California’s $20 Fast-Food Minimum Wage: 9,600 to 19,300 Jobs Lost One Year After Law Was Signed

Just over one year ago Governor Gavin Newsom signed a law that increased the minimum wage for limited-service restaurants in California, with at least 60 national locations, from $16 to $20 effective April 1, 2024.^[1] I estimate that the higher minimum wage has resulted in job losses of 9,600 to 19,300 in limited-service restaurants jobs, as of September 2024, six months after the $20 minimum wage took effect. In an earlier article I found that many of these jobs were lost in anticipation of the higher minimum wage; employment in limited-service restaurants declined by 5,000 to 10,500 between the signing of the law and March 2024, just before the $20 minimum wage took effect.^[2]

Growth in limited-service restaurant jobs in California has stalled since the $20 minimum wage became effective. Limited-service restaurant employment grew by only 0.19% between September 2023 and September 2024.^[3] This is slower than the 1.44% growth in all other private sector employment over the same period and marks a change from historical trends. Limited-service restaurant jobs grew by 2.81% per year, on average, much faster than the 1.13% average annual growth rate in all other private sector employment from 1990 to 2019 (prior to COVID-19 related lockdowns which caused substantial job losses in all types of restaurants).

Limited-service restaurant job growth of 0.19% in California in the past 12 months is substantially slower than the 1.07% annual growth in these jobs one year earlier (from September 2022 to September 2023). The 0.88% decline in limited-service restaurant employment (0.19% instead of 1.07% annual growth) is likely due to more than the $20 minimum wage. Economic conditions in California and the impact of the re-opening of businesses after COVID-19 may have also contributed to employment changes.

One way to benchmark the decline in limited-service restaurant employment is to compare it to the change in all other private sector employment during the same period. While limited-service restaurant job growth was slowing down, employment growth in all other private sector industries in California was increasing. As limited-service restaurant employment growth dropped by 0.88% across adjacent years, job growth increased by 1.65% in all other private sector industries. The differential change in growth (-0.88% compared to +1.65%) indicates that by September 2024 employment in limited-service restaurants fell by 2.53% relative to employment in other private sector industries in California, or a loss of 19,300 jobs.

Because limited-service restaurant employment growth has slowed throughout the U.S. in the past year, an alternative estimate of job losses can be obtained by comparing the relative change in employment growth in California to the corresponding change in the rest of the U.S. Limited-service restaurant employment growth in California declined by 2.53% relative to other private sector industries as of September 2024, which is about twice the corresponding rate of decline in the rest of the U.S. The larger employment decline of 1.27% (-2.53% compared to -1.26%) in California relative to elsewhere in the U.S., after the $20 minimum wage became effective, implies job losses of 9,300 in California limited-service restaurants as of September 2024.

The magnitude of job losses described above is striking because the $20 minimum wage is not mandated for restaurants with fewer than 60 locations nationwide. In an earlier article I found that slightly more than half of limited-service restaurants are exempt from the $20 minimum wage because they have fewer than 60 national locations.^[4] In addition, I found that only about 34% of limited-service restaurant employees are likely to be directly impacted by the law.^[5] The remaining 66% of limited-service restaurant employees were indirectly impacted by the $20 minimum wage and many were employed by businesses who benefited from the imposition of a higher mandated minimum wage for their direct competitors.

It should be noted that the estimates reported here are based on Bureau of Labor Statistics (BLS) data and therefore subject to potential measurement error. The BLS announced in August 2024 that job growth between March 2023 and March 2024 was substantially overstated in official data.^[6] A possible explanation for this mismeasurement is the low and declining response rates of the establishment survey on which job growth estimates are based, and the difficulty in distinguishing between survey nonresponses and establishment closures and business failures.^[7] If the $20 minimum wage resulted in larger than expected limited-service restaurant closures, the estimated job losses presented here may be understated. Continued investigation of job losses from the $20 minimum wage will be needed as the BLS releases more accurate employment figures in 2025 that incorporate its benchmark revisions.   

The $20 minimum wage harms California’s least experienced workers by causing them to be more expensive, but no more productive, for limited-service restaurants that have traditionally hired young and inexperienced workers. Limited-service restaurants will replace employees with kiosks as businesses adapt to the higher minimum wage. An eventual projected decrease of 12.5% in the employment of workers directly impacted by the higher minimum wage, or job losses of 33,000, is consistent with a labor demand “elasticity” of one-half for workers in entry-level jobs in businesses with 60 or more locations. In addition to these job losses, the $20 minimum wage is expected to cause reduced hours worked, higher prices, and more closures of limited-service restaurants. 

CITATIONS

[1] The $20 minimum wage was enacted on September 28, 2003. Although this is commonly referred to as a “fast-food” minimum wage, the law applies to limited-service restaurants including fast-food restaurants, coffee shops, and juice bars. https://www.gov.ca.gov/2023/09/28/california-increases-minimum-wage-protections-for-fast-food-workers/  

[2] https://www.edgewortheconomics.com/insight-CA-minimum-wage-job-losses

[3] I use a three-month average from July-September each year but obtain nearly identical results using a six-month average from April-September each year.

[4] https://www.edgewortheconomics.com/insight-nearly-half-CA-restaurants-minimum-wage

[5] About half of restaurants (fewer than 60 locations) are exempt, one-eighth of California restaurant employees are managers and exempt from the minimum wage, and 21% of hourly restaurant employees in California already earned $20 or more per hour when the law was enacted.

[6] https://www.bls.gov/web/empsit/cesprelbmk.htm

[7] Response rate for the establishment survey is 43%, down from 63% in 2014. https://www.bls.gov/osmr/response-rates/