California Fast-Food Chains Are Now Serving Sticker Shock (due to higher state minimum wage)

Higher state minimum wage went into effect April 1; chains say burritos and burgers are getting more expensive in response

By Heather Haddon of The WSJ. Excerpts:

"Restaurants for months have said menu prices in California would rise as the state raised the minimum wage for fast-food workers. Now they are following through.

Consumers picking up burgers, burritos and chicken sandwiches at chains in the Golden State are grappling with prices that for months have been rising at a faster clip than in other states, according to market-research firm Datassential. 

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, the firm found in an analysis of thousands of restaurants across 70 large chains."

"California raised the minimum wage for fast-food workers to $20 an hour in April, a 25% increase from the state’s broader $16 minimum wage."

"California restaurants already had some of the highest fast-food prices in the country, according to market-research firm Revenue Management Solutions. Every month since October, California fast-food and fast-casual restaurants have raised prices across a greater percentage of their menus compared with restaurants in the rest of the country, Datassential found."

"Customers across the country are starting to pull back on restaurant visits after eateries pushed up their prices in response to inflation, industry data shows."

Wages are the price of a resource, labor. When the price of a resource increases the supply of the good in question will decrease or shift to the left, leading to an increase in the price of the good. In this case, fast-food.

In 2013, Christina D. Romer, who was the first chair of the Council of Economic Advisors under Obama, wrote an article called The Business of the Minimum Wage in The NY Times. Excerpt:

"Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.

Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help."