California $20 Fast-Food Wage Will Drive up Pay in Other Industries

Estimated read time 4 min read
  • California’s fast-food workers are getting a new minimum wage of $20 an hour from April.
  • But it’s not just fast-food workers who’ll benefit. Workers in other hourly-paid jobs could also get pay rises.
  • Restaurants and stores compete for labor. If McDonald’s and Chipotle pay more, that little coffee store might have to too.

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California is raising the minimum wage for fast-food workers to $20 an hour – and a much wider group of employees could see bigger paychecks.

From April 1, limited-service restaurant chains that have at least 60 restaurants nationally will be required to pay workers in California at least $20 an hour — 25% higher than the state’s general minimum wage of $16 an hour, though some cities and counties have higher minimums.

These wages will make the fast-food industry more attractive to workers — and will likely prompt other employers to bump up their pay to compete for labor.

“The repercussions will extend beyond just limited-service restaurants to really include any business that’s competing for a similar level of labor, whether that be full-service restaurants or other retail and other sectors,” Brian Vaccaro, an analyst at Raymond James, told Business Insider. “It’ll probably have broader inflationary ramifications.”

Andy Barish, an analyst at Jefferies, pointed out that businesses with hourly-paid staff like convenience stores are going to have to work harder to compete for labor if their employees can “walk across the street” to a higher-paying job at a fast-food restaurant.

If limited-service restaurants raise their wages, “everybody is going to have to adopt because it’s a free market,” Danilo Gargiulo, a Bernstein analyst, said. “So at the end of the day, everybody will have to do it.”

And it’s not just a one-off jump to $20 that businesses have to worry about. A so-called fast-food council will be able to increase the minimum wage by up to 3.5% a year, depending on inflation.

Fast-food and fast-casual chains have already said they plan to raise their menu prices in California to offset the higher wages.

Staff at sit-down restaurants might not want to make the move over to fast-food jobs

The legislation, AB 1228, applies to restaurant chains that offer limited or no table service where customers pay for their food and drinks before consuming them. As well as companies selling typical fast food like burgers, chicken, sandwiches, and pizza, the legislation also covers those serving coffee, boba, and pretzels.

California has a huge hospitality industry. As of May 2022, 1.5 million people worked in jobs related to food preparation and serving, making up 8.5% of all jobs in the state, according to data from the US Bureau of Labor Statistics.

Most full-service restaurants have stayed quiet about whether they expect the legislation to have knock-on impacts on their own payrolls and therefore prices. BI reached out to nine casual dining and full-service restaurant chains asking whether they expected the legislation to impact their own wages, but didn’t hear back from any.

The Cheesecake Factory’s CFO Matt Clark told investors in November that the minimum wage could have a “ripple effect” beyond just limited-service restaurants. Clark said that the Cheesecake Factory, which has 38 restaurants in California, could have to put wages up and reassess its menu prices in response.

Vaccaro said that he didn’t expect servers at full-service restaurants to be lured over to limited-service restaurants because they typically earn wages of well over $20 an hour when tips are included, but he said that wages for back-of-house workers would likely go up. Sharon Zackfia, an analyst at William Blair, told BI the new legislation may prompt more full-service restaurants to start sharing tips with kitchen staff “to insulate that labor in the back-of-house.”

BJ’s Restaurants CEO Greg Levin is optimistic. He told investors in October that the chain’s kitchen staff in California generally earned close to or above $20 an hour, while its front-of-house workers in the state earned “significantly” over that amount if tips are included.

“So I do think we’ve got an inherent benefit there,” Levin said. He added that the legislation would cause the price gap between limited- and full-service restaurants to narrow.

Zackfia questioned whether employees at dine-in restaurants would want to make the move to fast-food jobs anyway.

“If somebody is a back-of-house line chef and they’re actually preparing real food and chopping and dicing and really cooking, do they really want to go across the street and warm things or fry things?” Zackfia said.

“It’s a very different dynamic.”