The Blubber

Lawrence Cheng, whose family owns seven Wendy’s locations south of Los Angeles, was busy taking orders and preparing food at the Fountain Valley location in Orange County. He used to have nearly a dozen employees on the afternoon shift but now schedules only seven to manage the significant increase in labor costs after California raised the hourly wage for fast food workers from $16 to $20 on April 1.

“We kind of just cut where we can,” Cheng said. “I schedule one less person, and then I come in for that time that I didn’t schedule and I work that hour.”

Cheng hopes the busy summer season, when students are out of school and families are eating out more, will help cover the added costs.

Experts say it’s too early to determine the long-term impact of the wage hike on fast food restaurants and whether there will be widespread layoffs and closures. Historically, wage increases haven’t necessarily led to job losses. When California and New York raised their minimum wage to $15, job growth continued, according to a University of California, Berkeley study.

So far, the industry has shown job growth. In the first two months after the law took effect, the industry added 8,000 jobs compared to the same period in 2023, according to the U.S. Bureau of Labor Statistics. Figures for June are not yet available.

Joseph Bryant, executive vice president of the Service Employees International Union, which advocated for the raise, said the industry has added jobs under the new law, and higher wages are attracting better job candidates, reducing turnover.

However, many fast food chain operators are cutting hours and raising prices to stay afloat.

“I’ve been in the business for 25 years and two different brands, and I never had to increase prices as much as I did this past April,” said Juancarlos Chacon, owner of nine Jersey Mike’s locations in Los Angeles.

A turkey sub that used to be under $10 is now $11.15. While customers are still coming in, they are cutting back on extras like drinks, chips, and desserts.

Since lunch is their core business, Chacon has reduced staffing in the mornings and evenings and cut a few part-time employees, going from 165 to about 145.

The wage increase also applied to shift leaders, assistant managers, and others, which represent about 35% of his costs. “I’m very nervous,” Chacon said.

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he’s received panicked calls from California restaurant operators and suppliers still recovering from the COVID-19 lockdown. He predicts a growing divide between large corporations like McDonald's, which can invest in automation, and smaller, regional chains that may face significant reductions or closures.

Cheng said he has no plans to lay off any of his 250 Wendy’s workers. Instead, he’s cutting overtime and reducing the number of workers per shift. He also raised menu prices by about 8% in January in anticipation of the law. Despite these measures, he was $20,000 over budget for a two-week pay period.

Jot Condie, president and CEO of the California Restaurant Association, which opposed the minimum wage increase, said businesses are also dealing with rising rents and food costs.

“When labor costs jump more than 25% overnight, any restaurant business with already-thin margins will be forced to reduce expenses elsewhere,” Condie said. “They don’t have many options beyond increasing prices, reducing hours of operation, or scaling back their workforce.”