Layoffs, Price Hikes Underway as Californians Brace for Minimum Wage Hike

A customer walks in to a Pizza Hut restaurant. Kevork Djansezian/Getty Images

Pizza Hut franchises in California are set to lay off 1,200 drivers, while hundreds of other fast food operators are expected to raise prices in a preemptive move ahead of a soon-to-be-enacted statewide minimum wage hike.

The layoffs, which will take place through the end of February, come as California’s minimum wage for fast-food workers is set to jump 30 percent in April, from $16 to $20 an hour, according to a federal Worker Adjustment and Retraining Notification (WARN) Act notice filed by the food operator and originally reported by Business Insider.

“PacPizza, LLC, operating as Pizza Hut, has made a business decision to eliminate first-party delivery services and, as a result, the elimination of all delivery driver positions,” said the WARN Act notice, which requires employers to give notice of plant closures or mass layoffs. According to the report, the layoffs will affect Pizza Hut locations in Los Angeles, Riverside, San Bernardino, Ventura, and Orange counties.

Earlier this week, Southern California Pizza Co. also announced layoffs of 841 drivers. Further, fast-food chains McDonald’s and Chipotle are expected to raise customer prices and accelerate the move toward automation to make up for the increased labor cost.

The raise in the minimum wage is the result of a bill signed in September by California Gov. Gavin Newsom to boost the pay for fast-food employees who work in chains with 60 or more locations, as well as the wages for health care workers.

“I can assure you this wasn’t easy,” said Mr. Newsom during the signing ceremony of the Assembly Bill in Los Angeles. “That was a tectonic plate that had to be moved.”

In November, California voters could see a ballot initiative that would raise the state minimum wage to $18 an hour in all industries.

Negative Economic Consequences

The new laws are expected to trigger pay increases for about 900,000 Californians. However, as is already being demonstrated in California’s restaurant industry, any potential gains resulting from higher paychecks are outweighed by the negative economic consequences, according to economist Saifedean Ammous, author of “Principles of Economics.”

Mr. Ammous told The Epoch Times that the mandated increase in wages hurts employers, workers, and consumers by distorting the natural equilibrium that occurs in free markets.

“The minimum wage does not raise the wages of the least paid workers; it makes it illegal to hire them,” said Mr. Ammous. “Worse: it makes it illegal for them to get the first job they need to gain the experience that'll make them more productive and better rewarded.”

Californians, especially the wealthy who account for a large portion of the state’s tax base, continue to flee the state. California’s total population dropped by nearly 75,400 over 12 months as of July 1, according to the U.S. Census Bureau.

The loss in revenue resulting from the exodus has led to a projected budget deficit of $68 billion for the upcoming fiscal year, according to the state’s Legislative Analyst’s Office.

Tax Foundation Vice President of State Projects Jared Walczak told Fox Business that California “has now gotten to the point where they’re seeing an actual decline, which is extremely rare, but has long seen a net out migration,” he said.

“It’s not a coincidence that California poses some of the country’s highest taxes at a time of much greater tax competitiveness when 29 states have cut individual or corporate income taxes in the past three years. California is only one of a handful to have actually raised taxes,” said Mr. Walczak.

The moves are anticipated to be among the first of many economic blows to residents and businesses of the state still recovering from the prolonged COVID-19 shutdowns and also dealing with an increasing tax burden, according to Joel Griffith, a policy expert for the Heritage Foundation who has testified before the Senate Committee on Banking, Housing, and Urban Affairs on the negative consequences of rising minimum wage.

Mr. Griffith told The Epoch Times that the pay increases will come at the expense of those most in need of employment.

“The small fraction of those earning at or below the federal minimum wage, fewer than 1/10 hourly part-time workers and 1/50 full-time workers, include a disproportionate number of the young and under-educated,” said Mr. Griffith.

“In effect, increasing the minimum wage is unintentionally pricing [out] those who need these entry-level jobs out of the jobs market.”

By effectively pricing out new and low-skilled younger workers seeking entry-level positions, the rising minimum wage limits the ability of less experienced workers to grow, according to Mr. Griffith.

“Sawing the lower rungs of the economic opportunity ladder does not bode well for those who most need work experience,” said Mr. Griffith.