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A new UC Santa Cruz research report is raising new questions about the impact of California’s $20 minimum wage on fast food workers, prompting a sharp rebuttal from Gov. Gavin Newsom’s office.
The study, released late last year, suggests that the landmark wage increase could have unintended consequences across the state’s fast-food industry, including shorter work hours, higher menu prices and increased pressure on franchise owners to cut costs and automate jobs.
“Based on what we found, we think this bill is a classic example of ‘no good deed goes unpunished,'” Stephen Owen, an economics lecturer at the University of California, Santa Cruz, who conducted the study, said in a March 18 news release. “There are unintended consequences and ramifications, and I think there is no question that, overall, the results are not as good as policymakers had hoped.”
State officials strongly dispute these findings. “The ‘analysis’ is based on several interviews on a Santa Cruz street. It has not been peer-reviewed and its claims are completely false,” said Tara Gallegos, a spokeswoman for the governor’s office. “The facts are clear: Higher wages strengthen the economy and lift workers out of poverty.”
At the center of the debate is AB 1228, a comprehensive labor law that went into effect statewide in April 2024, requiring major fast food chains to pay their employees at least $20 an hour, well above California’s general minimum wage. When Newsom signed the bill in 2023, he said it would help workers keep up with the state’s high cost of living while improving conditions across the industry. “Today, we are one step closer to fairer wages, safer and healthier working conditions, and better training by giving hard-working fast food workers a strong voice and a seat at the table,” Newsom said at the time.
Here’s what you need to know about the study.
What did AB 1228 do?
AB 1228, enacted in September 2023, increases the minimum wage for fast food workers at national chains to $20 an hour, above the state minimum wage of $16.90 an hour.
The bill also established the Fast Food Council, which would set future wage increases (up to 3.5% per year) and labor standards for workers through 2029.
The nine-member national body is made up of workers, industry representatives and government officials.
researcher methodology
To assess the impact of California’s $20 minimum wage policy on fast food workers, researchers used primary and secondary data.
In primary data collection, the researchers used insights gained from face-to-face interviews with business owners and managers along Mission Street in Santa Cruz. Interviews included both franchisee and independent managers.
The researchers also assessed secondary data from publicly available economic and policy sources, such as economic reports and policy briefs related to the law. Labor market data. Historical data on past minimum wage increases in the state.
According to the researchers, “While Santa Cruz served as the primary location for in-person interviews and observations, the patterns identified will be evaluated against statewide policies that apply to fast food employers across California.”
Research shows that jobs are in high demand but few are available
Researchers at the university said one of the effects of increasing the fast food minimum wage was to create demand for such roles, which are now considered “significantly more desirable”.
Owen’s team analyzed data on the number of monthly job applications for Burger King’s franchise group in 2023, 2024 and early 2025 and found “a dramatic increase in the number of applicants.”
“August 2024 had one of the largest spikes, with a 400% increase compared to the same month in 2023,” the researchers said.
But at the same time, rising wages are increasing interest in fast-food jobs, while rising corporate labor costs are reducing demand for workers, the report found.
For example, from October 2023 to October 2024, one Burger King store reported a more than 21% reduction in employee shift work, the researchers found.
“Although some facilities have partially restored operating hours by 2025, working hour levels remain reduced from levels measured in 2023,” the researchers said.
At the same time, the study found that workers at 18 McDonald’s restaurants in the Central Valley worked “nearly 12% fewer hours over the 12-month period from April 2023 to March 2025, equivalent to the loss of 62 full-time jobs over the course of one year.”
Mr Owen said this was not an unexpected effect according to economic theory.
“What happens to labor demand if we raise the minimum wage is really a moot question. Rather, it’s a question of whether it’s good or bad for society,” Owen said in the release.
Researchers say the law’s impact on fast food workers has so far been “mixed.”
The researchers say that although hourly wages for most people are now higher, many people are working fewer hours, limiting their ability to improve their overall income.
According to researchers, fewer hours worked means fewer employees are eligible for benefits.
“Furthermore, many franchises have eliminated overtime, which was previously an important means for long-term employees to increase their income,” the researchers said.
One potential positive effect of the wage increase is that the attrition rate has decreased from 150%-300% to approximately 150%-200%.
Higher wages lead to higher costs for businesses and consumers, research says
Researchers say franchise owners are raising menu prices in response to rising labor costs.
“The new minimum wage for fast-food workers is expected to increase companies’ labor costs by about 25% and, unless companies make other changes, increase overall operating costs by about 9%,” Owen said, according to university researchers.
According to the study, since September 2023, franchise fast food restaurants have increased menu prices by approximately 8% to 12%.
The increase is likely the result of a combination of factors, including higher labor costs, other inflationary factors, and supply chain dynamics, the report said.
“These price increases will disproportionately impact low-income consumers, as fast food is often considered an ‘inferior good,'” the researchers said.
Despite the price increase, companies could still face an impact on their bottom line.
For example, one Burger King franchise owner in Northern California told researchers in Santa Cruz that he plans to close 10% of his worst-performing stores over the next two years to cushion the impact of lower profit potential.
“Companies can absorb some of the increased costs, but the question is for how long,” Owen said in the release. “I would argue that it’s probably going to be closed down in the future.”
Researchers have found that many fast food franchises are turning to workforce automation as a cost-cutting measure to avoid future store closures.
As an example, the university researchers noted that Burger King, McDonald’s, and Taco Bell have all invested in automated kiosks that take orders and payments.
“Some companies were also experimenting with AI voice ordering systems and automated dishwashing,” the researchers said, adding that ordering via mobile apps is also a growing trend.
Researchers say these trends will ultimately lead to significant job losses in the sector.
“The competitiveness of the fast food industry has always depended on increasing sophistication and efficiency, and the industry is ripe for automation,” Owen said in the release. “Is what we’re seeing a natural, organic adoption of these technologies in fast food? I certainly think there’s an element of that, but I would argue that it was accelerated by the wage pressures that were introduced.”
Researchers’ thoughts on future national-level policy makers
Owen said one of the key conclusions from his research is that “increasing the minimum wage may not be the best policy tool for state-level policymakers to achieve their desired goals.”
More support for the Golden State’s working poor is needed, but raising wages for the lowest-paying jobs could create “perverse incentives” for people to enter and stay in these industries.
“When we see a huge increase in applications for fast food jobs, if you’re running a state, that’s probably not the area you really want people to work in,” Owen said in the release.
Mr Owen said raising the minimum wage for a particular sector would have the effect of prioritizing that industry.
“So if you’re going to do that, it might make more sense to target higher value-add industries, like healthcare or manufacturing,” Owen says.
Even if the policy is aimed at large companies, minimum wage increases like this could have a ripple effect on small and medium-sized enterprises.
For example, the researchers said that while the minimum wage for fast food restaurants only applies to franchisees, some independent restaurants still feel “squeezed out.”
The researchers spoke with restaurant owners in Santa Cruz and found they felt pressured to raise wages and menu prices to compete for employees, and were concerned about long-term sustainability.
“Policies that can have unintended consequences, such as closing businesses or reducing the size of job opportunities, actually risk exacerbating economic inequality,” the university researchers said.
Instead, the researchers said, policymakers could look to alternative approaches, such as “improving social safety nets, changing the Earned Income Tax Credit, or significantly reducing business regulations, which could help people in need more directly while avoiding these potential pitfalls.”
