Are Fast Food Job Statistics Proving the Minimum Wage Critics Wrong?
No - But the Government and the Main Stream Media Will Say Otherwise
In September 2023 California passed into law a minimum wage of $20 per hour for fast food workers for any fast-food restaurant that has more than sixty locations across the United States. Additionally, it installed the “Council,” composed of industry representatives and restaurant workers, who are authorized to boost the wage annually by up to 3.5%, based on inflation. The Council also advises on health and safety standards for fast-food workers and combats issues like wage theft. Interesting that the Council is worried about wage theft but not about employees stealing from their employer, a far more likely scenario given California’s draconian labor laws under which the government has given the authority to enforce labor legislation to predatory attorneys who are busy extracting huge settlements from California employers without proving wrongdoing.
There are many reasons why minimum wages are wrong and why they don’t do what they are intended to do, which I have discussed in previous articles. Further, as I have also discussed in a previous article the government loves increasing the minimum wage because it is likely the government will end up getting more of the increase in pay than the employee gets. However, that is not what this article is about. This article discusses the government and news media’s reaction to the increase in minimum wages one year down the line.
On August 20th, the State of California boasted on its website that California has added 11,000 new fast-food jobs, and there are now 750,500 fast food workers in California, most in the State’s history. Governor Newsom is quoted on that same webpage saying, “Despite those who pedaled lies about how this would doom the industry, California’s economy and workers are again proving them wrong.”
Of course, the mainstream media parroted Newsom’s claims in many articles, such as the one on Yahoo News, with the headline: "Proving them wrong": After raising minimum wage, California has more fast-food jobs than ever. And this headline from MSN.com: Newsom's Victory: Fresh Data Highlights California Fast Food Minimum Wage Success. I am sure a quick Google search would find many more.
I doubt Gavin Newsom will ever read this article but on the off chance he does, let me give him a message. When someone makes a prediction about the future, such as increasing the minimum wage will cause some fast-food locations to shut down and some workers to lose their jobs, and the prediction turns out not to be true, that is not a lie. That is a prediction that did not come true. There is a big difference between a lie and making a prediction that turns out not to be true.
Did those predictions turn out to be incorrect? Based on the statistics from the State of California, it would appear so. The law went into effect and after the law went into effect, those tricky fast-food companies, despite their moaning and groaning about the impact on the industry, just kept hiring people. And the result is Gavin Newsom, taking every photo opportunity he can, licking his lips like some Cheshire cat.
Why would fast food restaurants continue to hire people, if they have previously claimed that increasing the minimum wages would result in the opposite – a loss of jobs. Were they, as Newsom says, lying? Or does that answer that Newsom and the mainstream media reporters don’t have a clue how business works. Let me explain.
New hires in the fast-food industry can only come from two sources. The first one is existing fast-food restaurants. If a Kentucky Fried Chicken restaurant currently operates with fifteen employees (the average fast-food restaurant employs 15.4 employees according to ibisworld.com) and that location increases its number of employees to seventeen employees, then we can say we have gained two employees. The other source of new hires is new locations. If Kentucky Fried Chicken opens a new location with fifteen employees, then we can say that there are fifteen new fast-food workers.
Unfortunately, the State of California statistics disclosed on the webpage crowing about the increase in fast food workers, despite the increase in minimum wages of $20 per hour, doesn’t provide us with a breakdown of increases in employees in existing locations, and increases in employment from new locations. I spent some time on the State of California’s website trying to determine the answer to that question. I was not able to find that information (I am not saying it is not there buried in some statistical data, but I couldn’t find it). I then must wonder if that information is hidden intentionally.
What does it matter? Well, if existing locations did not hire any new employees, or worse, if they reduced their employee headcount, and all the new employees came from new locations, then Newsom’s crowing about how the success of his legislation would be a – you guessed it, a lie. I can’t imagine that Newsom does not have the statistics showing how many of those new hires came from existing locations, and how many came from new locations.
You might be thinking that if the increase in employment came from new locations, as opposed to existing locations, then all is good. If those fast-food operators continued to open new locations after the legislation passed, then that proves the minimum wage has no effect on the decision to open more locations. However, if you think this way, you would be wrong. Why? The reason is that every chain fast food restaurant that opened in the last year was already slated to be opened anywhere from one to four years prior to the date of opening.
Have a look around your neighborhood. Major fast-food restaurants are typically located in single use free standing buildings, on locations with easy access from major thoroughfares. There are exceptions. You can find major fast-food restaurants in airports and shopping malls, and in places like New York, on the ground floor of office towers, but most locations are single use buildings. That means in order to open a restaurant, the operator (McDonalds, Burger King, Wendys) must identify the location, purchase the real estate or enter into a lease with the property owner, ensure compliance with city ordinances and zoning laws, design the building, construct the building, obtain operating licenses, furnish the location and for some chains find a franchise operator.
All these activities occur before the location has hired one employee. I have a client of mine in the construction business. The client built a mixed used property for a customer that had entered into a ground lease with McDonalds for part of the property. The construction alone took over two years and the pre-construction phase had been going on for many years prior to breaking ground.
The point is that every fast-food restaurant that opened since the minimum wage law was passed had been in the process of being developed for anywhere from two to five years prior to opening. We will not know if this law affects the pace of new locations for years to come, and then we will not know unless the information is available on how many new locations are opening as compared to the past, and is Newsom even tracking that information and if he is, will he make it available?
What about existing locations? Have they hired more people or are they reducing their headcounts? Again, from the information disclosed from the State of California we don’t know, but we do know something about the fast-food industry and about automation.
The fast-food industry is extremely efficient. As mentioned, the average fast-food location has just over fifteen employees and many of those locations are open from early morning until late in the evening, and some open 24 hours. The fast-food industry operates hundreds of thousands of locations and has for many years. McDonalds alone has over 38,000 locations. The only was these extremely efficient operations can reduce headcount is through automation. The minimum wage law is not even one year old. Introducing technological innovation over tens of thousands of locations does not happen overnight. The technology must be developed, tested, refined and the deployed. The technology for self-service gas stations, ATMs, and self-check in at the airport took many years to develop and many more years to deploy on a major scale. We will not know if technology can and will replace fast food workers in a significant way in California for probably three to five years.
To summarize, it is most likely that all the increase in employment for fast food workers in California came from restaurants that were planned anywhere from one to five years ago, and it is too soon after the passing of the legislation to increase minimum wages to determine if technology will replace workers. Gavin Newsom surely knows both facts. Therefore, his touting of that the minimum wage law has had no effect on employment is either ignorance or a bold-faced lie. I will leave it to the reader to decide.
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