An employee wearing protective gloves delivers an order to a customer through the drive-thru window at a McDonald’s Corp. restaurant in Oakland, California, U.S., Thursday, April 9, 2020.

David Paul Morris | Bloomberg | getty images

As fast-food chains in California begin paying their workers higher minimum wages, other business owners across the state are looking to see if they’ll have to raise their wages to compete.

Starting Monday, fast-food workers at the chain’s more than 60 national locations in California will earn $20 an hour, more than the statewide minimum wage of $16 an hour. The new salary range arises from a State Law Passed in September, that would also establish a nine-person council that would determine future wage increases and suggest other guidelines for labor conditions for the industry. Governor Gavin Newsom said when he signed the law in September that there are more than half a million fast food workers in the state.

Some affected chains have responded to the mandatory wage increases by cutting their workforce and increasing their menu prices. franchises for pizza chains Papa Johnsround table and pizza Hut fired from job drivers Before the deadline. McDonald’s, wingstop And Chipotle Mexican Grill are among the chains that have said they will pass the burden of higher labor costs on to their customers by making their menu items more expensive.

“The consequences are business owners – franchises, who are not big companies, despite what the political supporters of this legislation say – these are small businesses and they are now facing mandatory higher costs. And those costs are being passed onto them. customers and will likely result in fewer jobs, said Matthew Haller, president and CEO of the franchise advocacy group The International Franchise Association told CNBC.

The law won’t directly touch other California restaurants — small coffee chains, mom-and-pop diners and upscale steakhouses — but they may still have to adjust their wages as they compete for the same employees. And industries that rely on hourly workers, such as retail and hospitality, may also face downward pressure on their wages or risk losing their employees.

“I think we’re going to see spillover effects within food service, but in addition, we should also expect to see spillover effects on other industries that are looking for this talent,” Daniel Zhao, chief economist at career site Glassdoor, told CNBC. are competing for.”

The law takes effect as job growth slows in the most populous US state. California’s unemployment rate was 5.3% in February, higher than the US rate 3.9%According to the Bureau of Labor Statistics.

California wages are already high

California fast-food minimum wage reaches $20

While the new fast-food minimum wage is the highest in the US, California employers are accustomed to paying more for their labor. Nearly three dozen cities and counties in California have local minimum wages that exceed the state wage level of $16 an hour.

Even when it’s not mandatory, restaurants typically pay above minimum wage to attract hourly workers. For years, the industry has struggled with a labor crisis as teenagers seek internships rather than restaurant jobs and older workers turn to other industries with better working conditions and benefits.

The average wage for hourly food service workers in California before the law took effect was $17.89 an hour, according to self-reported Glassdoor data from October 1 to March 28. But only 22% of the state’s hourly restaurant workers were making at least $20. One hour at that time.

According to Zhao, the wage increase will have a big impact on fast-food joints in low-cost-of-living areas like Fresno. In major metropolitan areas, the gap between prior wage rates and the new minimum wage is likely to be smaller.

For example, at Andytown Coffee Roasters in San Francisco, non-tipped employees already make more than $20 an hour, according to owner and CEO Lauren Crabbe. He said he is “personally thrilled” that fast-food workers at large chains in California will earn higher wages, although he thinks the legislature missed an opportunity to target giants in other industries such as retail.

“If a multinational company making millions in profits cannot pay at least $20 to the people who make its products and serve its customers [an hour] In 2024, then they don’t have a viable business model,” Crabbe said.

Chief Executive of Cheesecake Factory There is no objection to the salary increase. As a full-service restaurant chain, the company will not be obligated to pay its California employees $20 an hour. But CEO Matthew Clark said on the company’s earnings call in February that the chain’s top status is already very high, and he believes the same is the case for fast-food workers.

“Many of California’s [quick-service restaurant] Urban locations are already paying $19 and $20,” he said. “We believe that’s partly why they agreed to do it in the first place.”

Businesses outside the restaurant industry are also eyeing wage increases for fast food workers.

Jennifer B. Perez runs Growing Roots in Long Beach. The company has 13 employees and has been in business since 2002, designing, installing and maintaining indoor plants for commercial and residential customers.

Perez looks to growth in industries outside her own to stay competitive. He gave workers a raise this year ahead of the fast-food hike. Workers with no experience are making $19 an hour, he said, which is at the bottom of his pay scale and two dollars more than the local minimum. They also have paid vacation, vision, dental and health insurance.

“It’s a big impact, because I’m not part of that industry,” Perez told CNBC about the fast-food increase. “I’ve always been above minimum wage, but since it keeps going up, and it’s a 25% increase from $16 to $20, it’s definitely something to think about.”

Like many business owners, Perez has to think about how inflation affects both her company’s labor costs and her customers’ budgets.

“Most small businesses can’t afford a straight 25% increase across the board, or raise prices across the board,” he said.

Lawyers prepare to take a big step

SEIU president discusses raising California fast-food minimum wage to $20

After a controversial victory, SEIU is gearing up for more fights for similar wage increases for fast-food workers in other states. SEIU President Mary Kay Henry told CNBC that New York, Washington and Illinois are all potential future battlegrounds.

“It took us 10 years to get to this table. And [the workers] They feel like they’re going to have a voice at work that they’ve never experienced before,” Henry said.

California will test how sector-specific minimum wages affect workers, their employers, and the broader labor market. Fast-food chains, industry experts and economists will be watching to see whether gloomy predictions of job losses come true — or whether higher wages come with benefits even for businesses that pay wages.

Glassdoor’s Zhao said A $20 wage could attract back some workers who left their restaurant jobs to work in an Amazon warehouse or drive for Uber. Plus, those fast-food workers will now have more money in their pockets.

“People who are earning more money can also spend more money which is then reinvested back into the economy,” he said.

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