This Labor Day, tens of millions of Americans will hit the road to enjoy the holiday weekend that marks the end of summer. Many travelers plan to stop by their favorite fast-food restaurants because it’s not a road trip without a drive-thru stop.
California is a magnet for many families in the Mountain West who either want to explore the state’s beaches and palm trees or attractions like Disneyland and Hollywood.
But travelers, be prepared to shell out a little more for your burger, Coke and fries.
It’s one of the ripple effects of California’s $20 minimum wage law for fast-food workers.
The law applies to any restaurant with at least 60 locations. So expect raised prices at McDonald’s, Burger King, Chipotle, Wendy’s, Starbucks, Taco Bell and Chick-fil-A.
Is the wage hike an indicator of a healthy or sick economy?
This law allows more wageworkers to afford California’s pricey cost of living. And it’s an indicator of a healthy economy if consumers can absorb higher prices.
But Americans are already struggling to shake off inflation fatigue, thanks to the rising prices they’ve experienced over the last several years.
Inflation readings in July were at 2.7%, after averaging around 5% the past few years.
That’s a big reason the meal wars started in May 2024. McDonald’s rolled out a $5 meal that included small fries, a four-piece Chicken McNuggets and a choice of drink. It created this value proposition because the burger chain realized that amid continued inflation, affordability was everything. Other chains rolled out similar deals. A report in USA Today argued the meal wars rolled over into 2025 with Wendy’s two menu items for $7 deal and Burger King’s $5 combo meal.
More Americans are opting to spend their budget on groceries instead of eating out, Christopher Hydock, a professor at Tulane University’s School of Business who specializes in consumer experience and retail pricing, told USA Today.
“With fewer customers eating out, restaurants are forced to compete for fewer customers, which forces them to find ways to differentiate their offerings,” he said. “Since price is also increasingly a concern for customers, value meals are one logical way of doing so.”
According to a restaurant industry magazine, most quick service chains report declining sales at an average of 0.6%.
McDonald’s, which reported a 2.5% increase, also considered it a weak quarter despite its Minecraft Movie Meal promotion.
“Real incomes are down with the low-income consumer,” McDonald’s CEO Chris Kempczinski said last month, according to the report. “That is absolutely going to put pressure on visits in the QSR industry.”
California’s wage law created more uncertainties in an already struggling industry.
The Deseret News previously reported on a recent study that found employment at fast-food restaurants dipped by 2.64% from September 2023 to September 2024 in California, even though the rest of the U.S. experienced a rise in employment in this industry.
“Our median estimate translates into a loss of 18,000 jobs in California’s fast-food sector relative to the counterfactual,” researchers Jeffrey Clemens, Olivia Edwards, and Jonathan Meer wrote in their paper published July this year.
Another recent study found slightly conflicting results, where wage hikes didn’t have as many negative effects as some experts claim.
“We find that the policy increased average hourly pay by a remarkable 18 percent, and yet it did not reduce employment,” a study by the UC Berkeley Institute for Research and Labor Employment published in September 2024 concluded.
These dueling studies suggest the argument remains unresolved. But as California tests the populist progressive policy through one industry, other sectors and states could be next.
New York City was the first to model California’s sector-specific approach. In April, the metropolitan city passed a law that would increase the minimum pay for app-based restaurant delivery workers to $21.44 an hour.
These gig workers averaged about $5.39 an hour before the first mandated pay rate of $17.96 took effect in 2023.
As other places take notice, California faces the decision of whether to raise wages again next year or not.
In January, the state authorized the Fast Food Council to propose yearly adjustments to the minimum wage. The Council suggested a $0.70 increase and will vote on it as the debate surrounding the policy continues.