California's Minimum Wage Hike Leads to Unintended Consequences

New research finds higher labor costs have driven automation and reduced employee hours and benefits

Apr. 6, 2026 at 7:40am

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A new working paper from the University of California, Santa Cruz has found that California's 2023 law raising the minimum wage for fast-food workers to $20 per hour has led to a range of negative outcomes, including higher menu prices, reductions in employee working hours, elimination of overtime and loss of benefits, and accelerated adoption of labor-replacing automation technologies by businesses.

Why it matters

The findings highlight the economic tradeoffs and unintended consequences that can result from artificially boosting worker pay beyond market rates, as businesses seek to offset higher labor costs through measures like automation, price increases, and reduced employee hours and benefits.

The details

The research, led by UC Santa Cruz economics lecturer Stephen Owen, found that the higher labor costs from the minimum wage hike have driven 'sector specific minimum wage with investments in new technology and automation.' This has included the use of 'Cobots' or collaborative robots by Chipotle, as well as the potential development of 'automated assembly line machines' to create the restaurant's menu items. The paper also estimates that fast-food prices in California have increased 8-12% since the minimum wage law took effect in September 2023, while franchise owners have seen profits decline, negatively impacting their ability to expand and create new jobs.

  • The $20-per-hour minimum wage law for fast-food workers in California was signed by Gov. Gavin Newsom in 2023 and went into effect in April 2024.
  • The UC Santa Cruz research paper analyzing the aftermath of the law was published in April 2026.

The players

Gavin Newsom

The governor of California who signed the $20-per-hour minimum wage law for fast-food workers in 2023.

Stephen Owen

An economics lecturer at the University of California, Santa Cruz who led the research paper on the unintended consequences of California's minimum wage hike.

Chipotle

A fast-food restaurant chain that has adopted the use of 'Cobots' or collaborative robots to offset higher labor costs.

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What they’re saying

“The results indicate a plethora of negative outcomes such as higher menu prices for consumers, reductions in employee working hours, widespread elimination of overtime and loss of benefits for employees. Further decreases in employee opportunities are being driven by automation and the adoption of labor replacement technologies is accelerating.”

— Stephen Owen, Economics Lecturer, University of California, Santa Cruz

What’s next

In November 2024, California voters narrowly rejected a ballot initiative that would have raised the minimum wage to $18 per hour, suggesting growing public awareness of the unintended consequences of such policies.

The takeaway

This research highlights the economic tradeoffs that can result from artificially inflating worker pay beyond market rates, as businesses seek to offset higher labor costs through measures like automation, price increases, and reduced employee hours and benefits - outcomes that ultimately hurt the very workers the minimum wage hike was intended to help.