California’s Fast-Food Casualties

california’s fast-food casualties

California’s $20 an hour minimum wage for fast-food workers doesn’t take effect until April, but the casualties are already piling up. Pizza Hut franchises this week told more than 1,200 delivery drivers that they’ll lose their jobs before the higher wage kicks in. Gov. Gavin Newsom no doubt sends condolences, though what he should send is an apology.

Democrats in Sacramento this autumn enacted the $20 minimum wage for fast-food workers in a deal between restaurants and labor unions. When you’ve got a gun pointed at your head, you’ll hand over your wallet, keys and bank account pin number.

The Legislature had threatened to impose crippling joint-employer liability on fast-food restaurants as retribution for their referendum campaign to overturn the 2022 Fast Recovery Act. The law established a state fast-food council with power to micro-manage restaurants and raise worker wages to $22 an hour. It was a de facto death sentence for many franchises.

Worried the referendum could prevail, Mr. Newsom brokered a deal between Sacramento’s union mob and its targets. Democrats dropped their joint-employer threat and limited some of the council’s power. In return, restaurants scrapped their referendum and agreed to a $20 minimum wage for employees, up from the current $15.50 for all workers in the state.

This represents a nearly 30% wage increase, and it defies economics and common sense to think that businesses won’t adapt by laying off workers. Some may try to pass on their higher labor costs to customers. McDonald’s and Chipotle Mexican Grill have said that they plan to raise prices. But how many people will pay $8 for a Big Mac?

Restaurants will probably deploy more automation to the extent they can, but fewer workers will mean longer waits in the drive-through. Pizza Huts are shaving their costs by out-sourcing delivery service to apps like DoorDash and GrubHub—ironic given how unions have fought against gig work.

Unions pushed the $20 fast-food minimum to force other employers to raise wages to compete for workers. Its impact on prices and jobs will extend across the state economy. When government raises the cost of labor above a market clearing rate, jobs simply disappear.

That’s what has happened in the posh city of West Hollywood, which increased its minimum wage during the pandemic to $19.08 an hour—the highest in the country. Its unemployment rate is now 6.4% compared to the 3.7% national average and 4.9% in California. Employment in California has fallen by 77,700 in the last year. Yet Democrats continue to impose higher costs and other burdens on business, oblivious to the lost jobs and services.

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