How They're Already Smearing California's Fast-Food Minimum-Wage Hike
California’s new fast-food minimum wage hike goes into effect Monday, April 1, and you may already have been led to believe it’s the cause of massive new layoffs.
The Wall Street Journal reported this week that restaurants in the state have already cut worker hours and laid off employees “ahead of [the] state minimum-wage increase.”
And despite all those missing delivery workers, that narrative is getting delivered piping-hot all over the place, as other outlets pick it up from the Journal, including USA Today, Salon, and business-news outlets like Inc..
The original Journal story has a number of red flags.
All of the language connecting the layoffs to the new $20/hour minimum wage uses terms of correlation, rather than causation. Restaurants are cutting jobs “as” wages are set to rise, rather than “because.” And “ahead of the wage law’s start” rather than “because of” it.
And laying off in anticipation of a wage hike makes little sense. If the workers contribute to profitability under the current wage, why not reap those benefits up through March 31?
Franchises and restaurant owners could also try raising some menu prices or delivery fees to offset the costs. After the law takes effect, they could then resort to layoffs if price hikes prove unviable.
So what’s really going on here? For one thing, most of the coverage takes for granted the idea that companies don’t want to lay off workers.
Consider the first sentence in Inc.’s story on this: “All business owners would love to treat employees to big pay increases,” the story says, “especially for people working fast-paced, often underappreciated jobs in businesses with high employee turnover.”
That’s simply not true. It may be true of some business owners, but definitely not all. Wage theft is so rampant it has spawned regulatory bureaucracies and an entire legal field.
In reality, companies, especially publicly held companies, love to lay workers off. That’s what automation and AI are all about: Increasing productivity, which requires fewer workers to be just as productive.
My team at TYT and I covered this in pretty granular detail when then-Pres. Donald Trump was marketing his proposed tax cuts as job creators. As we demonstrated, big companies use financial windfalls not to hire people but to engage in activity that lowers headcount: Automation, outsourcing, offshoring, and mergers and acquisitions.
Reducing headcount — or as its known on Wall Street, “improving efficiencies” — is rewarded by investors, which boosts share prices, which in turn leads to bigger compensation packages for the executives who laid people off. In other words, corporate and financial incentives today actively reward executives for cutting jobs.
Odds are, you’ve noticed how many of your own local restaurants no longer use their own delivery staff, but outsource deliveries. It’s not only California restaurants laying off delivery staff.
And it turns out that the companies that own all those fast-food companies actually supported California’s new law. That was in exchange for unions dropping their efforts to hold the companies liable for labor-law violations.
Who’s liable instead? The same franchise owners who pay the rising wages. In other words, those owners will have to bear the costs of both increased wages and any fines they incur for violating labor laws.
As I and others have written, some of the greatest burdens on franchise owners actually come not from regulators or supposed government bureaucracies, but from the massive companies that franchise out their brands. But those costs are never blamed for layoffs.
One of the big brands the Journal cites is Pizza Hut, which is owned by Yum! Brands. Last month, the top executives of Yum! Brands held an earnings call with Wall Street analysts, discussing factors affecting their business.
U.S. weather volatility in early 2024 was mentioned. So was inflation. The Yum! Brands executives also alluded to the Oct. 7 Hamas attacks in Israel. No mention of California.
What the Yum! Brands executives did talk about was automation. CEO David Gibbs said, “We made massive strides in scaling our proprietary digital and AI-driven ecosystem,” adding, “we have accelerated the deployment of our proprietary technologies to optimize back-of-house operations and make it easier to run our restaurants.”
Regarding Pizza Hut specifically, Gibbs credited one executive who “partnered with our global operations and technology leaders to deliver new levels of ease to our customers and improved unit economics for our franchisees.”
What else happened last year? “We also ramped up the deployment of our Dragontail AI platform,” CFO Chris Turner said. “We now have Dragontail in place in nearly 7,000 restaurants across Pizza Hut and KFC.”
As Yum! Brands explained when it bought Dragontail for $93 million three years ago, the proprietary AI is “optimizing and managing the entire food preparation process from order through delivery.” This “automates the kitchen flow combined with the process of dispatching drivers.”
It doesn’t just streamline dispatching, it cuts down on the number of hours needed from delivery staff by “planning optimal delivery routes and combining delivery orders by location.”
Then there’s Yum! Brands’ “Easy Operations capabilities, which … helps our franchisees drive productivity,” Turner said. He added that this will help franchisees economically, but not to satisfy their love of treating employees to big pay increases.
Instead, Turner said, it “allows them to invest in building new stores.”
Is it possible that the new law will genuinely force some restaurant owners to lay people off after it takes effect on Monday? Sure, but none of the reporting on the layoffs so far actually ties them solely or specifically to the coming law. And neither do the executives who supported the law.
In fact, despite the gloomy economic picture others are painting on the canvas of rising wages in California and elsewhere, Gibbs, the Yum! Brands CEO, assured Wall Street just last month that, “While the business faced persistent inflation across the globe … the future is brighter than ever.”
Jonathan Larsen is an independent journalist and veteran reporter and TV news producer, having worked at MSNBC, CNN, and TYT. You can support his original reporting by becoming a subscriber.