UPDATE: The new CA QSR Min Wage study. A victory lap.

@TBPInvictus here:

If you’re not aware of the issue that was stirred up about a year or so ago when CA Governor Gavin Newsom signed into law (goes into effect April 1, 2024) a new $20 minimum wage for so-called “limited service” ( a/ k/a fast food or QSR) restaurant workers, read here, here or here.

In short, the usual suspects’ heads were exploding long before the legislation took effect, claiming it would lead to widespread devastation in the fast-food space: job losses, restaurant closings, skyrocketing prices, etc. I’ve seen this happen every time. the minimum wage is going up — a lot of sound and fury that ultimately amounted to nothing.

It started with some bad reporting on Wall St. Journal, which seemed to unabashedly reprint industry press releases. Even worse, the reporter involved is apparently unfamiliar with how seasonally and non-seasonally adjusted data work, making an embarrassing Economics 101 error that any student should have caught in the first place. The wrongdoing then spread to the Hoover Institution, then to a CA group called CABIA, the NY Post, and of course Fox News.

Reasoned reasoning is a powerful source of media error.

The whole episode is reminiscent of what happened in Seattle a decade ago, which this site has painstakingly debunked in detail.

We know that numerous academic studies have shown that most of the dire predictions made about raising the minimum wage do not come true. And now comes the first such study of the California excursion. Cut to the chase:

We find that the sector wage standard increased the average wage of non-managerial fast food workers by almost 18%, a remarkably large increase compared to previous minimum wage policies. However, the policy has not adversely affected employment. It raised fast-food prices, one time, by about 3.7 percent, or about 15 cents for a $4 item. Therefore, consumers absorbed about 62% of the cost increase. These effects are benign. However, restaurant profit margins have likely decreased, and the royalties restaurant operators pay to franchisors have likely increased.

As stated in a press release from Newsom’s office:

• Salaries increased by 18% – For 90% of non-management workers, wages rose by 18%, representing a significant increase for workers who were paid in the past, despite many being the main breadwinners for their families.
• No job cuts – The increase in wages has not led to job cuts, despite what critics said would be a high point for the industry.
• Profit margins were already high – The industry benefited from “monopsonistic (higher than competitive) profit margins” which “absorbed a substantial portion of the cost increase”.
• 15 cents – The cost of menu options increased by just 3.7 percent, which is about 15 cents for a typical $4 hamburger.

There can be no doubt that this battle will be fought again. And again. And again. And again. But we also know what the likely outcome will be, because we’ve already seen this movie several times.

Until next time.

Previous:
Seattle Redux: Misunderstanding Seasonal Adjustments (June 10, 2024)

Debunking the QSR BS Minimum Wage: A Continuation (June 13, 2024)

source:
Sectoral wage setting in California
Michael Reich and Denis Sosinskiy
IRLE working document No. 104-24.
UC Berkeley, 2024

$20 minimum wage for fast food in California is a win-win, according to research
Governor’s Office, October 3, 2024

California restaurants cut jobs as fast-food wages set to rise
“Chains lay off workers, shave hours before state minimum wage hike”
By Heather Haddon
WSJ, March 25, 2024

The fast-food industry claims California’s minimum wage law is costing jobs. His numbers are bogus.
by Michael Hiltzik
LA Times, June 12, 2024 (Free Mirror: Yahoo)