California economic disaster: Newsom’s wage increase sparks economic meltdown, thousands went jobless

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In a short span of time, California transitioned from being the country’s economic leader to facing a massive budget deficit, necessitating significant spending cuts in the coming years, which is expected to significantly impact economic growth. The influx of illegal immigrants at the southern border, house insurance issues, wage hikes, and inappropriate spending in the last couple of years created a financial crisis that now affects every Californian one way or another.

Drop in population

According to a recent report, rent prices in some areas of the Golden State are decreasing. While this comes as a relief to many people, having in mind that California historically has one of the highest house prices, it’s a warning sign that the state is headed in the wrong direction. This declining rent price trend is not attributed to supply issues but to population loss. According to Zumper, a rental online platform, rent prices are going down in places with lower demand for housing, the same areas that experienced up to a 4% decrease in population from 2020 to 2023. The report claims that the job market in some California cities hasn’t bounced back from the losses during the COVID-19 pandemic. The situation is getting worse.

Fast-food chains have laid-off around 10,000 workers in recent months

In California, fast food businesses are eliminating jobs to reduce expenses following a rise in the state’s minimum wage to $20 per hour. A report from a state trade organization notes that close to 10,000 jobs at various chains, ranging from Pizza Hut to Burger King, have been lost since the new wage law began on April 1. Additionally, some restaurants are closing down, such as the popular Rubio’s Coastal Grill, which recently declared Chapter 11 bankruptcy and shut down 48 of its locations across the state.

Experts blame Gov. Newsom

The California Business and Industrial Alliance (CABIA) criticized Governor Gavin Newsom for his role in implementing a new law, which has led to businesses across the state increasing their prices. To illustrate the effect of this legislation, CABIA placed an advertisement in the Thursday edition of USA Today. The tongue-in-cheek advert, titled ‘In Memoriam: Victims of Newsom’s minimum wage’, highlighted the issues faced by smaller brands including Rubio’s, and fast-food giants including Pizza Hut, Burger King, Subway and McDonald’s.

The advertisement also showcased news segments that discussed adjustments companies have made due to the higher wages. These adjustments include price hikes, job cuts to minimize labor costs, and, in some cases, the closure of business locations.

In California, fast food businesses are eliminating jobs to reduce expenses following a rise in the state's minimum wage to $20 per hour.
Credit: Unsplash Premium

Letting go workers

Prior to the enactment of the new legislation earlier this year, fast food outlets like Pizza Hut and Round Table preemptively laid off over a thousand delivery employees in anticipation of the financial impact. The law, which Governor Newsom signed in September of the previous year, raises the minimum wage for fast-food workers to $20 an hour at chains that operate more than 60 locations in the US.

The difference with the federal minimum wage

The new $20 minimum wage for certain businesses in California is 25 percent higher than the state’s standard minimum wage of $16 an hour, which was implemented in January. Nationally, the federal minimum wage has remained unchanged at $7.25 an hour for decades. Rather than federal adjustments, wage increases are typically contested and enacted at the state level.

“California businesses have been under total attack and total assault for years,” CABIA president and founder Tom Manzo told Fox Business. “It’s just another law that puts businesses in further jeopardy. You can only raise prices so much added. And you’re seeing it. People are not going to pay $20 for a Big Mac. It’s not going to happen,” he added.

In California, fast food businesses are eliminating jobs to reduce expenses following a rise in the state's minimum wage to $20 per hour.
Credit: Unsplash Premium

Businesses are adopting, but workers won’t return

Leading US fast-food chains such as Burger King, Shake Shack, and Yum! Brands (which includes Taco Bell, KFC, Pizza Hut, and Habit Burger Grill) are increasingly incorporating digital order kiosks to boost efficiency and profits. A recent Business Insider report notes that Burger King is planning a significant expansion of kiosks after a successful pilot, with an aim for a fully digital ordering system. Shake Shack has installed kiosks in almost all of its US locations, where kiosk orders have doubled annually and now represent the majority of in-store transactions.

Yum! Brands is also stepping up its use of kiosks, with KFC expecting to implement them in most of its international locations outside China by 2026. Kiosks help cut labor costs, increase order precision, and encourage higher spending by suggesting add-ons and customizations. The pandemic has sped up the shift towards digital ordering, positioning kiosks as essential for modernizing fast-food operations and improving customer service.

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