A 2023 California law mandated a significant increase in the pay of fast food workers, with a floor of $20 an hour in larger fast food restaurant chains. Supporters of the law proclaimed success and, earlier this year, planned an additional 3.5% cost-of-living escalation.
A new study from Pepperdine University and Beacon Economics said that the early enthusiasm was wrong and that the number of jobs dropped 3.2% during 2024, while the rest of the U.S. saw a 0.8% increase. From a CRE viewpoint, what might be more concerning is that the number of limited-service restaurants (a category roughly equivalent to fast food) in the state took a severe dip.
A working paper study from the Institute for Research on Labor and Employment in September 2024 said that hourly pay rose by 18% without reducing employment. The researchers also wrote that prices increased by about 3.7%, or “about 15 cents on a $4 hamburger (on a one-time basis), contrary to industry claims of larger increases.” It also claimed that 62% of increased costs were passed onto customers and restaurant profit margins “were above competitive levels below the policy” and “absorbed a substantial share of the cost increase.”
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The new paper from Pepperdine called the original estimates premature. California’s revised employment estimates instead showed a decline of 2.5%, or about 21,500 jobs, in December in limited-service restaurants. Overall employment in California grew by 0.2% during the same period, and limited-service restaurant employment across the U.S. grew by about 0.8%.
The new study said previous analyses were “much too early because the impact of this kind of policy change doesn’t show up clearly in the data for many months, given that it takes time for the industry to adapting to the sharp increase in labor costs and also because much of the most relevant data is lagged in terms of collection and release.”
Bureau of Labor Statistics data on “limited-service restaurants and other eating places” in California extend beyond the December 2024 date. It showed 722,000 employees in the industry as of February 2024. In February 2025, the figure was down to 702,600, a 2.9% drop. There are only preliminary numbers (700,300) for March 2025. However, if correct, it compares to 722,900 in March 2024 for a 3.1% year-over-year drop.
It is difficult to untangle the numbers and assess causality and the future. In 2015, there was debate over whether a minimum wage increase in Seattle increased or decreased restaurant jobs. After a year, it didn’t seem to have an adverse effect, but the new minimum wage level at the time was $11. Using the BLS inflation calculator, that would have been worth $15 in 2025. The general hourly minimum wage in California this year is $16.50.
The state law created a council to set periodic increases in the fast food minimum wage. The group is considering raising the number to $20.70 this year, as Reuters reported.
There are several implications for property owners. Some might find restaurant tenants under a financial squeeze and unable or unwilling to continue their operations with the additional costs. Other operators might add automation to reduce staffing. The systems might need additional power or other accommodations.
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