Big pay raise for California fast food workers stresses some franchisees

It’s almost lunchtime. Inside a McDonald’s restaurant in South Koreatown, Los Angeles, owner Kerri Harper-Howie watches as fries cook in hot oil and a conveyor belt carries a steady stream of wrapped sandwiches to a worker who bags them.

Harper-Howie and her sister own 21 McDonald’s franchises in Los Angeles County and employ about 1,500 people. They recently raised the wages of those workers from about $16 to $20 an hour. That’s the new state-mandated minimum wage for fast-food restaurants in California that are part of a chain with more than 60 locations nationwide.

When the wage increase went into effect on April 1, many workers welcomed the move, while some franchise owners warned it could devastate already struggling businesses.

“We’re of course happy to always respect the law and do what we have to do, but it certainly comes with challenges,” Harper-Howie said.

When it calculated its second-quarter figures after the wage increase took effect, profits were down 5% – with the first decline in sales and customer numbers in more than a decade.

“It’s important for any business, period,” said Harper-Howie, who pays McDonald’s a fee to represent the brand. “People don’t understand that this is not a multi-national, multi-billion dollar company. This is our family business.”

Harper-Howie said his company is already making adjustments for rising supply costs and insurance rates amid inflation.

Like many others in the industry, she has raised menu prices by a few percentage points in anticipation of higher wages. A Big Mac combo at one of her McDonald’s now costs $10.49. Anything beyond that, Harper-Howie said, would mean she would lose low-income customers.

“We cannot raise prices that would allow us to pay this minimum wage increase because our customers literally could not afford to buy food.”

Still, many franchise owners like Harper-Howie are keeping their employees and even hiring. Between January and June, California added 19,800 fast-food jobs, according to the Bureau of Labor Statistics.

It’s a bit like what happened when California raised the minimum wage to $15 an hour in 2022. Businesses adapted, said Brian Callaci, an economist at the Open Markets Institute. “We didn’t really see any negative effects on employment. California continued to create jobs.”

Some chains have announced their closures since April. Rubio’s Coastal Grill Fatburger has closed 48 restaurants in California, citing rising wages as one of the factors behind the decision. Meanwhile, other chains are taking the wage hike in stride. Fatburger is planning an expansion of 40 new restaurants in the state over 10 years.

As for workers, their better pay makes it easier for them to pay their bills.

When Jaylene Loubet, a cashier at a McDonald’s in Northeast Los Angeles (a location not owned by Harper-Howie), received her first check with the new salary, she saw the difference. “It’s exciting,” she said.

Before the pay raise, Loubet earned $17.25 an hour. With the high cost of living in Los Angeles, that’s not enough to support her and her parents. They’re both unemployed due to health issues and live together in a one-bedroom apartment.

“I am the main caretaker of my family,” Loubet said.

On doctor’s orders, her mother is supposed to eat more fresh fruits, vegetables and lean meat. That’s what the pay raise was designed to do, Loubet said. “I’m quite happy with the $20, but I feel like we still have a long way to go.”

She said there are already discussions at the California State Capitol about another wage increase for fast food workers next year.

“The cost of living in Los Angeles keeps going up,” Loubet said. “It’s only natural that our salaries keep going up.”