California 1, Economists 0

[theking]

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Economists warned California not to raise the minimum wage to $20. They were wrong in almost every way so far, another economist says
Following California implementing a law raising its minimum wage to $20 for more than 500,000 fast-food workers in the state in 2024, Christopher Thornberg, founding partner of research firm Beacon Economics, offered a warning about the state raising its minimum wage.

“California’s well-intended push to reduce income inequality via wage floors is beginning to have a significant negative impact on some of our most vulnerable workers—our youth, particularly those from lower-income households,” he wrote earlier this year.

His concerns echoed those of fast-food franchise owners, one of whom told Fortune in 2024 that higher wages would be unsustainable for smaller chains with slim margins.

But nearly two years after the law’s passage, economists are seeing very different results than what was initially feared. A working paper from University of California at Berkeley released this month found the policy increased average weekly wages for eligible workers by 11% and did not reduce employment. Prices increased modestly, about 1.5%, or the equivalent of about six cents for a $4 item.

“The results are nowhere as dire as predicted,” Michael Reich, the study author and chair of the Center on Wage and Employment Dynamics at UC Berkeley, told Fortune.

The study compiled payroll data from Glassdoor job postings and Square and collected data on how many workers entered a fast-food establishment on a given date using Advan Research, a firm aggregating cell phone locations. It tracked changes to food prices using DoorDash. The analysis uses a vastly different set of data to come to the same conclusion as previous research on California’s minimum wage, which likewise found little impact of the law on employment, as well as benefits and hours.

California’s raised minimum wage for fast-food workers is part of a wider conversation the state is having around the distribution of wealth, particularly as wage growth for low-income Americans is dwarfed by that of higher-income households. California voters will decide in November if the state will impose a one-time wealth tax on residents making more than $1 billion. A survey released last month in partnership with the Los Angeles Times, found that 52% of Californians were in favor of the ballot initiative.

“Minimum wage is by far the most popular issue out there right now,” Saru Jayaraman, president of national advocacy group One Fair Wage, which is campaigning for a $30 minimum wage, told Fortune in March. “But the billionaires tax is a close second.”

Though Californians’ concerns mirror a nationwide anxiety about a growing K-shaped, or two-tiered economy, the Golden State is nearly its own economic case study. California has a $4 trillion GDP, making its economy about the same size as that of the United Kingdom. Home to more than 200 billionaires, the state also has country’s highest percentage of residents living below the poverty line, 18%, in part as a result of its high cost of living.