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Widespread closures or price hikes?

Gruel delved into the potential financial upheaval for restaurants, illustrating a scenario where higher labor costs could plunge establishments into financial distress.

“To ask a restaurant, which in a phenomenal scenario is profiting 10% on, let's say, 30% labor costs, to double their labor costs to 60%. That means they're going to be net negative 20%,” he explained, concluding that “every single restaurant will close overnight.”

To put things in perspective, California already boasts one of the highest minimum wages in the country at $16 an hour. Additionally, fast food restaurant workers in the Golden State will have their minimum wage increased to $20 an hour effective April 1, 2024,

Gruel is not the only restaurateur concerned about rising labor costs. Andrew Wiederhorn, chairman and founder of restaurant operator FAT Brands, recently cautioned that consumers should brace for higher costs while dining out when there are minimum wage increases.

“Someone's got to pay for it and the restaurant operators don't have the margin for that,” Wiederhorn said. “So, prices are going to go up.”

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'The worst run state'

Further broadening his critique, Gruel condemned the administrative efficiency of California.

“California is the worst run state,” he said bluntly.

The Golden State indeed faces challenges. Central to Lee's advocacy for a $50 minimum wage is the escalating cost of living in the state.

During a senate debate on Feb. 12, she claimed a United Way report found that a family of four living in the San Francisco Bay Area would need $127,000 a year just “to get by.” (Moneywise found a 2022 United Way Bay Area report that cited a family of four would need $109,088 to meet basic needs.)

For an individual working 40 hours a week at $50 an hour, their annual earnings would amount to $104,000. To put things in perspective, the median household income in America was $74,580 in 2022, according to the Census Bureau.

With files from Moneywise reporter Bethan Moorcraft

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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