Starting in April 2024, fast food chains in California must pay employees a minimum wage of $20 an hour.
The legislation behind the wage increase — AB 1228 — aims to boost incomes for low-wage workers, combat the high cost of living, and improve labor standards.
California Governor Gavin Newsom said in a press release that he had signed the bill into law, “Today we take a step toward fairer wages, safer and healthier working conditions, and better training by giving hard-working fast food workers a stronger voice and a seat at the table.”
Now, a UC Santa Cruz working study released late last year says the legislation could have “unintended consequences.”
“Based on what we found, I think this legislation is a classic case of ‘good deeds go bad,'” Stephen Owen, an economics lecturer at the University of California, Santa Cruz, who conducted the study, said in a March 18 news release. “There are unintended consequences and ripple effects, and overall, I think the results are certainly not as positive as policymakers expected.”
AB 1228, signed into law in September 2023, would raise the minimum wage for fast food chain workers nationwide to $20 an hour, above the state’s $16.90 hourly minimum wage.
The bill also establishes the Fast Food Commission, which will be responsible for setting future wage increases (up to 3.5% per year) and working standards for workers through 2029.
The nine-member national body is made up of workers, industry representatives and government officials.
To assess the impact of California’s $20 minimum wage policy on fast food workers, researchers used primary and secondary data collection.
For primary data collection, the researchers utilized insights from face-to-face interviews with business owners and managers along Mission Street in Santa Cruz. Interviews were conducted with both franchise and independent business owners.
The researchers also evaluated secondary data from publicly available economic and policy sources, such as economic reports and policy briefs related to the legislation; labor market data; and historical data on previous minimum wage increases in the state.
“While Santa Cruz was the primary location for direct interviews and observations, the patterns identified are assessed within the context of statewide policies applicable to fast food employers in California,” the researchers said.
Researchers at the university said one of the impacts of rising minimum wages in the fast food industry is that it creates demand for such roles, which are now seen as “significantly more desirable”.
By analyzing monthly job application data from the Burger King franchise in 2023, 2024 and early 2025, Irving’s team found “a dramatic increase in applications.”
“August 2024 is one of the months with the highest peak, with a 400% increase compared to the same month in 2023,” the researchers said.
At the same time, higher wages have sparked greater interest in fast-food jobs, while rising corporate labor costs have led to less demand for workers, the report found.
For example, one Burger King location reported a more than 21% reduction in employee shift workload between October 2023 and October 2024, according to the team’s research.
“By 2025, working hours were partially restored in some locations, but working hours levels remained reduced compared to 2023,” the researchers said.
Meanwhile, the study found that employee hours at 18 McDonald’s locations in the Central Valley “fell by nearly 12% in the 12 months from April 2023 to March 2025, equivalent to a loss of 62 full-time jobs in a year.”
Owen said that based on economic theory, this was not an unexpected effect.
“What happens to labor demand when you raise the minimum wage is not really a controversial question; it’s more about whether that’s good or bad for society,” Owen said in the release.
The researchers noted that so far, the legislation’s impact on fast-food workers has been “mixed.”
Researchers say that while most people are now earning more per hour, many are also working fewer hours, limiting gains in their overall earnings.
As hours worked decreased, fewer workers were eligible for benefits, the researchers said.
“Additionally, many franchises have eliminated overtime, which was previously an important way for long-term employees to increase their income,” the researchers said.
One potential positive effect of wage increases is a reduction in turnover from 150% to 300% to approximately 150% to 200%.
Researchers say franchise owners are raising menu prices in response to rising labor costs.
University researchers said: “The new minimum wage for fast food workers increases labor costs for businesses by about 25%, and Irwin said if businesses make no other changes, overall operating costs are expected to increase by about 9%.”
The study found that since September 2023, menu prices at franchised fast-food restaurants have increased by approximately 8% to 12%.
The increase is likely the result of a combination of factors, including increased labor costs, other inflationary factors and supply chain dynamics, the report said.
“Because fast food is often considered an ‘inferior good,’ price increases will disproportionately impact low-income consumers,” Owen said.
Despite rising prices, companies may still face an impact on their profits.
For example, one Burger King franchise owner in Northern California told Santa Cruz researchers that they plan to close the lowest-performing 10% of stores over the next two years to mitigate the impact of declining profit potential.
“Businesses can absorb the increased costs to some extent, but the question is how long,” Owen said in the release. “I think we may see closures in the future.”
To avoid future closures, researchers have found that many fast-food chains are looking to automate their workforce as a cost-cutting measure.
For example, university researchers noted that Burger King, McDonald’s and Taco Bell have all invested in automated kiosks to accept orders and payments.
“Some are also piloting AI voice ordering systems and automated dishwashing systems,” the researchers said, adding that mobile app ordering is also a growing trend.
Researchers say this trend will eventually lead to massive job losses in the industry.
“Competition in the fast food industry has always been predicated on advances in sophistication and efficiency, so the industry is ripe for automation,” Owen said in the release. “Is what we’re seeing a natural, organic adoption of these technologies in fast food? I think there’s definitely an element of that, but I think the introduction of wage pressure has accelerated that.”
Owen said one of the main takeaways from his research is that “minimum wage increases may not be the best policy tool for state-level policymakers to achieve their intended goals.”
Despite the need to better support working-class workers in the Golden State, wage increases for minimum wage jobs could create “perverse incentives” for those trying to enter and stay in these industries.
“When we see a huge increase in applications for fast food jobs, if you’re running this state, that’s probably not a place where you really want to incentivize people to work,” Irving said in the release.
Owen said when the minimum wage increases for a specific industry, it has the effect of prioritizing that industry.
“So if you’re going to do that, it might make more sense to target higher value-added industries like health care or manufacturing,” Owen said.
Even if intended to target “big business,” this minimum wage increase policy will have ripple effects on small businesses.
Researchers say taking the fast-food minimum wage as an example, even though it only applies to franchised restaurants, some independent restaurants still feel “squeezed”.
When the research team spoke with Santa Cruz restaurant owners, they found they felt pressured to increase wages and raise menu prices to compete for workers, leaving them worried about long-term sustainability.
“Policies with potential unintended consequences, such as business closures or reductions in the size of job opportunities, actually risk increasing economic inequality,” university researchers said.
Instead, the researchers said, policymakers could pursue alternatives such as “improving the social safety net, changing the earned income tax credit, and significantly reducing business regulations that could avoid these potential pitfalls while also more directly helping those in need.”
This article originally appeared in the Palm Springs Desert Sun: California’s $20 fast food wage could have unintended consequences
