Fast food workers in California will benefit from a minimum wage rise that is due to come into effect in a week's time—but franchises have warned that its implementation could force them to increase their menu prices.
On April 1, fast-food restaurants will be required to pay employees at least $20 an hour, up from $16 as of January and $15.50 in 2023. The new law, signed by Democratic California Governor Gavin Newsom in September, will also see minimum wages for health care employees go up from June 1.
While proponents of the new minimum wage said the lowest-paid workers' labor had been undervalued for too long, business owners have warned that the pay hikes could have an impact on margins and consumer costs at a time when the cost of living remains a concern for many.
The issue highlights the potential pitfalls lawmakers contend with when balancing improving the livelihoods of those receiving low incomes and the wider economic affects of wage increases.
In an earnings call at the end of October, McDonald's chief executive Chris Kempczinski said that "there is going to be a wage impact for our California franchisees" due to the minimum wage rise, which he said would have to be partially "worked through with higher pricing."
The price of the chain's signature Big Mac burger—which is used by economists as an informal benchmark to measure inflation—in California currently sits at $5.89, according to McDonald's own figures, the 10th highest among U.S. states.
The latest financial reports for McDonald's show sales grew 8.7 percent in the U.S. in 2023, which the company attributed to strong average wage growth and "strategic menu price increases." The average price for a Big Mac nationwide currently sits at $5.69, up from $5.36 a year ago, according to data compiled by The Economist.
Overall, the company reported a net profit of nearly $8.5 billion last year.
Around the same time as Kempczinski's comments, Jack Hartung, chief financial officer for Mexican fast food chain Chipotle, told its investors that the new minimum wage in California would likely have an effect on consumer prices by a "mid-to-high single-digit" percentage rise.
Last week, Kerri Harper-Howie, the owner of 21 McDonald's franchises in California, told KLTA 5 that operators were not opposed to wage rises, but said that even with menu price increase, the pay increases would eat into margins.
"You can't raise prices enough" to meet the new wage requirements, she argued, as "it would be unaffordable."
"There are cost savings that we can do behind the scenes, and other ways to be more efficient ... but this means less profitability for us, and we will absorb that," Harper-Howie added.
In December, Pizza Hut announced it was laying off its in-house delivery drivers, citing the minimum wage hike.
John Logan, a professor of Labor Studies at San Francisco State University, told local news channel KGO that not only would the new law improve working conditions in the fast-food industry, it also "may act as a model for other states."
The law that implemented the minimum wage rise also established a Fast Food Council in California, which will oversee future wage increases.
According to the state's Department of Industrial Relations, the council will be comprised of representatives of the fast-food industry, franchisees and employee advocates.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Aleks Phillips is a Newsweek U.S. News Reporter based in London. His focus is on U.S. politics and the environment. ... Read more
