefits like healthcare or retirement benefits. This allows companies to flexibly save money on benefits in response to a minimum wage increase.

Workers under these conditions have a harder time maintaining a balance with their work and personal lives. It also makes it hard for workers to compensate for their reduced hours by taking on another job.

By taking these factors into account, it’s clear that just raising the minimum wage doesn’t allow an employee to enjoy the full benefits of it without any cost.

However, the fast food of the modern day is losing that feeling of low-cost food, which may cause many people to turn more of their food budget towards grocery delivery or ghost kitchens. These minimum wage increases may play a part in destroying the industry in California.