The California Job-Killer That Wasn’t
7 min read
California’s new minimum-wage law hadn’t even gone into effect before it was declared a disaster. Business groups and Republican politicians have argued for decades that minimum-wage increases harm the very workers they are supposed to help, and this one—passed in September 2023 and setting a salary floor of $20 an hour for fast-food workers—appeared to be no different. Headlines such as “California Restaurants Cut Jobs as Fast-Food Wages Set to Rise” and “California’s Minimum Wage Woes Are a Cautionary Tale for the Nation” proliferated.
The story seemed to fit into a familiar theme: naive California progressives overreaching and generating a predictable fiasco. “Let me give you the downside,” Donald Trump responded when recently asked whether he would agree to raise the federal minimum wage during his second term. “In California, they raised it up to a very high number, and your restaurants are going out of business all over the place. The population is shrinking. It’s had a very negative impact.”
Except it hasn’t. Since California’s new minimum wage came into effect in April, the state’s fast-food sector has actually gained jobs and done so at a faster pace than much of the rest of the country. If anything, it proves that the minimum wage can be raised even higher than experts previously believed without hurting employment. That should be good news. Instead, the policy has been portrayed as a catastrophic failure. That is a testament to how quickly economic misinformation spreads—and how hard it is to combat once it does.
Among economists, the minimum wage was long seen as disproved by simple math. In theory, if each individual worker becomes more expensive because of higher wages, then employers won’t be able to employ as many of them.
Then economists began analyzing what actually happened when the minimum wage was raised. Since the early 1990s, economists have conducted dozens of studies of more than 500 minimum-wage increases across the country. “The bulk of the studies conducted in the last 30 years suggest the effect of minimum wages on jobs is quite modest,” Arindrajit Dube, an economist at the University of Massachusetts at Amherst who has conducted multiple meta-analyses of the minimum-wage literature, told me. “Sometimes they actually result in higher employment.”
The leading explanation is that when the minimum wage goes up, low-wage jobs suddenly become more attractive to workers, who respond by staying in those jobs longer. Less turnover means that companies have to spend less time recruiting and training new hires, and that the workers themselves are more productive and less prone to rookie mistakes—all of which lowers an employer’s labor costs. Businesses also typically absorb some of the costs via lower profit margins or pass them on to consumers in the form of higher prices (a point I will return to later).
Still, economists continue to debate just how high the minimum wage can go before it becomes a drag on employment. Less than a decade ago, many believed that raising the minimum wage to $15 an hour would lead to “substantially lower” employment, only to be proved incorrect. Then, in September 2023, California passed A.B. 1228, a law that would raise the hourly wages of fast-food workers across the state from $16 to $20—a far larger increase than any that had previously been studied. (The new law applies only to employees at chains with more than 60 locations nationwide.)
The state’s fast-food industry immediately erupted in protest. Before the law took effect in April, the owners of hundreds of Pizza Hut locations declared that they would be forced to lay off all of their 1,200 delivery drivers. The owner of 140 Burger King franchises claimed that he would have to slash worker hours and expedite the rollout of self-service kiosks. Rubio’s, a regional Mexican-food chain, announced that it would close 48 stores, citing “the rising cost of doing business in California.” (Coverage of this announcement typically left out the fact that the company’s largest cost appeared to be debt payments, which had ballooned since its acquisition by a private-equity firm in 2010.)
Opposition picked up even more once the law went into effect. In June, the California Business and Industrial Alliance took out a full-page ad in USA Today declaring that the state’s fast-food businesses had shed nearly 10,000 jobs in anticipation of the new law. Similar claims began appearing in right-wing media, local newspapers, and the national business press, blaming the new minimum-wage law for mass layoffs and restaurant closures.
That narrative, however, was based on a statistical illusion. The 10,000-jobs number originated in an article by the Hoover Institution, a free-market-oriented think tank, which analyzed raw employment data from September 2023 through the end of the year. But as the anonymous blogger Invictus and the Los Angeles Times columnist Michael Hiltzik have pointed out, the fast-food industry always sheds jobs during the fall and winter months, simply because people go out to eat less. (It then gains those jobs back during spring and summer, when demand recovers.) According to “seasonally adjusted” employment numbers, which are widely considered more reliable because they account for these regular ups and downs, California’s fast-food industry gained more than 5,000 jobs during the period in question.
The Hoover Institution eventually retracted its original post, admitting the mistake. But that didn’t put an end to the matter. In September 2024, an industry press release cited new numbers, this time seasonally adjusted, appearing to show that the state’s fast-food sector had lost thousands of jobs since the beginning of the year because of the new minimum wage, while the neighboring states of Oregon and Nevada had gained jobs. This resulted in a second wave of negative press.
Once again, the statistics were misleading. This time they came from the Employment Policies Institute, a nonprofit controlled by Richard Berman, a lobbyist for the restaurant industry. The analysis conveniently chose January 2024 as its date to begin measuring employment, which happened to be one of the few starting points that showed subsequent job losses; choosing a start date of either September 2023 (when the law was signed) or April 2024 (when it took effect) would have shown that the number of jobs had risen. Simply comparing each month’s job growth with the same month the previous year, which avoids the problem of picking a start date, reveals that California’s fast-food sector gained jobs in all but one month since September 2023.
The first rule of social science is that correlation does not equal causation. Many factors could affect fast-food employment in California—positively or negatively—that have nothing to do with the minimum wage. That’s why, in a recent paper, a pair of economists from UC Berkeley compared employment for California fast-food workers with that of similar workers in states that still abide by the $7.25 federal minimum wage. The authors found that employment for the two groups was on roughly the same trajectory prior to the April wage increase, but that, since then, California’s fast-food employment had actually grown slightly faster than the other states’. (The authors also shared a not-yet-released analysis showing that these results hold when adjusting for seasonal effects and using alternative sources of data.) “These findings were a bit surprising even to me,” Michael Reich, one of the paper’s co-authors, who has published more than a dozen studies on the effect of minimum-wage laws, told me. Another report, from a different set of academic researchers, found that the new minimum wage had not resulted in a reduction in hours or a rollback of benefits, either.
That doesn’t mean raising the minimum wage had no negative consequences. Reich and his co-author, Denis Sosinsky, found that the higher minimum wage caused menu prices in California fast-food chains to rise by about 3.7 percent. That number is far lower than the “$20 Big Macs” that critics of the law warned of, but it’s still significant at a time when many consumers are deeply upset over the post-pandemic spike in food prices. Even so, Reich points out that this number pales in comparison with the 18 percent raise that the average fast-food worker received because of the new law. (The authors calculated that about 62 percent of the wage increase was absorbed through higher prices, while the rest was likely absorbed by a mix of reduced turnover and, crucially, lower profits for franchisees—hence the massive industry resistance.)
Notwithstanding the law’s broadly positive real-world consequences, the nonstop negative press about it has turned it into a political liability. In November, California voters narrowly rejected a ballot measure that would have raised the state’s minimum wage for all industries to $18 an hour, following a massive industry-led campaign centered on the claim that the state’s fast-food minimum-wage experiment had been a disaster.
The biggest losers from this misleading narrative won’t be Californians themselves. It will be workers in the 20 states that still have a minimum wage at or below the federal minimum wage of $7.25 an hour, 19 of which voted for Trump in 2024. California’s government, like many Democratic-controlled cities and states around the country, has had plenty of mistakes to its name in recent years, but raising the minimum wage isn’t one of them. If Republicans in Washington are serious about delivering for the working-class voters who brought them to power—and who overwhelmingly support raising the minimum wage—they might consider following California’s lead just this once.
