The Negative Impact of California’s Rapid Minimum Wage Hikes

A working paper from the University of California, Santa Cruz, published April 6, 2026, indicates that California’s 2023 law raising the minimum wage for fast-food workers to $20 per hour has resulted in a range of negative economic outcomes. The research finds that higher labor costs have driven the adoption of labor-replacing automation and led to reductions in employee working hours and benefits.

The study, led by UC Santa Cruz economics lecturer Stephen Owen, suggests that businesses have sought to offset the increased costs of the mandate through price hikes and technology investments. The research identifies a trend of sector specific minimum wage with investments in new technology and automation as a direct consequence of the wage hike.

Impact on Employment and Worker Hours

Data from multiple research institutions suggest the wage increase has led to significant job losses within the fast-food sector. A report from the National Bureau of Economic Research (NBER), detailed on October 14, 2025, estimated that the policy resulted in 18,000 fewer jobs in the fast-food industry.

The NBER study utilized data from the Quarterly Census of Employment and Wages to reveal a 2.7% drop in employment in California’s fast-food sector between September 2023 and September 2024 when compared to national trends. When adjusted for pre-law trajectories, the employment drop increased to 3.2%.

Similarly, a study released by the Berkeley Research Group on February 25, 2025, reported that fast-food restaurants lost 10,700 jobs between June 2023 and June 2024. The Berkeley Research Group described this as the largest decline in jobs in the sector outside of the COVID-19 pandemic and the 2009 recession.

Beyond total job losses, the research indicates that remaining employees have seen a decline in the quality of their employment. The UC Santa Cruz paper notes the elimination of overtime and a loss of benefits. The Berkeley Research Group study further clarified that the $20 minimum wage did not guarantee higher overall income for workers, as restaurants reduced employee hours to manage the increased labor costs.

Automation and Technological Shifts

The increase in labor costs has accelerated the adoption of artificial intelligence and robotic systems. The UC Santa Cruz research highlights the use of Cobots, or collaborative robots, by Chipotle. The paper also mentions the potential development of automated assembly line machines designed to create menu items.

The Berkeley Research Group study identifies several other forms of automation that have seen increased use, including:

• Ordering kiosks
• AI-driven drive-thru systems
• Robotic kitchen automation

According to the Berkeley Research Group, these technological implementations have further reduced the number of available jobs in the industry.

Consumer Costs and Business Profits

Consumers in California have seen a notable increase in the cost of fast food. The UC Santa Cruz paper estimates that fast-food prices in the state have risen by 8% to 12% since the minimum wage law took effect in September 2023.

The Berkeley Research Group provided a higher estimate, stating that food prices at local California restaurants have increased by 14.5% since September 2023.

These price increases have not fully shielded business owners from the financial impact of the law. The UC Santa Cruz research finds that franchise owners have experienced a decline in profits, which has negatively affected their ability to create new jobs or expand their operations.

Legislative Background

The $20-per-hour minimum wage law for fast-food workers, known as Assembly Bill 1228, was signed by Governor Gavin Newsom in 2023. The law was enacted in September 2023 and went into full effect in April 2024.

At the time of the law’s passage, Governor Newsom described the policy as a win-win-win for the economy, businesses, and workers. However, the NBER report published on October 14, 2025, states that the consequences for workers have been painfully clear, particularly for young workers who utilize entry-level fast-food positions as steppingstones to higher-paying employment and further education.