Get news and commentary on the California issues you care about in one email.Employees assemble burgers at an In-N-Out restaurant in San Francisco on March 20, 2023. Photo by Chin Hei Leung, SOPA Images/Sip USA via ReutersAs the minimum wage for fast food workers increases in California, many headlines are predicting mass layoffs and price increases. These headlines are based on an outdated theory that doesn’t apply to fast food restaurants, argue two economists.
This explanation ignores that fast food restaurants have and use their power to set wages and employment levels well below the Econ 101 level. The modern theory of labor markets actually recognizes employers’ wage-setting power and that a higher minimum wage can help overcome this power, ultimately raising both pay and employment.have conducted hundreds of studies on the actual effects of minimum wage.
Recognizing all of this, a different question emerges: How do we square the absence of negative employment effects with the theory that higher wages means fewer jobs?When employers have too much power in the labor market, they can pay workers considerably less. Workers take the low-paid jobs, often because they seem to be the best option available at the time.
In recent years, fast food and other low-wage workers have reset the power equation. They have taken to the streets, city halls and state houses to demand better pay, and they have convinced politicians around the country to raise the minimum wage.