California raising minimum wage for 2 industries. Others could see pay hikes, too

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By Levi Sumagaysay and Shreya Agrawal | CalMatters

Californians in two industries are set to get new minimum wages just for them next year, and that could lead to pay bumps for other workers, too.

Gov. Gavin Newsom this year signed two union-backed bills that will boost fast-food and health care workers’ minimum wages.

California-based fast-food workers for chains with 60 or more locations around the nation will earn at least $20 an hour beginning in April, $4 higher than the overall state minimum wage of $16 that will be effective Jan. 1.

In June, health care workers will earn a minimum of $18, $21 or $23 an hour, depending on what type of facility employs them and where they work.

The industry-specific wage increases reflect a shift in unions’ strategies at the Capitol. After the Great Recession, labor groups led campaigns that resulted in then-Gov. Jerry Brown signing a law in 2016 that put California on a path to a $15 minimum wage. That law included inflation adjustments, which is why the minimum wage is higher today.

The two new laws are expected to trigger pay increases for about 900,000 Californians, some of whom are earning more than minimum wage today.

Anneisha Williams, who works at a Jack in the Box restaurant, gets emotional as California Governor Gavin Newsom (not pictured) signs a new bill at the SEIU Local 721 in Los Angeles, California, USA, 28 September 2023. Governor Newsom signed legislation increasing the minimum wage for fast-food employees to 20 USD per hour, beginning 01 April 2024. (EFE/EPA/ALLISON DINNER) 

They are going into effect in a competitive labor market that has seen employers, especially small businesses, struggling to hire and retain workers. California’s unemployment rate is at 4.8%, which is higher compared with the federal unemployment rate of 3.7% but is near a historic low.

The new fast-food minimum wage could push up pay for other restaurant and food workers, experts say.

In a tight labor market, “other food-services companies will likely have to increase wages in order to retain workers in a sector in which chronic understaffing, and the stress and burnout that causes among remaining staff, is already a problem,” said John Logan, professor of labor studies at San Francisco State University.

Others say the industry-specific minimum wage could have ripple effects in other industries.

Keith Miller owns three Subway sandwich shops in Northern California and is spokesperson for the American Association of Franchisees & Dealers, which opposed the fast-food worker legislation. The law passed with support from major fast-food chains, which gained assurances that unions would drop an initiative that would have made the chains liable for their franchises’ labor violations.

Under the law, Miller said, franchisors like McDonald’s or Subway avoid responsibility but franchisees like him will bear the costs of paying higher wages.

Miller questioned why fast-food workers were singled out as needing a minimum-wage increase, and added that it could affect industries such as retail. He said retail workers might switch over to fast food if they can make more money there, or retailers might need to raise their workers’ wages.

“It’s kind of a fallacy that this impacts only fast-food workers,” Miller said. “It kind of creates a market rate. In effect, the minimum wage for a lot of people will be $20.”

Upcoming minimum wage measures

California voters in November will see a ballot initiative that would raise the state minimum wage to $18 an hour. It’s backed by billionaire Joe Sanberg.

Workers in other industries, meanwhile, are fighting for higher minimum wages, too. In Los Angeles, a proposed ordinance would institute a $25 minimum wage for workers in the tourism industry before the 2026 World Cup and the 2028 Olympics, which would rise to $30 an hour by 2028.

Jovan Houston, an airport security worker at Los Angeles International Airport, said she has been working there for six years and makes $19.78 an hour. She said a boost in wages would be “extremely” helpful for her and her 13-year-old son. They live with her niece and her four kids because rent is so expensive, Houston said.

Gov. Gavin Newsom signs legislation raising fast food workers minimum wage to $20 an hour at SEIU Local 721 in Los Angeles on Thursday, September 28, 2023. (Photo by Sarah Reingewirtz, Los Angeles Daily News/SCNG)
Gov. Gavin Newsom signs legislation raising fast food workers minimum wage to $20 an hour at SEIU Local 721 in Los Angeles on Thursday, September 28, 2023. (Photo by Sarah Reingewirtz, Los Angeles Daily News/SCNG) 

“It’s cramped, but I can’t afford to move,” she said, adding that she has coworkers “who work two or three days to survive. They’re sleeping in the back on their breaks because they’re tired.”

Even as she fights for the Los Angeles ordinance that would raise her wages, Houston thinks it’s possible that her company would cut workers if forced to pay them more.

“They might eliminate workers,” Houston said. “I’m definitely worried about that.”

The effects of higher minimum wages

The costs and potential consequences of the higher minimum wages worry some people, including economists and the governor, while others see upsides.

Economist Christopher Thornberg, one of the founding partners of the International Republican Institute’s Beacon Project, said that in a competitive market, increasing minimum wages for the lowest-paid workers will lead to higher prices for consumers. For example, McDonald’s and Chipotle executives have said they plan to raise prices next year to offset increased labor costs.

But Michael Reich, an economics professor at UC Berkeley, said the effect of increased wages on product costs is relatively low and is usually seen in labor-intensive industries like dining and fast food. Reich said that when wages rise 10%, costs in the restaurant industry go up by about 2% to 3% and usually just on a one-time basis instead of a yearly increase.

Reich said raising wages for workers can lead to their upward mobility. Any negative effects such as higher costs for consumers or contribution to inflation are negligible, he and other economists say.

By increasing minimum wages for the lowest-paid workers, “you raise the standard of living,” Reich said. “That is quite significant.”

Kaiser Permanente employees on strike on Oct. 4, 2023. The workers held a demonstration in front of the Kaiser Permanente South Sacramento location. The strike resulted in a contract that gradually raises the minimum wage at Kaiser to $25 an hour. Photo by Miguel Gutierrez Jr., CalMatters 

In addition, securing minimum wages for certain groups could eventually be used as a model to benefit other types of workers, such as gig workers who don’t currently have employee status, said Nelson Lichtenstein, a professor at UC Santa Barbara who has written books about labor history.

“One could see a wage commission… for the Uber world that can establish certain kinds of criteria, which would have the effect of a minimum wage,” Lichtenstein said.

Meanwhile, the new minimum wage for health care workers is expected to cost $4 billion in the first year — half from California’s general fund and half from federal funds — during a time when it is facing a gaping budget deficit. So the governor reportedly is seeking changes, though it is unclear what form they will take.

What’s next for California labor?



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