Moving away from letting the market set prices is rarely a wise move.
Moving away from letting the market set prices is rarely a wise move, and while there are some reasonable arguments for a minimum wage, the thumb that the state puts on the scale needs to be light. That’s not what has been happening in California, where the minimum wage for fast-food workers for chains with more than 60 outlets nationwide increased in April to $20/hour (the standard minimum wage in the state is $16). A separate set of increases was announced for the health-care sector.
Unsurprisingly, this was predicted to cause job losses, and unsurprisingly, those were beginning even before the increase. As NR’s Ryan Mills reported on April 5:
Ahead of the wage hike, some pizza chains began laying off delivery drivers and farming out deliveries to third-party apps, according to the Wall Street Journal. Other companies are considering raising prices, slowing hiring, cutting back on employee hours, closing their doors during slower periods, installing more ordering kiosks, and pausing expansion plans or expanding in other states instead.
And now (via the Daily Mail):
California‘s $20-an-hour fast food minimum wage has its first casualty.
Mexican chain Rubio’s Coastal Grill is shuttering 48 restaurants in the state — because of the ‘rising cost of doing business in California’.
‘While painful, the store closures are a necessary step in our strategic long-term plan to position Rubio’s for success for years to come,’ a Rubio’s spokesperson added.
Rubio’s, which at its peak had 200 restaurants scattered across various states, had already been shrinking, partly due to competition, and partly to the pandemic lockdowns, an earlier unhelpful intervention by government in its business. The company went into Chapter 11 in 2020 and was restructured. Prior to these latest closings, it was down to 134 outlets.
The Daily Mail Report quoted comments that Rubio’s suffered from its relatively small size. Other fast-food chains have thousands of outlets which can take advantages of economies of scale to help protect margins. Meanwhile, the progressive ideologues at the FTC are preoccupied with the (supposed) problem of concentration within the economy.
To be sure, the minimum-wage increase was a Californian policy, but the Biden administration has also presided over substantial increases in regulatory burdens. Those come with a cost. Heap more and more costs on businesses, and it is the smaller firms that will buckle first.
Rubio’s will now be reduced to 86 stores. How long before it’s 59? Paradoxically, the chain may be helped if voters agree to an increase in the overall Californian minimum wage to $18, which is set to be voted on in the fall. This would narrow the wage differential between those businesses now locked into paying $20, and those who can currently pay $16.
Nevertheless, it seems clear that the “rising cost of doing business in California” is set to continue rising. Possibly relatedly, California’s unemployment rate (as of April) was 5.3 percent, as against a national level of 3.9 percent.
In Ryan Mills’s report, there was a reference to “more ordering kiosks.” Turn to a Daily Mail report from late April to find this:
Harsh Ghai, a major Burger King franchisee with 140 restaurants on the West Coast, plans to have digital kiosks in all of them in two months. Until the wage hike, he planned to roll them out over the next five to ten years.
In addition to the direct toll taken by job losses, there are also the social costs. One of those arises out of the fact that fast-food places have provided starter jobs for many young people, offering them basic workplace training (as well as some money). Now, fewer of those opportunities will be available.
Oh yes, via the Wall Street Journal (April 28):
Since September, when California moved to require large fast-food chains to bump up their minimum hourly pay to $20 in April, fast-food and fast-casual restaurants in California have increased prices by 10% overall, outpacing all other states, [market-research firm Revenue Management Solutions] found in an analysis of thousands of restaurants across 70 large chains.