California's $20 Fast-Food Wage Tied to Unintended Effects, Study Finds

UC Santa Cruz study suggests the landmark wage hike may be producing reduced worker hours, higher prices, and pressure on franchise owners.

Mar. 31, 2026 at 7:03pm

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A minimalist composition of overlapping triangles and circles in shades of blue, red, and yellow, conceptually representing the economic impacts of California's fast-food wage policy.A geometric illustration captures the complex economic forces at play as California's fast-food minimum wage hike leads to unintended consequences.Santa Cruz Today

A new working paper from the University of California, Santa Cruz, is raising fresh questions about the impact of California's $20 minimum wage for fast-food workers. The study suggests the wage hike may be producing unintended consequences across the state's fast-food industry, including reduced worker hours, higher menu prices, and growing pressure on franchise owners to cut costs or automate jobs. State officials strongly dispute the findings, arguing the study is flawed and that higher wages are strengthening the economy and lifting workers out of poverty.

Why it matters

The debate centers on a sweeping labor law, AB 1228, that took effect statewide in 2024 and requires large fast-food chains to pay workers at least $20 an hour. The law aimed to help workers keep pace with California's high cost of living, but this new research suggests it may be having the opposite effect in some ways.

The details

Researchers used primary data from interviews with business owners and managers in Santa Cruz, as well as secondary data, to assess the impacts of the $20 minimum wage. They found a dramatic increase in job applications for fast-food roles, but also a decline in worker hours at some locations. Franchise owners have raised menu prices by 8-12% to offset the higher labor costs, which researchers say could disproportionately affect low-income consumers. To cut costs, many fast-food chains are also investing in automation technologies like kiosks and AI ordering systems, which could lead to significant job losses in the sector.

  • The $20 minimum wage law, AB 1228, took effect statewide in April 2024.
  • Researchers analyzed data from 2023, 2024, and early 2025 to assess the impacts.

The players

Stephen Owen

UC Santa Cruz Economics Lecturer who conducted the study.

Tara Gallegos

Spokesperson for California Governor Gavin Newsom's office, who disputed the study's findings.

Gavin Newsom

California Governor who signed AB 1228 into law in 2023, saying it would help workers and improve industry conditions.

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What they’re saying

“Based on what we've found, I think this legislation is a classic case of 'no good deed goes unpunished.' There are unintended consequences and knock-on effects, and overall, I think the results have definitely not been as positive as policymakers had been expecting.”

— Stephen Owen, UC Santa Cruz Economics Lecturer

“The 'analysis' is based on a handful of interviews on one street in Santa Cruz. It isn't peer-reviewed, and its claims are flat wrong. The facts are clear: higher wages are strengthening our economy and lifting workers out of poverty.”

— Tara Gallegos, Spokesperson for California Governor Gavin Newsom's office

What’s next

Researchers suggest policymakers should consider alternative approaches, such as improvements to the social safety net, changes to the earned income tax credit, and reductions in business regulations, to more directly help low-income workers without the potential unintended consequences of a targeted minimum wage increase.

The takeaway

This study highlights the complex and sometimes counterintuitive effects that minimum wage increases can have, even when well-intentioned. While raising pay for low-wage workers is a worthy goal, policymakers must carefully consider the broader economic impacts and potential unintended consequences, such as reduced work hours, higher consumer prices, and accelerated automation.