California fast-food workers are set to receive a significant pay hike in April—and chain owners say they're preparing to cover the bump in operational costs by raising the prices on their burgers and burritos. The Wall Street Journal reports that minimum wage for this group will rise to $20 an hour, 25% more than the state's current $16 hourly minimum. (That rate will remain the same for workers in other industries, per Cal Matters, but health care workers will also see a wage increase). KTLA notes that the change spurs from a new law that aims to help the state's 762,000 fast-food workers weather inflation and rising living costs.
"They're seeking a living wage," per KTLA consumer reporter David Lazarus, who notes that more older workers are joining the fast-food ranks. "That's what the California law is meant to address." Consulting firm Revenue Management Solutions estimates that for every dollar in wage increases, chains must increase prices by 2% to stay in line with their profit margins.
- McDonald's franchise group the National Owners Associate says the pay hike will cost restaurants up to $250,000 per each year. The chain is still figuring out price increases.
- Over at Chipotle, where menus have seen several recent price increases, the company plans to bump them up again by 5% to 9%. "Everyone is going to have to pay more," says CFO Jack Hartung.
- Marcus Walberg, whose family owns four Fatburger franchises in Los Angeles, tells Business Insider prices will go up 8% to 10%.
"What you will lose—the kids getting their first job at McDonald's," says Walberg. Other companies vowed to invest more in automation. The Journal notes that a study by the Congressional Budget Office found that boosting the federal minimum wage to $15 would have both pros and cons. While it would bring scores of people out of poverty, there's also the risk that companies would raise prices and cut up to 1.4 million jobs. Financial planner Justin Rush says there could be a downstream effect in raising labor costs, but it can also spur economic growth. "If low-wage workers experience an increase in income due to a minimum wage hike, they may have more disposable income to spend." (AI may be taking orders at fast-food chains soon enough.)