Policymakers need to recognize there is a double-edged sword to increasing the minimum wage in the fast food sector

Sylvain CharleboisThe ongoing debate surrounding increasing the minimum wage is not unique to the United States; it is a topic that has drawn attention worldwide, including in Canada.

California has taken centre stage in this discourse with a bold move to significantly increase wages for its fast-food workers. Commencing on April 1, 2024, California’s half-million-strong fast-food workforce will witness a surge in their minimum wage to $20 per hour, representing a staggering 23 percent increase from the $16.21 average hourly wage in 2022.

While this initiative may appear well-intentioned, aimed at enhancing the quality of life for low-wage earners, it is imperative that we critically examine the potential consequences that may arise from such a significant policy shift.

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While undoubtedly advantageous for workers, the wage hike will undeniably exert substantial pressure on fast-food operators. In an industry where labour costs traditionally constitute approximately 25 percent of operational expenditures, introducing a $20 minimum wage will have a profound and far-reaching impact. Some employees may even find themselves earning in excess of $25 per hour, a wage level historically unheard of in the fast-food sector. Consequently, implementing this policy will inevitably require operators to re-evaluate and potentially overhaul their business strategies.

One of the most significant implications of such wage hikes is the hastened march toward automation. As labour costs surge, the economic rationale for fast-food establishments to invest in technology and robotics becomes increasingly evident. Automation has already begun to reshape the industry, with self-ordering kiosks and robotic kitchen equipment becoming more prevalent.

With the advent of the $20 minimum wage, the pace of automation is expected to accelerate further as operators seek ways to offset increased labour expenses. Given the current backdrop of escalating food prices and consumer inclination toward staying home to save, raising menu prices is not viable for food chains striving to remain competitive.

While automation undoubtedly offers efficiency and cost savings for businesses, it raises legitimate concerns about the human element in the fast-food experience. As evidenced by the banking industry’s adoption of ATMs, an overreliance on technology-driven interactions can render the consumer experience impersonal and less satisfying. With fewer employees available to engage with customers and prepare food, the very essence of fast food, as we have come to know it, may undergo a fundamental transformation.

Furthermore, the substantial wage increase poses a notable risk to the job market. It is plausible that, in the coming years, the fast-food industry in California may not employ the same volume of people as it once did. A diminished workforce could have cascading effects, impacting the livelihoods of those who lose their jobs as well as the broader economic landscape.

It is important to acknowledge that California’s decision to raise wages in the fast-food sector reflects a more extensive societal concern about the state of fast food. Fast-food chains have often been criticized as purveyors of nutritionally deficient meals, contributing to health problems such as obesity and diabetes.

By significantly increasing wages, California appears to be sending a message that the state’s fast-food industry is not entirely welcome. While many may concur with such a stance, it is vital to recognize that the sector employs well over half a million people and supports food processing and farming within the state and beyond.

Although California’s approach is unique, it has the potential to set a precedent that resonates with other markets, including Canada. As the labour movement continues to gain momentum, other governments, including our own, may encounter similar pressures to follow suit. Currently, the province with the highest minimum wage is British Columbia, at $16.75, while the lowest is in New Brunswick, at $14.75. A jump to $20 per hour would indeed be substantial.

However, governments must proceed with caution. While research on the correlation between minimum wages and job creation yields mixed results, an upcoming study to be published in Manufacturing & Service Operations Management suggests that the benefits of such increases may not be as generous as hoped. Another study, conducted by Purdue University, also indicates that higher minimum wages in the food industry can lead to improvements in food safety and quality assurance practices – an aspect seldom discussed.

The decision to raise fast-food wages in California represents a well-intentioned effort to address income inequality and improve the lives of low-wage workers. Nevertheless, it also raises significant questions about the future of the industry, including the rapid adoption of automation and the potential loss of jobs.

Policymakers must conscientiously weigh the pros and cons of such policies and consider their broader implications for both workers and the fast-food sector. Striking a balance between the needs of employees and the realities of the industry and society at large will be pivotal in achieving a sustainable and equitable solution.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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