Fast-food prices hiked after California ups minimum wage
Dear John,
There’s got to be a great joke that illustrates the aphorism about insanity being the habit of doing stupid stuff over and over with the expectation that you’ll get different results. It’s clearer now that the joke may be California.
Following Governor Gavin Newsom’s decision — after some complicated political wrangling between Newsom and a furious fast-food lobby — to impose a $20 hourly minimum wage on the fast-food industry, Chipotle and McDonald’s announced on Q3 earnings calls last week that they’ll be raising menu prices in the state.
How big a hit will customers take — if they’re willing to take it at all?
"We’ve been studying that . . . it’s going to be a pretty significant increase to our labor," Chipotle CFO Jack Hartung said on the company’s call. "We haven’t made a decision on exactly what level of pricing we’re going to take, but to take care of the dollar cost of that and/or the margin part of that, we haven’t decided yet where we will land. It’s going to be a mid- to high single-digit price increase, but we are definitely going to pass this on. We just haven’t made a final decision as to what level yet."
"There is going to be a wage impact for our California franchisees. I don’t think, at this point, we can say exactly how much of that is going to work its way in through pricing," McDonald’s CEO Chris Kempczinski said on his company’s earnings call. "Certainly, there’s going to be some element of that, that does need to be worked through with higher pricing. There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity."
It didn’t take an economist to predict this outcome. I called it in a National Review article about Assembly Bill 257, what was called the Fast Act. "In an industry that operates on razor-thin margins," I wrote, the Fast Act "will have two immediate predictable outcomes":
On the worker side, higher wages, richer benefits, and more cumbersome labor laws will lead to job cuts as franchise operators seek to curb their skyrocketing labor costs. In some places, restaurant owners will rapidly automate; ATM-like ordering kiosks will replace actual people — primarily immigrants and other minority people who, by way of the fast-food business model, are just beginning their ascent on the American economic ladder. Other business owners may simply sell off to larger enterprises whose high volumes will allow them to cope with slimmer margins. That will make it harder for workers to rise into positions of management and ownership.
On the customer side, as some franchisees simply close permanently, we’ll see the expansion of what progressives have called "food deserts" in poor communities already underserved by grocery chains. Customer service in the remaining stores will decline and prices will rise.
So, in a kind of grim partnership, poor customers and rising workers, immigrants and the native-born, will suffer together.
In that January article, I called this "the iron law of California progressivism: Claim that new laws will help the poor. When the actual effect turns out to be catastrophic for the poor, blame capitalism/markets/billionaires/racism, and expand government control of the business. Rinse, repeat, and promote as a national — even global — model for equity. And if Californians have anything to say about it, AB 257 will be coming to you, no matter where you live in the United States."
Indeed, Biden’s forever-acting Secretary of Labor Julie Su has already expressed her unbridled enthusiasm for California’s policy. That’s no surprise, either: Su was California’s secretary of labor, and is closely tied to the union leadership behind a number of execrable labor policies. Among the most notorious is AB 5, the law that banned independent contracting in key industries, including Uber drivers and trucking companies. When AB 257 emerged from the same fetid philosophical swamp, there was Su, now part of the Biden administration, telling the bill’s supporters, "The Department of Labor stands with you. The Biden-Harris Administration stands with you."
Now, as the obvious consequences of this bill are becoming evident (and trust me, this is only the beginning), it’s worth asking if the administration still stands with what Newsom and California Democrats have unleashed on the state.
This article by CPC president Will Swaim originally appeared on nationalreview.com.
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