President Donald Trump says California’s $20 fast-food minimum wage is “hurting businesses” — but the real story is far more complicated. New data shows fewer closures than predicted, falling worker turnover, strong statewide growth in restaurant openings, and a booming fast-food workforce. But franchise owners say rising labor, food, and insurance costs have crushed margins, forced price hikes, and pushed some locations to shut down. So who’s right?
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LearningTranscript
00:00California is, well, it's always ground zero for these massive high-stakes policy experiments, for better or worse.
00:08But rarely does one bring the kind of political fireworks we saw over the state's $20 an hour minimum wage for fast food workers.
00:18No, it became an immediate cultural battleground.
00:20I mean, on one side, you had former President Trump saying this one policy was laying siege to businesses.
00:27Right, predicting a total economic collapse.
00:29And on the other, you had Governor Newsom calling it this historic, necessary win for labor, you know, fixing decades of wage stagnation.
00:38And when you get claims that are that extreme, that polarized, you just know the reality is hiding somewhere in the messy, complicated middle.
00:46Exactly.
00:46So our mission today is to cut right through that noise.
00:48We're going deep into the economic data a year later, looking at the studies, the operational notes, to really analyze the actual outcomes.
00:54Right. Did we see the restaurant apocalypse that everyone predicted? Did the industry just melt down?
00:59Or was it this unqualified success story?
01:01And the truth, as we're going to find out, it involves, well, a little bit of everything.
01:06Industry expansion, worker stability, but also accelerated automation and, yeah, consumers footing part of the bill.
01:14We have to set the context first, though. This didn't happen in a vacuum.
01:17No.
01:17California is already, you know, famously one of the toughest places to run a business.
01:22And this wage pressure, this massive, like, 25 percent labor cost shock overnight.
01:29It landed at the same time as all these other burdens, soaring insurance, rising beef prices, and this is key, slowing consumer demand.
01:38It really was the perfect economic stress test.
01:41If the industry was going to collapse anywhere, you'd think it would be under these conditions.
01:44So let's start right there. Let's start with the loudest critics and that narrative of the restaurant apocalypse.
01:50Okay, let's unpack that, because if you only read the headlines, you'd think every fast food chain just packed up and left California.
01:56The narrative was doom. Widespread doom. Immediate closures.
02:01But the data tells a completely different story. I mean, almost an opposite story.
02:05It's totally counterintuitive. There was no widespread industry collapse. And crucially, no mass exodus of locations. In fact, if you look at the raw numbers, the opposite happened.
02:17The opposite.
02:17The fast food industry in California actually expanded.
02:20It expanded. That, I mean, that just defies the logic that most of the commentators were pushing.
02:25Yeah.
02:26How does an industry absorb a 25 percent cost increase overnight and then grow?
02:31Well, the hard numbers are pretty stunning. From the first quarter of 2024 to the first quarter of 2025, fast food chains added nearly 2,300 locations.
02:408,300.
02:41Across California as a 5 percent jump in locations.
02:445 percent growth.
02:45And here's the kicker. That growth rate is more than double the national average for fast food expansion in that same period.
02:51Wow.
02:51So the industry didn't just survive. It actively chose to invest and expand more. It suggests that while, yeah, margins got a lot tighter, the long-term viability of that market was still there.
03:02That's the ultimate counterpoint to the whole apocalypse narrative. But it does raise a question, right? Is that growth because of new efficiencies? Or was it just plans that were already in motion for years?
03:13That's a fair question. But either way, the industry grew. It didn't shrink.
03:18Right.
03:18But the policy wasn't just about business. It was really about the workers who have historically been caught in what you might call brutal churn. So did the people actually flipping the burgers see a real benefit?
03:32And that was the whole point of the law. And this is where the proponents, you know, they have their strongest data point. If the goal was improving labor conditions, the law was, well, undeniably effective.
03:43Absolutely. We saw a major shift towards stability. When you pay low-wage workers more, a couple of things happen. First, employee turnover. It fell significantly.
03:54So people are staying in their jobs longer.
03:56Much longer, which gives them more stability.
03:58And what about the actual money? The law said $20, but what did wages actually average out to?
04:02The increases averaged about 17% across the sector. Many were hitting that full 20, though. And that bump, even if it's not the full 25% that the businesses felt, it makes a massive difference in a place like California.
04:16You see the stories from workers, like that one from Zane Marte, who said the Rays finally let them, you know, move from just struggling to actually surviving.
04:25Exactly.
04:26Affording rent, car repairs, without that constant stress.
04:30That's the real-life impact. And if you look beyond the workers to the operators, that lower turnover is a huge, often overlooked benefit for them.
04:39Because high churn is incredibly expensive.
04:42It's so expensive. Every time you have to hire and train someone new, you lose time, money, efficiency.
04:47So the trade-off is you get reduced training costs, more experienced staff, maybe even better service.
04:53You're paying more per hour, but you get a more stable, higher quality labor pool.
04:57Precisely. Higher hourly wages for lower long-term expenses.
05:01Okay. But now we have to turn to the pressure points.
05:04Because we can't pretend the operators weren't deeply stressed. That's the other side of this whole experiment.
05:08Oh, absolutely. They were stressed. And that is the crucial balanced view.
05:13Franchisees, especially the ones running on really thin margins, they reported that their profitability fell. A lot.
05:20A 25% jump in your biggest cost. Overnight.
05:24Yeah. You combine that with rising food and insurance costs, it's an incredibly tough pill to swallow.
05:29It sounds like a formula for bankruptcy.
05:32Yeah, we already said the industry expanded. So how did they manage that shock? They must have had to restructure things.
05:37They adapted primarily in two ways. The first, and the most painful one for consumers, was passing those costs on.
05:44Price hikes.
05:45Yep. Prices at fast food spots went up between 10 and 12%. That's a thing you can see, you can feel, as a customer.
05:52So your $10 combo meal is now over $11 before tax. That adds up fast, especially for a family.
05:59It really does.
06:00The second big adaptation is more of a long-term one, accelerating efficiency and automation.
06:05Operators started cutting employee hours where they could. And critically, a lot of them began aggressively testing new tech.
06:13AI in the drive-thru, complex kitchen software, chatbots, anything to reduce their reliance on expensive human labor.
06:22When you say AI drive-thru, are we talking about the kind where you're just talking to a computer that writes down your order?
06:27It's getting way more sophisticated than that. These systems can not only take the order, but they can upsell, they can manage the flow of cars, they can handle multiple languages, all without a human being on a headset.
06:39And the wage mandate just sped that up.
06:41It accelerated its adoption by years. Look, if the cost of a person gets high enough, the return on investment for technology just skyrockets.
06:49Okay, let's go back to the margins for a second. If labor costs jumped 25%, but prices only went up, say, 10 to 12, where is that other 13% getting absorbed?
07:01That is a fantastic question. And the answer is, it's coming directly out of the franchisees' margins.
07:05So they're just less profitable.
07:07Permanently.
07:08They couldn't pass the full cost on without risking what's called demand destruction. People would just stop coming. So they chose to eat that remaining cost rather than lose their entire customer base.
07:20Which makes that expansion figure even more surprising. They're expanding into a less profitable business model.
07:27We did hear about some high-profile closures, though. We should touch on that.
07:31We should. A few specific operators, like a big franchisee with a bunch of Burger King and Taco Bell stores, they did close locations. They cited the new costs. But that was the anomaly.
07:42Not the rule.
07:43Not the widespread trend. And what's so fascinating is that the pressure wasn't enough to kill the industry, but it was absolutely enough to force it to change, to adopt new tech that might have taken another five years to roll out otherwise.
07:54Which brings us right to the consumer and the ripple effects. If prices are up 10-12%, what's the broader market reaction?
08:02Well, you have to remember who the core customer is. Fast food is mostly for low-to-middle income folks. And when prices jump that much faster than inflation, that demographic pulls back.
08:13So they're eating out less.
08:14Eating out less often. Which, you know, it's kind of a perverse outcome.
08:17How so?
08:18Well, the law was designed to help low-income workers, but it made food more expensive for low-income customers, which then puts downward pressure on sales for businesses.
08:27It's a classic economic feedback loop.
08:30The operators are trying to recoup costs, but their most reliable customers are now just making sandwiches at home instead.
08:36Exactly.
08:37Okay. Let's tackle another major argument in this debate.
08:41The spillover effect.
08:42The theory was, if fast food jobs jump to $20 an hour, then retail, full-service restaurants, other low-wage jobs, they all have to raise their wages to compete.
08:55Right. The economic domino effect.
08:57Did it happen?
08:57Surprisingly, no. The academic studies looking at year one data found a pretty decisive no.
09:03Really?
09:04No measurable, statistically significant spillover. Full-service restaurants didn't raise their wages. Retail didn't. Other low-wage industries didn't budge.
09:13But why not? I mean, the theory makes sense. If you can make $20 flipping burgers, why would you stay in retail making $16? People should have flocked to the higher-paying jobs.
09:22The theory is correct, but the reality was constrained by one critical factor. The fast food industry slowed its hiring way down.
09:30Remember, turnover fell. Workers were staying put. So since the existing workforce was stable, the industry didn't need to post tens of thousands of new job openings.
09:40So because fast food hiring basically dried up, those other sectors, like retail, they didn't feel the pressure. There was no one leaving to go work at McDonald's, so they didn't have to raise their pay to keep people.
09:52Correct. The labor migration that everyone expected just didn't happen because the destination, fast food, wasn't really hiring at a massive scale. That effectively killed the spillover theory, at least for year one.
10:03Okay. Last big point of contention. Job loss. The critics threw out this huge number, 16,000 jobs lost. It was all over the news. How does that hold up?
10:12That 16,000 claim is highly contested. It often relies on data that isn't seasonally adjusted or on specific industry surveys.
10:21And when the academic studies looked at it.
10:22When they look at the macro data, the reliable, seasonally adjusted figures, they find no measurable job losses at the industry scale. Total employment across California fast food held steady.
10:34But this is where that tension between the macro and the micro comes in, right? We have to be clear about this. If the industry didn't lose jobs overall, how do you explain the real stories from workers who did lose hours or their job?
10:45That is the crucial nuance. The industry headcount stayed stable, but operators managed that cost shock in other ways. They cut labor hours per shift. They let staff attrition happen and just didn't replace those workers.
10:59So a lunch rush might go from seven people on staff down to six.
11:03Exactly. So while the total number of jobs didn't shrink statewide, some individual employees absolutely saw their scheduled hours and their take-home pay get cut.
11:12It was a way for operators to stay profitable without having to do mass layoffs.
11:17So it's a job hour reduction, not necessarily a job headcount reduction at scale.
11:21Precisely. And that's a much harder thing to track, but it's the reality on the ground for a lot of individual workers.
11:26This all just forces us back to that messy middle ground, doesn't it?
11:31It seems like both sides were only half right. They were just focusing on the data that fit their narrative.
11:37So what's the bottom line here, the synthesis of all this after one year?
11:41I think the synthesis is pretty clear, and it's sort of three-pronged.
11:44First, the $20 minimum wage did not destroy the industry. It's still expanding.
11:49Right.
11:49Second, the policy undeniably achieved its main goal. It improved workers' lives through higher pay, and it promoted stability with lower turnover.
11:58And third, the flip side. It absolutely tightened margins for operators. It raised consumer prices by 10 to 12 percent.
12:06And maybe most importantly for the long run, it pushed businesses aggressively toward automation.
12:11And if you connect that to the broader political picture, it shows the limits of wage politics.
12:16Even with the good news for workers, California voters later rejected a statewide general minimum wage increase.
12:22So there's a limit to how much of a cost shock the public and businesses will tolerate.
12:26There seems to be. And this whole experiment, the good, the bad, all of it, is being watched by the whole country.
12:32If Governor Newsom runs for president in 2028, you can bet these exact outcomes will be a central talking point.
12:40Which I think raises a really important question for you, the listener, to think about.
12:44It builds on this idea of adaptation.
12:47If the main long-term impact of a higher minimum wage isn't industry collapse, but instead the dramatic acceleration of automation, what does that mean for the future?
12:56If human labor in these sectors becomes prohibitively expensive, how quickly will technology just replace those roles across the entire economy?
13:05That's the huge structural challenge that we're facing next.
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