California Pizza Chains Plan Layoffs in Advance of New $20 Minimum Wage

Who could possibly have seen this coming? California’s minimum wage for fast food workers is going up next week and some chains are already planning layoffs in response. Newsom signed the bill raising the minimum wage last September.


When it takes effect on April 1, fast food workers in California will have the highest guaranteed base salary in the industry. The state’s minimum wage for all other workers — $15.50 per hour — is already among the highest in the United States.

Democratic Gov. Gavin Newsom signed the law Thursday amid a throng of cheering workers and labor leaders at an event in Los Angeles. Newsom dismissed the popular view that fast food jobs are meant for teenagers to have their first experience in the workforce.

“That’s a romanticized version of a world that doesn’t exist,” Newsom said. “We have the opportunity to reward that contribution, reward that sacrifice and stabilize an industry.”

California Democrats and unions are always generous with other people’s money but the result will be pink slips for hundreds of workers.

Michael Ojeda, a Pizza Hut driver for eight years in Ontario, Calif., received notice in December that his last day would be in February, according to a letter from his former employer. Pizza Hut franchisee Southern California Pizza offered $400 in severance if he stayed through February, but Ojeda, who said he made hundreds of dollars a week in wages and tips as a delivery driver, went on unemployment instead…

Some pizza-chain operators in California are laying off drivers ahead of the wage law’s start and farming out delivery service to apps. Franchisees for Pizza Hut and Round Table Pizza, a chain of around 400 units founded in Menlo Park, Calif., have said they plan to lay off around 1,280 delivery drivers this year, according to records that major employers must submit to the state before large layoffs.


Other fast food chains are planning to raise prices:

“Everyone is going to have to pay more,” said Jack Hartung, chief financial officer of California-based Chipotle Mexican Grill CMG 1.65%increase; green up pointing triangle. Chipotle has raised its menu prices four times in the past two years and expects to increase them a further 5% to 9% in its California restaurants to cover the higher pay required for workers…

The National Owners Association, a group of McDonald’s franchisees, estimated it will cost Golden Arches operators an additional $250,000 annually per restaurant, an amount that can’t readily be absorbed, according to an email from the group last September. 

McDonald’s Chief Executive Chris Kempczinski said during an October earnings call that prices would go up at California restaurants as a result, but the company hadn’t determined by how much.

The other option for fast food chains is to employee fewer people. This price increase is driving chains in that direction as well.

Burger King aims to install more digital-ordering kiosks in its U.S. restaurants, with California now a focus, said Josh Kobza, chief executive of parent company Restaurant Brands International, in an interview.

 The new law only directly impacts fast food chains (and famously omits Panera Break for reasons that remain unclear) but once wages go up, other restaurants will also have to raise wages to compete for workers. Current restaurant workers suspect that will be bad news for California employees.


Restaurant workers have less than rosy expectations about what will happen in California after the minimum wage for most fast-food colleagues in the state jumps to $20 an hour on April 1…

The research, based on a nationwide canvass of 1,000 current or recent restaurant employees over age 18, also shows that 46% of respondents expect the hours of California workers to be cut. Forty percent anticipate layoffs, and nearly the same proportion (38%) predicts that hiring will slacken.

We’ll have to wait and see how this works out but I think it’s likely to be a big drag on California’s economy. As prices go up, people will choose to eat at these chains less often. That will lead to more layoffs in a state which, as of February, already has the highest unemployment rate in the nation.

California’s unemployment rate rose to 5.3% in February, the highest level among all U.S. states, as it lost 3,400 non-farm jobs during the month. 

California’s unemployment rate was up 0.1 percentage points from January as it surpassed Nevada, which previously had the nation’s highest unemployment rate. Nevada’s rate fell to 5.2%, from 5.3%, in the same time, according to data released Friday. The national unemployment rate was 3.9% in February, a two-year high.

Underscoring a faltering job market, California’s job growth in January was revised downward to 25,600 jobs compared to an earlier estimate of 58,100 jobs, according to the California Employment Development Department.


A big part of what has driven unemployment higher was the lengthy strike that shut down the entertainment industry, another downturn driven by unions. At some point maybe Democrats will realize there is a downside to letting unions run the state’s economy but it hasn’t happened yet.



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