This is what economists love! A natural experiment. Will large fast-food chains hire less workers, raise prices...will things turn out better after the $20 minimum goes into effect.
I'm sure everything will go according to Newsom's plan.
California’s Crazy ‘Fast Food’ Minimum Wage Takes Effect
A Burger King franchise will have to pay burger flippers $20 an hour. The corner diner won’t.
By David Neumark, WSJ
March 31, 2024 3:07 pm ET
California Gov. Gavin Newsom’s higher minimum wage for fast-food workers takes effect Monday. On top of California’s already high $16 minimum wage, the minimum wage for fast-food workers will increase to $20 an hour, the highest minimum wage in the U.S.
Minimum-wage advocates parrot the claim that this is a win for fast-food workers. They cite a few studies to argue that those workers will earn more and suffer no job loss, and that poverty will fall. But a growing body of research demonstrates that the small number of studies advocates rely on are flawed.
The favorite study of minimum-wage advocates, which is also most germane to California’s situation, is David Card and Alan Krueger’s 1994 study of the fast-food industry in New Jersey and Pennsylvania. This study claimed not only that there was no job loss when New Jersey raised its minimum wage, but also that New Jersey fast-food employment rose substantially. On its own, this baffling conclusion should have been enough to arouse suspicion. Subsequent research I did with William Wascher established that data flaws from a poorly designed telephone survey were responsible for the dubious findings. Fast-food franchisees’ payroll records showed that fast-food employment fell, with each 10% increase in the minimum wage reducing employment by nearly 2%.
The second paper advocates often cite is a 2010 study of restaurant workers that also claims higher minimum wages don’t cost jobs. This study argues that you can get the “right” answer on the employment effects of minimum wages only by comparing areas where the minimum wage went up with nearby areas (counties on either side of state borders) where the minimum wage didn’t change. Doing this, the authors concluded, demonstrates that there’s no evidence that higher minimum wages reduce restaurant employment. This study has been touted as “one of the best and most convincing minimum wage papers.” Yet paralleling the unraveling of the New Jersey fast-food study, in recent work we find that the cross-border strategy this paper uses biases the results against finding that minimum wages cost jobs. Once corrected, we again find that each 10% increase in the minimum wage reduces employment by about 2%—and perhaps more over time.
Advocates claim that a higher fast-food minimum wage (and higher minimum wages generally) will reduce poverty. Again, they are highly selective in citing research, relying on a single study published in 2019 by Arindrajit Dube that contradicts most other work in finding a large poverty reduction effect from higher minimum wages. But Richard Burkhauser and co-authors have evaluated this work and found that its conclusions were highly sensitive to the period studied and the factors controlled for (or not) in the analysis.
The best evidence much more decisively shows that minimum wages don’t reduce poverty. Minimum wages obviously raise wages for some workers. But most minimum-wage workers aren’t poor, and in a very large share of poor families nobody works, so the minimum wage, even under the best of circumstances, can’t help poor families much. And the job-loss effect of minimum wages only makes things worse.
California’s fast-food minimum wage will make a bad policy even worse. It will reduce employment at fast-food restaurants, while failing to lift families out of poverty. Other research shows that it will raise fast-food prices and suggests these price increases are borne disproportionately by low-income families.
Aside from these adverse effects, it is difficult to fathom any reason for special treatment of fast-food workers. Why should a hamburger flipper at Burger King earn a higher mandatory wage than one at the corner diner? Whatever policy choice we make, policies should treat people in similar economic circumstances the same. A general minimum wage does this. A higher fast-food minimum wage doesn’t.
Mr. Neumark is a distinguished professor of economics at the University of California, Irvine and a visiting scholar at the Hoover Institution.