Fast-food restaurants trimming workforce to pay higher wages

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In the wake of California’s upcoming enforcement of a $20 minimum wage, many workers across the state are finding themselves at risk of unemployment as various restaurant chains brace for the financial impact.

The impending wage adjustment, notably among pizza chains as reported by The Wall Street Journal, has prompted a wave of job reductions, reduced working hours and a halt in new hiring efforts.

The wage increase, a victory for labor unions and the healthcare sector seeking improved earnings, was solidified with Assembly Bill (AB) No. 1228, which was signed into law by Governor Gavin Newsom on September 28, 2023. This law establishes a $20 per hour minimum wage for fast-food workers in California, effective from April 1, 2024. It. This legislation mandates that fast food establishments with at least 60 locations nationwide adopt the new wage standard. Newsom, celebrating the measure alongside union representatives, emphasized its significance for a substantial portion of the state’s workforce, indicating that 80% would benefit from the wage hike. However, the response from the industry has already seen substantial layoffs.

Pizza Hut made headlines in December for eliminating over 1,200 delivery positions. Other Pizza Hut franchises in California have ceased their delivery operations, turning instead to third-party services to manage these tasks. Pizza Hut has expressed regret over the job transitions but views it as a necessary adaptation to escalating operational costs, a sentiment echoed by other restaurant operators in California. Excalibur Pizza, a franchisee of Round Table Pizza, plans to reduce its workforce by 73.

Inquiries directed at these pizza chains have yielded limited responses regarding their compliance or adaptation strategies in light of the Fast Act. The classification of certain franchises under this new law remains uncertain.

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Meanwhile, Starbucks has proactively announced a wage boost of at least 3%, effective from January 1, distinguishing itself from its fast-food counterparts. Nonetheless, the coffee giant has also recently shuttered seven outlets in California, signaling a complex landscape for businesses navigating the new wage mandate.

California has been on a path towards increasing the minimum wage statewide for decades. In 2016, the assembly passed legislation to gradually raise the minimum wage to $15 per hour for all workers by 2023. The plan included yearly increases, starting from $10 per hour in 2016 to its target of $15 per hour for businesses with 26 or more employees by 2022 and for smaller businesses by 2023.

Various cities and counties in California have enacted their own minimum wage laws, often exceeding the statewide minimum. Cities like West Hollywood, San Francisco, Los Angeles, and San Diego have been leaders in this aspect, implementing minimum wages that are higher than the state’s baseline. These local ordinances have directly impacted wages in the fast food sector within these municipalities, contributing to an upward trend in earnings for fast food workers.

Labor unions and worker advocacy groups in California have been highly active in campaigning for higher wages for fast food workers. These efforts have included organizing strikes, lobbying for legislation, and engaging in public campaigns to raise awareness about the living wage issues faced by these workers. Such activities have played a crucial role in putting pressure on both lawmakers and employers to increase wages.

Higher wages mean increased labor costs for employers. For small businesses and those operating with thin margins, such as independent restaurants and retailers, these added expenses can be particularly challenging. Increased costs may lead to businesses raising prices, reducing their workforce, cutting back on hours, or, in extreme cases, closing down.

As restaurants face higher operating costs due to increased wages, they have passed these costs onto consumers in the form of higher prices for goods and services. This can contribute to inflation, potentially eroding the purchasing power of consumers, including those who received the wage increases.

Economists have debated the employment effects of minimum wage increases, with some studies suggesting that significant increases could lead to job losses, especially in low-wage, labor-intensive industries. Employers might seek to reduce their number of employees or increase automation to maintain profitability, potentially leading to reduced employment opportunities for low-skilled workers.

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Joshua88
Joshua88
10 days ago

O,and there’s always this caveat:
“…the 10 largest publicly traded fast food companies (think McDonald’s, Wendy’s, and Yum brands like Pizza Hut and Taco Bell, etc.) spent more than $6 billion of their profits to buy back shares of their own stock…”

loll
loll
22 days ago

Its sad that people are not understanding that businesses are not going to just eat the increased costs of doing business. They will all raises their prices to the consumer. Starbucks already did this morning. It will now also cost those who may have gotten the raises to have increased prices as well as they shop, dine out etc. it will be a wash

Last edited 22 days ago by loll
Steve Martin
Steve Martin
24 days ago

I wonder if corporate giants like MacDonalds, Arby’s, Jack In the Box, or Wendy’s would consider slashing their massive television advertising budgets in order to avoid laying off workers or raising prices. We will see.

Larry Block
24 days ago
Reply to  Steve Martin

One of the first lessons I learned in my advertising classes was ‘advertising should be based on future sales not past sales’, meaning the results of your advertising will highlight your brand awareness and yield results for years to come. Blaming advertising expenditures on rising labor costs is quite the stretch. Less advertising leads to less awareness leads to less traffic and ends up with less jobs.

Morty
Morty
24 days ago

Businesses have no choice other than to slash employees. The same thing is and will be happening in West Hollywood. Unless people want to pay $25 for a burger and $30 for a cocktail what choice do they have? Rents are unsustainable and $19.08 and $20.00 wages are just not sustainable unless they trim their staff and work with a very lean work force. They will only keep their best staff. The rest will be laid off.

Joshua88
Joshua88
25 days ago

State of Inequality- 3/15
Long Beach Hotel Workers on Track to Earn the Highest Minimum Wage in the Nation.

A ballot measure to raise pay to $23 an hour could help workers in labor negotiations and boost the local economy.

John Smith
John Smith
25 days ago
Reply to  Joshua88

Or it could cost them their jobs.

Morty
Morty
23 days ago
Reply to  Joshua88

You mean destroy the local economy. The best workers deserve the best pay and hopefully that means north of $20/hour. The problem is being forced to pay mediocre or lazy workers these high wages. It’s not sustainable. It will simply mean less employees doing more work to replace those who were let go. Businesses can only pass so much of these costs on to their paying guests. Someone has to pay for this. You are probably one of the first people to complain when a business raises their prices or a hotel raises their room rates. You want it both… Read more »

BloodshotEyedGuy
BloodshotEyedGuy
26 days ago

Hmmm…what could possibly go wrong? Oh wait, it’s already happening. I guess I won’t be having it my way with pickles, onions on a sesame seed bun.

greeneyedguy
greeneyedguy
26 days ago

Employers might seek to reduce their number of employees or increase automation to maintain profitability”

They were already doing this for many years. McDonalds just opened an ENTIRELY AUTOMATED McDonald’s in Texas where the minimum wage was still only $7.25.

Jason
Jason
26 days ago

The 7 closed Starbucks locations in CA was found by the US Dept of Labor to be in retaliation against employees trying to unionize those locations. They were all ordered to be reopened (but unlikely as Starbucks will keep it tied up in appeals).

Larry Block
26 days ago
Reply to  Jason

accused of retaliation, accused is not found to be.

Jason
Jason
26 days ago
Reply to  Larry Block

They will be when it goes to a court his year. You think the locations they closed just happened to be the ones trying to unionize is just a coincidence? C’mon… https://www.reuters.com/business/starbucks-closed-23-us-stores-deter-unionizing-agency-claims-2023-12-14/

BloodshotEyedGuy
BloodshotEyedGuy
26 days ago
Reply to  Jason

Did Ted Baxter write this news report?

SeeMe
SeeMe
26 days ago

Can someone explain this to me:

What is the point of raising the minimum wage and PTO when it takes away jobs either through decreasing the amount of employees OR going out of business altogether? How is any of this beneficial to the economy? Not being snarky here – there seem to be serious consequences to these ordinances.

Joshua88
Joshua88
25 days ago
Reply to  SeeMe

The point is wealth and income inequality,

Morty
Morty
23 days ago
Reply to  Joshua88

Work hard and make yourself valuable to your employer and you can achieve wealth and income equality. People want to do nothing and still achieve wealth and income equality. Good luck with that.

Stevie
Stevie
26 days ago

Politicians don’t give a rats ass about these workers, it’s the money they’ve taken from the unions to pass these laws. If they did care about their constituents, why not a state wide $20 minimum wage? Because they didn’t get paid off.

Kevin
Kevin
26 days ago

Hey Brandon, do you know how many establishments in weho are affected by the new wage law? It applies only to large national chains and do we have any in weho?

Larry Block
26 days ago
Reply to  Kevin

Weho has McDonalds on La Brea, El Pollo on Santa Monica blvd..off the top of my head.

Sweet Dee
Sweet Dee
26 days ago

Meanwhile In-N-Out has been paying higher wages than all of it’s competitors and they are doing just fine.

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