Fast-food workers will get a big pay bump but small businesses could close up shop.

An economic earthquake is hitting California today, and it’s not San Andreas’s fault. A highly contentious law takes effect that raises the minimum wage for most fast-food workers in the state to $20 per hour, a 25% increase over the existing $16 minimum wage.

Advocates say the law will raise the living standards of hundreds of thousands of low-paid workers, many of whom are Black and Latino. But critics argue it will lead to higher prices for consumers, cause job losses, and force small businesses to close. McDonald’s, Chipotle, and Jack in the Box are among the chains that have already said they’ll have to raise menu prices because of the added labor costs.

The details:

• The law applies to fast-food companies with at least 60 locations nationwide but excludes smaller fast-food operations in grocery stores and other venues.

• Despite reports earlier this year, Panera won’t be exempted.

Arguments for the minimum wage increase

Proponents say the pay hike is a necessary make-good for exploited employees who helped keep America fed during the pandemic but weren’t sufficiently compensated for their work.

Democratic Governor Gavin Newsom has also pushed back on the idea that fast-food workers are primarily teenagers looking for extra cash, saying that many adults rely on these jobs to support their families. As of 2021, the typical US fast-food worker is 26.4 years old and female, according to market research firm Datawheel.

Critics say in with the minimum wage, N-out for jobs

Restaurant owners say the law will saddle them with hundreds of thousands of dollars in extra labor costs per year—which they can’t absorb without hiking prices for customers, cutting jobs, or slashing employee hours.

The job cuts are already here. A large Pizza Hut franchisee in California is laying off more than 1,000 delivery drivers this year, citing the minimum wage increase.

Looking ahead… expect more robots. To trim costs, restaurants will likely ramp up their automation efforts by replacing humans with kiosks for taking orders. And Chipotle has already begun testing the “ Autocado ,” a guacamole-making robot.— DL

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