Despite dire warnings, raising California fast-food wages to $20/hour didn’t ruin restaurants or raise prices, study finds — here’s what did change

Flash forward three years and things have improved for fast-food workers like de la Torre, in large part thanks to a new $20/hour minimum wage specifically for workers at California's fast-food, snack and beverage chains.

When the new minimum wage kicked in April 2024, restaurant industry groups protested the $4 premium they had to pay workers on top of the existing $16 California minimum wage at the time.

They claimed it would take a Big-Mac-sized bite out of their profits, forcing them to spike prices and shed jobs.

But new research from the University of California, Berkeley shows that giving fast-food workers that raise transformed fast-food workers' lives with minimal downside.

In an industry notorious for wage theft, labor violations, and unpredictable just-in-time work schedules, there were no job cuts or cuts in hours. Menu prices increased by pennies, even as employees' income grew, according to the new study.

What researchers found

Economists Denis Sosinskiy and Michael Reich dove into a massive trove of data: census figures on employment and wages, pay information from online job postings and the payment platform Square — even anonymized cellphone-based location data measuring how long workers spent in fast-food chains.

What they found: Two fiscal quarters after the change, fast-food workers' hourly wages were not only up by 11%, but so were their overall weekly earnings — also up 11%, indicating that their hours were not cut at all.

What about price hikes for menu items? The researchers pulled Uber Eats menus from 900 restaurants in California and 1,100 in other states to measure changes in prices before and after the policy's effective date.

While employees' earnings went up 11%, fast-food joints' total costs only went up 3% as labor represents only a small part of their overall spending. The restaurants passed half of that cost increase on to consumers.

The higher wages accounted for a 1.5% increase in menu prices (2) — equivalent to an extra 19 cents for a $12.42 Big Mac meal (3).

'The fast-food industry is a poverty employer'

If it's been a while since you were paid by the hour, $20 may sound generous, but it's not a lot of money. For a full-time worker working 40 hours a week, that's a gross $41,000 per year — about $23,000 less than the average American salary (4) of $64,220.

That means a full-time fast-food worker in California (5) takes home $2,809 a month based on a 40-hour work week. But most don't get anywhere near 40 hours.

According to a 2022 report from the Harvard Kennedy School, 38% of California fast-food employees work fewer than 35 hours per week. Most get fewer hours than they ask for (6)

The actual average is 26 hours, according to a 2023 report from the Economic Roundtable, which lines up with what the Berkeley researchers found (7).

That means the typical worker's monthly take-home pay is $1,783, most of which flies right back out the door for rent — if you can even afford it. The average studio apartment in California is $1,884 per month (8) and upwards of $2,500 (9) in San Francisco.

More realistically, you'd pay $834 to crash on the couch of a three-bedroom apartment split between four people. At 26 hours a week, that means you'd spend 47% of your earnings on rent and have $237 per week left over to cover absolutely everything else.

But that's still a big improvement from the old $16/hour minimum wage. In the same shared accommodation scenario, at $16 an hour, the same fast-food worker would have to spend a whopping 57% of their take-home pay on rent and have just $207 per week left over.

It's no wonder situations like de la Torre's were so common. According to the union-commissioned Economic Roundtable study, before the 2024 wage hike, more than 10,000 fast-food workers in California were homeless, and 43% lived in overcrowded housing.

"The fast food industry is a poverty employer, with a larger share of its workers in poverty than any other industry," the report says.

Many of these problems persist, but an extra $30 a week helps prepare you for surprises like a sudden spike in the price of gas in California, where a tank now costs $88 with tax (10), $23 more than at the beginning of the year.

When corporate buyers act as one to suppress wages

The Berkley researchers found that employers passed on only half of their cost increase to consumers, which is "consistent with a monopsony model" — related to, but different from, a monopoly.