LOS ANGELES (AP) — Lawrence Chen, who runs seven Wendy’s restaurants in South Los Angeles, took an order at the register on a recent day, emptied a basket of steaming fries and chicken nuggets and sprinkled salt on them with a flourish.
Mr. Cheng once employed nearly 10 people on the afternoon shift at his Fountain Valley location in Orange County, but now employs just seven people per shift as he struggles to absorb a sharp rise in labor costs after a new California law raised hourly wages for fast-food workers from $16 to $20 starting April 1.
“You just cut where you can,” he said. “You take one person out and have them come in and work hours they weren’t scheduled to work.”
Chen hopes that business will be stronger during the summer, when students are off school and families spend time traveling and eating out, and that profits will be enough to cover the extra costs.
Experts say it’s too early to tell what the long-term impact of the wage hike will be on fast-food restaurants and whether it will lead to mass layoffs or closures. Past wage increases haven’t always led to job losses: Jobs continued to grow when California and New York raised their minimum wages from the federal rate of $7.25 an hour to $15, nearly doubling the rate, according to a University of California, Berkeley study.
So far, the industry has continued to see job gains: In the first two months after the law was passed on April 1, the industry added 8,000 jobs compared to the same period in 2023, according to the U.S. Bureau of Labor Statistics. June figures have not yet been released.
Joseph Bryant, vice president of the Service Employees International Union, which pushed for the wage increase, said not only has the industry added jobs under the new law, but “several franchisees have noted that the wage increase has already attracted more qualified job seekers and reduced turnover.”
But many of the operators of major fast-food chains say they are cutting opening hours and raising prices to stay in business.
“I’ve been in the industry for 25 years, working with two different brands, and I’ve never had to raise prices as dramatically as we did in April,” said JuanCarlos Chacon, who owns nine Jersey Mike’s stores in Los Angeles.
Turkey sandwiches for under $10? Now they’re $11.15. Customers are still coming, but they’re saving money by not serving drinks, chips or desserts.
With lunch being the bulk of the business, Chacon has been cutting back on morning and evening staffing, and he’s also cut some part-time employees, bringing his total headcount down from 165 to about 145.
It’s not just new employees who are getting raises: shift leaders, assistant managers and other higher-ranking employees also need raises, with labor making up about 35% of costs.
“I’m very nervous,” Chacon said.
Aaron Allen, founder and CEO of a global restaurant consulting firm, said he’s getting panicked calls from restaurateurs and suppliers in California, which is still recovering from the coronavirus lockdown. He predicts a widening gulf between companies like McDonald’s, which have the money to invest in automation and cut costs through “menu restructuring,” and smaller, locally-focused chains that could go bankrupt or face drastic cuts in their restaurant counts.
Chen said he has no plans to lay off Wendy’s 250 employees, instead choosing to cut overtime hours and reduce the number of employees on each shift, and he also raised menu prices by about 8% in January in preparation for the new law.
Still, he said the books showed he was $20,000 over budget in one two-week pay period.
Giotto Condie, president and CEO of the California Restaurant Association, which opposes the minimum wage bill, said businesses are feeling the squeeze from rising rent and food costs at the same time.
“When labor costs go up by more than 25 percent overnight, the already thin-margin restaurant industry is forced to cut other expenses,” Condie said. “They don’t have many options other than to raise prices, cut hours or reduce staffing.”
Julieta Garcia, who has worked at a Pizza Hut in Los Angeles for a little over a year, said she has gone from working six days a week to five days a week. But she said that’s not a bad thing because it means she can spend more time with her 4-year-old son. The extra money has allowed her to pay her cell phone bill on time and avoid having to shut off service or take her son for tonsil checkups, she said.
Howard Lewis, a 63-year-old retiree who works at a Wendy’s in Sacramento, said he’s been putting his extra money into investments.
“Today was payday, so I bought $500 worth of stocks,” said Lewis, who is also helping his ex-wife fix the brakes on her car.
Gov. Gavin Newsom said the increase is necessary to pay the state’s more than 500,000 fast-food workers a livable wage.
“We are a state that cares deeply about fast food workers, who are primarily women, working two and a half jobs to make ends meet,” Newsom said in a State of the State address posted to social media.
For Enif Somireda, general manager of a Del Taco store in Orange County, the raise is a mixed blessing: Previously, he had four employees working each shift; now, he has just two.
“It helps us financially,” she said, “but we have less staff and we have a lot more work to do.”
