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$20/hr minimum wage triggers job cuts through layoffs, automation, closures

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California’s $20 minimum wage for fast-food workers went into effect on April 1, leading to a wave of closures and layoffs. The policy, which was supposed to benefit workers, is actually reducing the total amount of employment.

To offset the high cost of labor, some companies are using kiosks, robots, and automation systems to reduce staff and shut down California stores.

Some fast food companies are responding to higher wages by raising prices and reducing business hours.

The rising wages of fast food workers are having a growing impact on the food service, retail, and hospitality industries, as well as California school districts, which are facing shortages in school food service due to the pressure of raising wages.


Accelerated Installation of Kiosks, Robotic Automation, and More

While automation was already underway in the franchise industry even before the California fast food minimum wage hike, there seems to be a rush to introduce kiosks.

At a recent emergency session of multi-unit franchise owners, including Korean Americans, the consensus was to increase the number of kiosks and reduce the number of employees.

“One kiosk can cut up to two employees,” said one industry insider, “and we’re planning to bring in robots to minimize the number of employees.”

As the minimum wage for fast food workers has been raised to $20, more and more companies are introducing kiosks to reduce costs. An employee helps a customer place an order at a kiosk at a McDonald’s Western branch in LA Koreatown. [Sangjin Kim, The Korea Daily]

In fact, one Los Angeles-area The Habit Burger Grill store cut two employees by replacing the cashier with a kiosk.

This is one of many fast-food chains increasingly installing kiosks.

Shake Shack Burgers installed kiosks in all of its locations by the end of last year. “Customers who use kiosks tend to order more food and choose more expensive items than they would when ordering in person,” said Katie Fogertey, chief financial officer of Shake Shack Burgers. “As a result, kiosks are becoming a higher-margin channel.”

Last year, Burger King also announced that it would be expanding its kiosk system. “We already have kiosks in 25 percent of our locations,” said Harsh Ghai, whose company employs 3,700 people across 180 restaurants including Burger King, Taco Bell, and Papa John’s. “Our goal is to have them in every store within one to two months of the minimum wage increase, and to eliminate the cashier altogether in a year, with 100 percent AI ordering.”


Workforce migration

Rising wages in the fast-food industry are driving workforce migration and rising labor costs, and the impact extends beyond food service and retail to the labor market as a whole.

This is especially impacting school food workers in California school districts.

School food service workers, who are among the lowest paid in public schools, are not included in the fast-food minimum wage increase. This has led to an exodus of school food service workers to fast-food and other industries that offer better pay, according to the industry.

The slowdown in the economy has led to a surge in demand for school lunches. And, as hiring school food workers has become increasingly difficult since the fast-food minimum wage increase, school districts are considering raising wages for school food service workers. Meanwhile, the starting wage for school food service workers in the Los Angeles County School District is $17.70 per hour.


Increase in Price, Reduced Store Hours

McDonald’s franchisees in California are looking to raise food prices and reduce hours to offset the impact of the $20 minimum wage increase.

Rodrick, who operates 18 McDonald’s restaurants in Northern California, had already raised prices by 5 to 7 percent in January and March before the minimum wage increase was announced, according to Business Insider.

Korean-based franchisees also raised prices by 50 cents to a dollar in the past day.

“Not only the minimum wage increase but there is also pressure to raise food costs,” said a company official. “If the price increase is large, fast-food customers may move to casual restaurants. Balancing out the price is important as consumers have strong price resistance.”


Mass Layoffs and Forced Closures

Some companies that have been financially pressured by the implementation of the fast-food minimum wage law have decided to shut down altogether. Mod Pizza, which operates 500 locations nationwide, closed five of its California locations in late March. Another fast-food chain, Fosters Freeze, also closed its doors.

Late last year, Pizza Hut in Southern California laid off more than 1,200 delivery workers and announced the suspension of its own delivery service in response to the minimum wage hike.


The Korean Restaurant Industry is Also Affected

Inflation, the slowdown in the economy, and the fast-food wage hike have worsened business conditions for the Korean restaurant industry.

“With the increase in the minimum wage for fast food, employees are demanding higher wages,” said a restaurant owner. “We have minimized the number of employees due to labor costs, and we don’t know how we can afford the cost if the wage is increased further.” “Other restaurants are also facing the same problem,” he said, adding, “The number of Korean-American business owners working late at night is also increasing again to save every penny.”

BY EUNYOUNG LEE, JUNHAN PARK    [lee.eunyoung6@koreadaily.com]