Gov. Gavin Newsom continues to paint California’s $20 fast-food wage as a success, but he appears to be turning a blind eye to the growing evidence of its negative effects.
Since AB 1228 took effect in April 2024, fast-food restaurants across the Golden State have been forced to contend with a substantial increase in operating costs. Now, new research suggests the consequences have fallen particularly hard on smaller fast-food chains in the state.
Smaller Chains See Fewer Openings and More Closures
A new National Bureau of Economic Research (NBER) study took a unique look at the effects of California’s $20 fast food wage law by studying the operational changes affected fast-food establishments were forced to make. The study uses Your-Economy Time Series (YTS) data, which tracks individual establishments and maps their opening or moving into California (or “entry”), closing or moving out (or “exit”), and employment before and after the law went into place (2019-2025).
The authors look at impacts by chain size, and found smaller chains with fewer locations are driving the negative impacts felt by the industry:
- The number of fast-food establishments declined by roughly 11 percent;
- The number of fast-food establishments “entering” the market declined by roughly 20 percent; and
- The number of fast-food establishments “exiting” the market increased by up to 21 percent.
The particular focus on restaurants’ operational adjustments to the law suggests the effects of the $20 wage mandate are showing up not only in jobs as other studies have reported, but in restaurants’ ability to open in California and remain in operation.
The authors conclude that all the combined impacts on establishments – driven by smaller chains – suggests the overall effects of the $20 fast food wage law “have been negative.” They note that even though this “short-term” data point to the greatest impacts among smaller chains, if the negative trends among smaller chains continue, they could eventually lead to more substantial declines among the largest chains affected by the law.
Evidence of Minimum Wage Harm Continues to Grow
These latest findings add to a growing body of evidence documenting the effects of California’s $20 fast-food wage. Research conducted since the law took effect has linked the mandate to lower employment, especially among teens and low-skilled workers, as well as reduced hours and higher menu prices. Restaurant operators have also reported raising prices and scaling back expansion plans in response to higher costs.
Those consequences should come as little surprise. In EPI’s recent survey of US economists, 94% said a minimum wage as high as $20 per hour would make it harder for small businesses to stay in operation. Economists also broadly agreed that higher wage mandates would increase prices and push businesses toward automation, with concerns about these consequences growing as proposed wage levels rise. The findings reinforce why smaller establishments with fewer resources to absorb higher labor costs may be particularly vulnerable to steep wage mandates.
The research on California’s fast food wage fallout is piling up – and the findings point to all kinds of consequences felt by workers, restaurants, and the public. Golden State lawmakers should take a critical look at how this policy is affecting their state – and lawmakers elsewhere should heed the mounting evidence before importing the consequences.