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Reporting on California's Fast-Food Minimum Wage Raise Comes With Side Order of Fear Conor Smyth ([link removed])


What’s scarier than a shark attack? An increase in the minimum wage.

At least that’s what many corporate media outlets seem to want you to believe, given the apocalyptic tone of much of the coverage of California’s recent decision to raise the minimum wage for fast-food workers to $20 an hour, starting this April, a bump from the current level of $16.
CBS: As new minimum wages are ushered in, companies fight back with fees and layoffs

CBS's headline (12/27/23 ([link removed]) ) frames California's minimum wage raise as an act of aggression, against which fast-food companies have to "fight back."

While outlets like the New York Times (10/23/23 ([link removed]) ), the Associated Press (9/28/23 ([link removed]) ), CalMatters (12/21/23 ([link removed]) , 9/28/23 ([link removed]) ) and the Sacramento Bee (9/29/23 ([link removed]) , 9/15/23 ([link removed]) , 9/11/23 ([link removed]) ) have responsibly covered the policy change, highlighting the large positive effects that it will likely have on workers, others are obsessively accentuating the negatives.

Consider the following sampling of articles, by no means exhaustive, all of which link the minimum wage increase to higher prices or harm to workers:
* “Pizza Hut Franchisees Lay Off More Than 1,200 Delivery Drivers in California as Restaurants Brace for $20 Fast-Food Wages” (Business Insider, 12/22/23 ([link removed]) )
* “I'm a California Restaurant Operator Preparing for the $20-an-Hour Fast-Food Wage by Trimming Hours, Eliminating Employee Vacation and Raising Menu Prices” (Business Insider, 1/16/24 ([link removed]) )
* “As New Minimum Wages Are Ushered In, Companies Fight Back With Fees and Layoffs” (CBS, 12/27/23 ([link removed]) )
* “California Pizza Huts Lay Off All Delivery Drivers Ahead of Minimum Wage Increase” (USA Today, 12/26/23 ([link removed]) )
* “Fatburger Owner to Raise Prices, Trim Hours as California Hikes Minimum Wage” (New York Post, 1/16/24 ([link removed]) )
* “California Pizza Hut Franchises Announce Layoffs of Delivery Drivers Before New $20 Minimum Wage: Report” (New York Post, 12/27/23 ([link removed]) )


** Anecdotes instead of evidence
------------------------------------------------------------
Business Insider: I'm a California restaurant operator preparing for the $20-an-hour fast-food wage by trimming hours, eliminating employee vacation, and raising menu prices

"The money has to come from somewhere," a fast-food franchise owner tells Business Insider (1/16/24 ([link removed]) )—which doesn't mention that such franchises typically have a profit margin of 6–9%, higher than full-service restaurants (Restaurant365, 2/25/20 ([link removed]) ).

Extensive academic research on the topic of wage floors has repeatedly ([link removed]) found ([link removed]) that minimum wage hikes tend to have little to no effect on employment. The catch, of course, is that most of the hikes analyzed have been relatively modest, given the US’s stinginess towards workers. But a recent study ([link removed]) looking at the effects of large jumps in the minimum wage on the fast-food industry in California and New York found the result was actually higher employment, not mass layoffs. Is any of that research cited in these pieces? No.

Instead, the articles elevate anecdotes about what individual companies have done and say they plan to do in response to the minimum wage boost. The second Business Insider piece (1/16/24 ([link removed]) ), for instance, quotes the owner of four Fatburger franchises as saying, “I feel that there will be a lot of pain to workers as franchise owners are forced to take drastic measures.” Scary!

It’s worth emphasizing that these anecdotes about layoffs are entirely compatible with a story of the minimum wage hike having a negligible or even positive effect on employment. That’s because, when assessing the effect on overall employment, what matters is not whether there are individual companies that are laying off workers, but whether the net effect across all companies in the industry is positive or negative.

Consider that, as of late, a typical month has seen layoffs in the range of 160,000 ([link removed] and discharges have averaged,ranging from 131%2C000 to 249%2C000) in California. If you want to spin a story about how horrible the economy is, just run endless headlines on these layoffs—and ignore the fact that the state’s monthly hires have been averaging nearly 600,000.

Similarly, if you want to spin a story about how evil a rise in the minimum wage is, run endless headlines linking the minimum wage to layoffs, because layoffs will happen even if employment stays the same or increases overall. As Myth and Measurement: The New Economics of the Minimum Wage ([link removed]) , a classic text in the minimum wage literature, put it:

A hike in the minimum wage could lead to an increase in employment in some firms, and to a decrease at others. As a result, it is always possible to find examples of employers who claim that they will go out of business if the minimum wage increases, or who state that they closed because of a minimum-wage increase.

Despite this reality, the authors found that “on average…employment remains unchanged, or sometimes rises slightly, as a result of increases in the minimum wage.”


** 'Fears of skyrocketing prices'
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Yahoo: McDonald's $18 Big Mac Meal Goes Viral Again As Fast Food Minimum Wage Hike To $20 Triggers Fears Of Skyrocketing Prices And Layoffs, Leaving People Questioning: 'Maybe This Went Up Way Too Fast'

Yahoo (1/4/24 ([link removed]) ) claims the report of a Connecticut McDonald's "charging $18 for a Big Mac combo meal...is not isolated"—failing to mention that the average price ([link removed]) of a Big Mac combo meal in Connecticut is $10.79.

A worrying number of media outlets are allergic to this level of nuance. And perhaps none so much as Yahoo Finance. Tying fearmongering over minimum wage hikes to inflation hysteria ([link removed]) , Yahoo (1/4/24 ([link removed]) ) ran this mess of a headline at the start of the month:

McDonald's $18 Big Mac Meal Goes Viral Again as Fast-Food Minimum Wage Hike to $20 Triggers Fears of Skyrocketing Prices and Layoffs, Leaving People Questioning: 'Maybe This Went Up Way Too Fast.'

The grain of truth here is that prices have risen substantially ([link removed]) at fast-food restaurants lately, and especially at McDonald’s. Moreover, part of this increase can be attributed to strong wage growth. As Vox (1/9/24 ([link removed]) ) has reported:

According to [the economist Michael] Reich, for every percentage point increase in a fast-food firm’s labor costs, one might expect to see a bit less than a 0.333 percentage point increase in menu prices. This is a rough estimate, but it’s a decent rule of thumb. And it would imply that rising wages have nudged fast-food prices up by more than 9% since the pandemic’s onset.

These numbers imply that a minimum wage hike would result in higher prices, which is in line with what academic research has found ([link removed]) . The thing is, at least to this point, these price increases have been quite modest. The same recent analysis ([link removed]) of large minimum wage hikes in California and New York that found a positive employment effect also found that a “roughly 50% increase in the minimum wage resulted in an approximately 3% increase in prices.” The new minimum wage increase in California would be closer to a 30% jump (relative to where the wage was when the legislation was passed in the fall). There’s no firm basis to suggest that such a rise would send prices “skyrocketing.”


** 'Blaming whoever wrote that law'
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California Globe: The Number Of Victims is Growing of New $20 Fast Food Minimum Wage Law

Did a laid-off pizza deliverer really know the name of the Pasadena assembly member who wrote the minimum wage law? Regardless, the right-wing California Globe (1/2/24 ([link removed]) ) was able to get its defense of business owners in the voice of a low-wage worker distributed widely through Yahoo (1/4/24 ([link removed]) ).

But Yahoo doesn’t need a firm basis for its narrative; all it needs is some good old right-wing propaganda. So it turns to reporting from the California Globe. As the Sacramento Bee (10/29/20 ([link removed]) ) detailed in a 2020 expose of California news sites backed by conservative political operatives:

The California Globe, founded by an associate of Trump’s son-in-law Jared Kushner, describes itself as “pro-growth and pro-business, nonpartisan and objective”—but serves up a steady diet of conservative news and opinion. The Globe boasted that its stories racked up 1.1 million page views in July, which it described as a landmark achievement for the two-year-old site.

Unsurprisingly, under the headline “The Number of Victims Is Growing of New $20 Fast-Food Minimum Wage Law,” the Globe (1/2/24 ([link removed]) ) was able to cobble together some horror stories about the effects of the new minimum wage legislation. The piece centers around the testimony of two workers who were victims of the recent layoffs at Pizza Hut. The core takeaway is basically the following quote, attributed to an anonymous Pizza Hut worker:

I, as well as pretty much everyone else here, is blaming whoever wrote that law or bill or whatever. There are a few who are saying that Pizza Hut is doing this out of greed or that they could have cut costs elsewhere, but most are like, maybe this went up way too fast. Some workers benefit, others are now out of a job. So the guy who wrote it, [Assemblyman] Chris Holden [D-Pasadena], as well as anyone else who thought this was a good idea. Great job. We hate you forever now.

Again, as unfortunate as what happened to these two workers is, the fact that they were laid off tells us very little about what the overall impact of the new minimum wage law will be. But that won’t stop media outlets from cynically elevating such stories to demonize a policy that is set to raise the wages of hundreds of thousands of workers. Yahoo borrows parts of this quote, as well as others from the article, to fill out its piece, giving the Globe a further boost beyond its already substantial circulation.


** Defying 'economics and common sense'
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WSJ: California’s Fast-Food Casualties

The Wall Street Journal (12/28/23 ([link removed]) ) states that when the government raises wages above what the market determines, "jobs simply disappear"—an ideological assertion contradicted by decades of research (CEPR, 2/13 ([link removed]) ).

National conservative media have likewise been promoting the propaganda line that the minimum wage increase will inevitably lead to job loss (with the benefit of increased wages to hundreds of thousands of workers conveniently ignored). At the end of last year, the Wall Street Journal published an editorial (12/28/23 ([link removed]) ) headlined “California’s Fast-Food Casualties,” which opened:

California’s $20 an hour minimum wage for fast-food workers doesn’t take effect until April, but the casualties are already piling up. Pizza Hut franchises this week told more than 1,200 delivery drivers that they’ll lose their jobs before the higher wage kicks in. Gov. Gavin Newsom no doubt sends condolences, though what he should send is an apology.

It continued by arguing that “it defies economics and common sense to think that businesses won’t adapt by laying off workers” in response to the new law. But does it? Or is skepticism of the idea that the law will lead to net job loss warranted, given the existing evidence base? The history of debates over the minimum wage is filled with claims about the detrimental effect of raising the wage floor that have repeatedly flopped in the face of empirical evidence.

But maybe this time will be different. The California law breaks with the standard approach towards wage floors in the US, where a floor is set across all industries in a particular region. Instead, the law sets a floor for a particular sector, and it establishes a wage council ([link removed]) that will oversee wage increases from 2025 to 2029, something novel ([link removed]) in American labor law. The layoffs that we’re seeing could have something to do with this unique setup.

Because the law sets a minimum standard solely for the fast-food industry, it leaves a loophole for fast-food companies to exploit. Rather than keeping delivery services in-house, they can dump those workers off on companies like DoorDash and Uber Eats, which are not subject to the same labor regulations. Because these companies can pay the workers less, the most sensible decision may now be for fast-food companies to scrap their delivery teams and outsource to outside delivery services.

This is a totally plausible story about what’s going on, though not the only ([link removed]) plausible story. But even if it does fit with reality, it just looks like these delivery jobs are being transferred out of the fast-food sector, with the economy-wide net effect on employment unclear. So to cite these layoffs as evidence that the minimum wage hike will have a negative overall effect on employment is at best premature.

All of this focus on the possibilities of layoffs, moreover, totally distracts from the far-reaching benefits that the policy change is likely to have. California has over half a million fast-food workers, who, as of 2022, earned a median wage of a bit over $16 ([link removed]) . Raising the minimum wage to $20 would directly affect the vast majority of those in the fast-food industry—even the 90th percentile worker made less than $20 in 2022. If there is in fact some rise in unemployment, which is not entirely out of the question, it would have to be pretty substantial in order to cancel out the positive effects of the wage boost.


** Broadening the discussion
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It’s the media’s role to inform the public about reality, not to run sensational headlines about good intentions bringing disastrous consequences, as effective as that may be at attracting eyeballs. A solid start on the way to fulfilling this role would be for media outlets to consistently bring in experts to talk about the decades’ worth of research on the effects of minimum wage hikes. Some outlets already do this. Others, not so much.

Even better would be for the media to more frequently broaden the discussion beyond the minimum wage to other policy changes that would complement the minimum wage or fill in its gaps, policies like expanded unemployment insurance, the Earned Income Tax Credit, a job guarantee, and universal basic income. The narrow focus on sensational events does little other than distort the picture. Taking a wider view would bring things into focus.

At the moment, however, it might be best just to ask media outlets to stop trotting out propaganda lines that should have died a long time ago.
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