A new working paper from the University of California, Santa Cruz, is raising fresh questions about the impact of California’s $20 minimum wage for fast‑food workers — and prompting a sharp rebuttal from Gov. Gavin Newsom’s office.
The study, released late last year, suggests the landmark wage hike may be producing unintended consequences across the state’s fast‑food industry, including reduced worker hours, higher menu prices and growing pressure on franchise owners to cut costs or automate jobs.
“Based on what we’ve found, I think this legislation is a classic case of ‘no good deed goes unpunished,’” UC Santa Cruz Economics Lecturer Stephen Owen, who conducted the study, said in a March 18 news release. “There are unintended consequences and knock-on effects, and overall, I think the results have definitely not been as positive as policymakers had been expecting.”
State officials strongly dispute those findings. “The 'analysis' is based on a handful of interviews on one street in Santa Cruz. It isn’t peer‑reviewed, and its claims are flat wrong,” said Tara Gallegos, a spokesperson for the governor’s office. “The facts are clear: higher wages are strengthening our economy and lifting workers out of poverty.”
The debate centers on AB 1228, a sweeping labor law that took effect statewide in April 2024 and requires large fast‑food chains to pay workers at least $20 an hour — well above California’s general minimum wage. When Newsom signed the bill into law in 2023, he said it would help workers keep pace with the state’s high cost of living while improving conditions across the industry. “Today, we take one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast‑food workers a stronger voice and seat at the table,” Newsom said at the time.
Here's what to know about the study.
What did AB 1228 do?
Singed into law in September 2023, AB 1228 increased the minimum wage for fast food workers at national chains to $20 per hour, higher than the state’s hourly minimum wage of $16.90.
The bill also established the Fast Food Council to set future wage increases — up to 3.5% annually — and working standards for workers through 2029.
The nine-member state body consists of workers, industry representatives and government officials.
Researchers’ methodology
To assess the impacts of California’s $20 minimum wage policy on fast-food workers, researchers used primary and secondary data.
For primary data collection, researchers used insights from in-person interviews with business owners and managers along Mission Street in Santa Cruz. The interviews included a mix of franchised business owners and independent business owners.
Researchers also assessed secondary data from publicly available economic and policy sources, such as economic reports and policy briefs related to the legislation; labor market data; and historical data on prior minimum wage increases in the state.
“While Santa Cruz serves as the primary site for direct interviews and observation, the patterns identified are evaluated in the context of a statewide policy that applies to fast food employers across California,” according to researchers.
Higher demand for jobs but less work to be found, study finds
One of the impacts of the fast-food minimum wage increase was the demand it created for such roles, which were now seen as “significantly more desirable,” the university’s researchers said.
By analyzing data for the number of monthly job applications for a Burger King franchise group for 2023, 2024 and early 2025, Owen’s team found “a dramatic increase in applications.”
“August 2024 had one of the largest spikes, with a 400% increase compared to the same month in 2023,” according to researchers.
Simultaneously, though, higher wages created a greater interest in fast food jobs, the higher labor costs for businesses are creating less demand for workers, the report found.
Between October 2023 to October 2024, for instance, one of Burger King's locations reported a more than 21% decline in shift work for employees, according to the team’s research.
“Some locations partially restored hours by 2025, but labor-hour levels remained reduced from those measured in 2023,” researchers said.
At the same time, 18 McDonald’s locations in the Central Valleys saw workers’ hours decline by “nearly 12% across 12-month periods from April 2023 to March 2025, equivalent to a loss of 62 full time jobs for a year,” the study found.
This is not an unexpected impact, per economic theory, Owen said.
“What happens to demand for labor when you increase the minimum wage is not really an arguable question; it’s more about whether that is better or worse for society,” Owen said in the release.
The legislation’s effects for fast-food workers, so far, “have been complicated,” researchers noted.
Even though most now earn more per hour, many also now have fewer hours, which limits improvements to their overall earnings, researchers said.
With fewer hours, fewer employees also qualify for benefits, according to researchers.
“In addition, many franchises have eliminated overtime, which had previously been an important way for longer-term employees to increase their earnings," researchers said.
One potential positive effect of increased wages has been reduced turnover, from between 150% and 300% to about 150% and 200%.
Higher wages lead to rising costs for businesses, consumers, study says
In response to rising labor costs, franchise owners have raised menu prices, researchers said.
“The new minimum wage for fast-food workers increased labor costs for businesses by approximately 25%, which Owen says could be expected to raise overall operating costs by about 9%, if businesses made no other changes,” according to university researchers.
Since September 2023, franchise fast food restaurants have increased their menu price by about 8 to 12%, the study found.
The increase was likely the result of a combination of factors, including increased labor costs, other inflationary factors, and supply chain dynamics, according to the report.
“Since fast food is often considered an 'inferior good,' these price increases will disproportionately affect low-income consumers, Owen says,” researchers said.
Despite the price increases, businesses may still face impacts on their bottom line.
One Burger King franchise owner in Northern California, for instance, told US Santa Cruz researchers they plan to close the lowest performing “10% of their locations over the next two years to mitigate the impact of reduced profit potential.”
“Businesses can absorb increased costs to a certain extent, but the question is for how long,” Owen said in the release. “I would argue that we will likely see closures ahead.”
To avoid future closures, researchers found that many fast food franchises are looking to labor automation as a cost-cutting measure.
As an example, university researchers pointed to Burger King, McDonald’s and Taco Bell all investing in automated kiosks to take orders and payments.
“Some were also piloting AI voice ordering systems and automated dish washing,” researchers said, adding that mobile app ordering is also a growing trend.
Such trends will ultimately lead to significant job losses in the sector, according to researchers.
“Competitiveness in the fast food industry has always been about progressions in sophistication and efficiency, so the industry is really ripe for automation,” Owen said in the release. “Is what we’re seeing a natural, organic adoption of these technologies in fast food? I think there’s definitely an element of that, but I would argue that it has been accelerated by introduced wage pressures.”
Researchers’ thoughts for state-level policymakers moving forward
Owen said one of the key takeaways from his research has been that “minimum wage increases may not be the best policy tool for state-level policymakers to achieve their desired goals.”
Though there is a need to better support the working poor in the Golden State, wage increases for the lowest paid jobs can create “perverse incentives” for those trying to enter and stay in those industries.
“When we see a massive increase in applications for fast food jobs, if you’re running the state, that’s probably not really where you want to be incentivizing people to work,” Owen said in the release.
When you have minimum wage increases to a specific sector, it has the effect of prioritizing that industry, according to Owen.
“So if you’re going to do that, then it might make more sense to target industries like healthcare or manufacturing that are more value-added industries,” Owen said.
Even if it is intended to target “big business,” such a minimum-wage increase policy can have ripple effects on small businesses.
With the fast-food minimum wage, for example, though it only applied to franchised restaurants some independent restaurants still felt “squeezed,” researchers said.
The research team found that, in speaking with Santa Cruz restaurant owners, they’ve felt pressured to raise wages and menu prices to compete for employees, leaving them concerned about long-term sustainability.
“Policies with potential unintended consequences like business closures or reduced scale of job opportunities actually risk exacerbating economic inequities, Owen says,” according to university researchers.
Instead, researchers said, policymakers can look to alternative approaches, such as “improvements to the social safety net, changes to the earned income tax credit, and substantial reductions in business regulations could avoid these potential pitfalls while also more directly helping those in need.”
This article originally appeared on Palm Springs Desert Sun: California’s $20 fast‑food wage tied to unintended effects, study finds
