$20 California Minimum Wage: 5,000 to 10,500 Job Losses Even Before It Took Effect

The recent 25% increase in California’s minimum wage from $16 to $20, for limited-service restaurants (including fast-food restaurants, coffee shops, and juice bars) with at least 60 locations nationwide, has sparked controversy. In late March the Wall Street Journal reported that nearly 10,000 jobs were lost between the signing of the minimum wage law in September 2023 and January 2024 although the law did not take effect until April 1. The job loss figures were repeated by the Hoover Institution and the California Business and Industrial Alliance. Earlier this month a columnist for The Los Angeles Times claimed that these job loss figures are “fake numbers” and a “flagrant misrepresentation of government employment figures.” These criticisms were repeated by other websites.

In this column, I attempt to resolve this controversy by providing rough estimates of the job losses in limited-service restaurants in California between the signing of the bill in late September 2023 and April 2024 when it became effective. Although more rigorous methods in a more comprehensive study will be required to accurately measure the impact of the California minimum wage increase, I report results from a simple version of the method likely to be used by researchers who will study this issue. I find evidence consistent with between 5,000 and 10,500 job losses in California even before the minimum wage took effect. As explained below, I expect even more substantial job losses in the months ahead as employment is measured after the $20 minimum wage was mandated.

I focus on average employment from October 2023 to March 2024, the six-month period between the signing and implementation of the minimum wage law, to mitigate the variability in monthly data.^[1] Neither the state of California nor the Bureau of Labor Statistics report seasonally adjusted employment figures for limited-service restaurants in California, so I use seasonally unadjusted data and measure year-over-year changes to account for the impact of seasonal effects.

Employment growth in limited-service restaurants in California increased by 1.18% from the previous year (October 2022 - March 2023). This does not mean a higher minimum wage caused more employment growth; in the prior year (October 2021 - March 2022 to October 2022 - March 2023) employment grew by 4.29%. Limited-service restaurant employment declined by 3.11% (4.29% - 1.18%) after the $20 minimum wage law was signed.

The 3.11% decline in limited-service restaurant employment was not simply caused by a higher minimum wage. Business cycle conditions and the re-opening of businesses after COVID-19 may have also contributed to the change. One possible benchmark, employment growth in all other private sector industries in California, declined by 1.69% over the same period (from 2.20% to 0.50%).

This means employment growth in limited-service restaurants declined by more than 1.4% (3.11% compared to 1.69%) relative to other industries in California after the minimum wage law was signed (but before it took effect). A version of this differencing method is often used by economists to attempt to isolate the impact of a policy change that applies to a specific industry or state.^[2]

Because there are approximately 735,000 limited-service restaurant employees in California, the 1.4% drop in employment growth in California implies that 10,500 jobs were lost after the minimum wage law was signed but before it took effect. This is consistent with the job losses reported in the March Wall Street Journal article.

Employment in other industries in California is just one benchmark for estimating employment in limited-service restaurants in California “but-for” the signing of the $20 minimum wage law. California could also be compared to other states, where limited-service restaurant employment growth declined by 2.43% over the same period. California’s limited-service restaurant employment decline was 0.67% more than the contemporaneous decline in the same industry elsewhere in the U.S. This 0.67% difference implies a loss of 4,960 California jobs in anticipation of the $20 minimum wage.

These rough estimates mean that between 5,000 and 10,500 jobs were lost before the $20 minimum wage took effect. A discussion over methods for refining these estimates and improving their accuracy should not distract attention from more important issues. The $20 minimum wage will harm some of California’s least experienced workers by making them substantially more expensive, and no more productive, to businesses that have traditionally hired young workers into their first jobs.^[3] A higher minimum wage targeted specifically to businesses that disproportionately employ inexperienced workers will result in a substantial number of job losses and reduced work hours for young workers, higher prices for consumers, and economic costs and damages for businesses.

A loss of 5,000 to 10,500 jobs in anticipation of a 25% increase in the minimum wage is just the beginning. Limited-service restaurants are likely to react to a much higher minimum wage by replacing cashiers with kiosks and reducing staffing levels causing longer lines at the counter or in drive-through lanes. There will be more job losses, reductions in hours worked, and restaurant closures as businesses have more time to react to the higher minimum wage. I will not be surprised to see a 12.5% decrease in the employment (total hours worked) of entry-level employees due to the higher minimum wage. This is consistent with a conservative labor demand “elasticity” of one-half for unskilled labor. These job losses and reduced work hours will deprive young workers of valuable labor market experience.

CITATIONS

[1] April 2024 data are preliminary and subject to revision.

[2] For example, the influential study of the 1992 increase in the New Jersey minimum wage by Nobel laureate David Card and the late Alan Krueger (a top economic advisor in the Obama administration) compared employment changes in New Jersey and Pennsylvania.

[3] UCLA Professor Lee Ohanian’s recent articles on the Hoover Institution website describe the likely adverse effects of the $20 minimum wage.