Abstract
On April 1, 2024, California implemented its first sectoral wage policy, setting a $20 floor on hourly pay for workers in the larger fast food restaurant chains and snack and nonalcoholic beverages chains. A tripartite Fast Food Council will determine future wage increases as well as recommend industry-wide standards for working conditions and training practices. The $20 standard, the highest in the U.S., applies to an industry with about 750,000 workers. About 90 percent of the covered non-managerial workers were paid less than $20 before the policy, more than twice as much as in previous policies. By these metrics, the new wage standard lies well outside the range of previous policies that have been studied in the minimum wage research literature.
To fill the knowledge gap, we use novel data on wages and prices at individual restaurants as well as BLS industry employment data and deploy difference-in-differences event designs to identify the sectoral policy’s causal effects on wages, employment, prices and price passthroughs. Our restaurant wage data come from 35,680 job posts on Glassdoor, an internet job site. We obtained price data by scraping menus from 1,585 California restaurants and 1,694 restaurants in states without a minimum wage increase since 2009. We find that the policy increased average hourly pay by a remarkable 18 percent, and yet it did not reduce employment.
The policy increased prices about 3.7 percent, or about 15 cents on a $4 hamburger (on a one-time basis), contrary to industry claims of larger increases. About 62 percent of the increased costs were passed on to consumers in higher prices, suggesting that restaurant profit margins, which were above competitive levels before the policy, absorbed a substantial share of the cost increase. Since demand for fast food is highly price-inelastic, the price increases likely raised restaurant revenue. Franchise owners pay a fixed share of their revenue in royalty fees to their chains’ parent companies. The sectoral wage standard thus benefits the parent companies.
