California is not having a good week. State Farm cancelled 72,000 policies and now fast-food chains are slashing workers.
Cost of Running a McDonalds Jumps $250,000 in CA
On February 4, I noted the Cost of Running a McDonalds Jumps $250,000 in CA Due to Minimum Wage Hikes
A blowback is underway.
California Restaurants Cut Jobs
The Wall Street Journal reports Chains Lay Off Workers, Shave Hours ahead of state minimum-wage increase.
A California state law is set to raise fast-food workers’ wages in April to $20 an hour. Some restaurants there are already laying off staff and reducing hours for workers as they try to cut costs.
California restaurants, particularly pizza joints, have outlined plans to cut hundreds of jobs in the months leading up to the April 1 wage mandate, according to state records. Other operators said they have halted hiring or are scaling back workers’ hours.
Some pizza-chain operators in California are laying off drivers ahead of the wage law’s start and farming out delivery service to apps. Franchisees for Pizza Hut and Round Table Pizza, a chain of around 400 units founded in Menlo Park, Calif., have said they plan to lay off around 1,280 delivery drivers this year, according to records that major employers must submit to the state before large layoffs.
California had 726,600 people working in fast-food and other limited-service eateries in January, down 1.3% from last September, when the state backed a deal for the increased wages. Total private employment in the state declined 0.2% over that period, according to state figures.
In related news ….
Congratulations to NY, IL, LA, and CA for Losing the Most Population
People in California, increasingly getting sick of the state’s progressive madness, are voting with their feet.
For discussion, please see Congratulations to NY, IL, LA, and CA for Losing the Most Population
Absolute Basis Losers
- New York: -631,104
- California: -573,019
- Illinois: -263,780
California Leads the Nation in Unemployment
The BLS metro shows unemployment rates were up in 218 of 389 metro areas. Nonfarm employment only rose in 59 areas.
On March 15, I noted Unemployment Rates Rose in 218 of the 389 Metropolitan Areas
Unsurprisingly, California has the highest unemployment rate in the nation at 5.7 percent vs. 4.1 percent nationally.
For discussion of insurance, please see Proposition 103 Backfires, State Farm to Cancel 72,000 California Policies
It’s been a bad week for California, and deservingly so.
The root cause is single Dem voters are difficult to live with, they cannot share living expenses. So they join Antifa and the DNC, protesting how costly it is to live alone. Because nobody will shack up with them, they’re so annoying and irritatingly inconsiderate toward others.
Marxists always punish the perceived kulaks, which are the taxpayers of California.
They voted for Marxist, Stalinists and what end result did they expect?
Recently, Dardens, which owns Olive Garden and other restaurant chains, said that lower income people were cutting back spending at their restaurants.
“Unsurprisingly, California has the highest unemployment rate in the nation at 5.7 percent vs. 4.1 percent nationally”
I saw a Youtube the other day, of a small compilation of Hollywood production people who were still out of work after the two strikes last year.
Since raising the mw increases prices across the board, it seems paying folks more doesn’t really help them.
The $1 Meal becoming the $5 meal
The provision also sets a minimum wage increase to $25 per hour in 2 to 4 years. Another socialist incrementalism.
Hmmmm. The fight for $15 lasted longer than the battle for $20. If the skirmish for $25 is that short then it would seem the value of those dollars is decreasing at an accelerating rate. Better make it $30!
The hiring freezes and job cuts only prove that junk food restaurant operators were not maximizing labor saving productivity investments nor managing their labor effectively. I approve of higher wages in this sector. Two benefits are (1) freeing up labor that can be allocated to more productive/important sectors of the economy (2) Make garbage fast food prohibitively expensive by revealing it’s true cost to the end consumer and society in terms of the deleterious effect on human health and the unsustainable upward trend in healthcare spending it’s responsible for.
These policies have been in place in some EU countries. The fast food operators whined. Prices for fast food did indeed increase. Consumers responded by eating less fast food and making more meals at home. That’s the way it should be.
If this country gets a handle on illegal immigration, birth rates continue to drop, and the clot shots continue to kill off working age Americans (delayed cancer effect) the labor market is going to remain tight and get even tighter. Under those conditions you want as few people working in the fast food industry as possible.
You have obviously never run a business.
I think his point is fast food businesses are not productive use of human labor and net harmful to the health of people.
Gotta make exceptions for tofu and bean sprout emporiums.
Yawn… Most should have seen this coming. Econ-101…
MCD boss to MBA students : our real business is the real estate business.
Higher wages for workers => higher prices for consumers. Since this applies to all restaurants the only alternatives for consumers are to pay up and cut elsewhere, downsize what they order from McD, order from a food truck instead, buy a pre-packaged sandwich at a convenience store or brown bag it.
When Mish and others speak of “reducing hours”, think of that more broadly, to include reducing service hours. At the shoulder hours, if traffic is too slow to turn a profit the restaurant will close, be open for fewer hours.
From what I have seen, none of the fast food joints are able to increase productivity, so higher labor costs will wind up raising prices. In fact, on the productivity front, those self service kiosks have reduced it. LOL
But apps have improved things. No more trying to communicate through a drive though speaker with someone who is heavily accented when you want something other than a ‘#6 with coke’. Plus the apps let you pre-order so it’s already waiting for you and pay via the app and get discounts/frequent diner points etc.
Minimum wage is just one factor in restaurant costs that might have broken the camel’s back. The others are rising rents, rising costs (inflation), and high staff turnover.
If you can keep up and stay open, it’s already a success. Some places I know closed cold turkey because those issues are similar everywhere.
I’m still scratching my head at the rising rents issue. At some point a consolidation in the industry will leave thousands of venues vacant earning zero rent. Add in more workers working from home and the foot traffic at many locations must be weak. CRE has peaked.
I have mentioned restaurant employment recently in the context of U3’s direction in the second quarter of a presidential election being a historically reliable indicator of the November result.
Restaurant employment is 6.5% of the total employed, per the BLS. There would certainly be a spinoff factor, but I doubt it’s all that high given that restaurant wages are not generally high, not withstanding CA’s new law. For example, the higher-paid manufacturing sector’s spinoff factor is about 3:1, but I would be surprised if the restaurant factor is even 1:1.
But that’s a sheer guess on my part. If I were modeling it, I would guess that restaurants and spinoffs together account for about 10% of all jobs. Thus, for each 1% increase in restaurant unemployment, I would model a 0.1% rise in the total unemployment rate as measured by U3. This could be too conservative, but I prefer analytical conservatism when actual numbers are unavailable.
I also note that California now has the highest unemployment rate of all the states, with Washington being in second place. It doesn’t take a big swing in that Q2 rate to trigger the indicator I have mentioned several times on this blog. It has to be part of a trend to kick in. There was an uptick in the February U3, so those data bear close scrutiny in the months ahead.
Only once since 1948 has U3 risen in the second quarter of a residential election year without the incumbent party’s presidential candidate losing in November. It happened in 1956, and that’s all. In that year, there was no trend, and the Q2 rise was only by 0.1%, and Eisenhower was re-elected.
My gut feel (another guess) is that we will see a rise of 0.2% or 0.3% in U3 between March and June of this year. If that happens, and the Dems can’t knock Trump off the ballot with prosecutions, it will be all she wrote for Joe Biden.
JP will welcome 4%/4.1% unemployment rate. He mentioned it more than a year ago.
Maybe so. In any case, what really counts is what happens between now and the day in July when the U3 for June is released. Any Fed policy changes work on the real economy with too much of a lag to matter this year. So watch U3. April through June is where the rubber hits the road, but because a trend is necessary it’s also worthwhile to watch March.
If U3 in March goes up from February (which rose from January, and was the highest since December ’21), that will be quite bad news for Senile Joe because it will suggest that Q2 wont be pretty. Screw the campaign words and bullshit media crap, and just watch the numbers. If U3 marches upward in Q2, you can place your November bet in July.
If it goes high quickly the Fed will step in with an emergency rate cut. The Fed doesn’t want Trump. They had that experience and hated the instability.
It is a “SHEET SHOW!”
Trader Joe’s sells pizza dough in a bag along with pizza sauce and all kinds of toppings. It’s actually quite fun and rewarding making your own pizza and you don’t have to pick it up or have it delivered either. If these measures show that the only reason why fast food and pizza delivery could exist is because of slave labor, then to hell with it. It’s about time America got in shape anyway.
Slavery was abolished in the USA over a century ago.
Fast food exists because of employees who work at-will, not slaves. Well, at least for now. Soon they’ll see that their employers have the at-will option too, and far fewer employees will pencil-out at the higher wages. I guess from your perspective, they’ll be Free at last, free at last, right? You know what’s best for them.
Fair enough, substitute “subsidies” for “slave labor.”
But, minor quibble, slavery was not abolished by the 13th Amendment, it was nationalized. Again, granted fast-food restaurants are generally not employing people duly convicted of a crime, but since we’re splitting hairs here, we may as well both be held to the same standard of accuracy.
Who could have imagined that with automation costs dropping precipitously and labor costs rising precipitously … they businesses would reduce employment? At this point, you can use an app to replace 80% of cashier needs and a kiosk to replace the other 20%. Automation in food prep and cooking can also reduce needs there. In the end, you will need a shift manager and maybe one helper and you’re good to go. And eventually, 1 person will be plenty.
The left coast gave all the big retailer corps an incentive to automate every aspect of their businesses, including those with customer interactions. All the order-entry kiosks and self-checkout lines would have eventually happened, but the R&D to make them happen was more cost effective because of the higher labor costs.
Never let anybody tell you the socialists don’t contribute to society. They drove this work-reducing innovation for all of us.
Consumers are addicted to MCD & DD. It’s not their fault. Those who start their mornings in DD will not go to SBUX. They come be served. If lunch is a quickie in Wendy or MCD they will not go to a restaurant. Those who are conditioned to go to Chick fil A will stay away from Wendy or MCD. Addictions overpower prices. It’s the stuff they put in the food. Bigger sizes, more sugar, more salt, more spiced and more fat to fool the taste buds. The real price is your health.
That makes sense to me. When the pandemic hit in 2020, I was still working and all the restaurants were closed. I switched to bringing a lunch and now still do. Habits are difficult to change.
This might sound cruel, but I’ve been there (as a waiter, farm worker, dishwasher), but aren’t these wages for unskilled labor inflationary? If so, will they need to crank them up, again, in a year or two?
Just saying…
I was there once too. In the 1980s, it wasn’t tough for me to find a min-wage job as a teenager for 2-3 months over the summers. I didn’t need a “living wage,” $3.35/hr sucked but that was all I was worth to the local employers and it taught me that I’d better improve myself or suffer a lifetime of poverty. It also gave me a little spending cash and helped me contribute to my mom’s grocery funds. It was good for me and good for my employers. Govt has blasted that model into oblivion. I don’t imagine that it’s easy for teenagers to find summer jobs these days unless they have specialized skills (swim instructor/lifeguard, etc).
Some might have to fall back upon nepotism.
Benefits are about 40%/50% of wages. Benefits are realized and unrealized obligations. CA raised the min wage, but not benefits. In CA Many MCD made near/above $20/h before the raise. Mgr will complain that they are losing money. They will not raise wages much above $20/hr. Most wages will range between $20/hr and $25/hr. That’s well below the average of the bubble chart, which is $30/$35 wages.They will be short of “hands” and put more pressure on workers, thus increasing efficiency // The cost of food including cups, paper bags, utensils… is about 10%/15% of retail prices (x7 / X10 markup). No 30%/50% discounts.
Have the French Laundry add coin-operated washers and dryers.
Bad week? I think it’s been a bad thirty years or so.
California fast food businesses are holding mass layoffs. The minimum wage is zero.
It’s harsh to say but you are 100% correct. The min wage is $0
Oregon also raised its minimum wage a bit ago. The restaurants are exhibiting large price increases and fewer customers.
If stores can get the same revenue with less customers because those customers are willing to pay more, then as Alex Trebek used to say on Jeopardy “No harm, no foul”.
Of course, those who lost their jobs due to stores cutting back on help (mostly part time and likely second jobs) because of higher legislated minimum wages, probably aren’t so happy.
Well if it means fewer people get to eat out, and the ones who do pay more for less, I’d say there is some harm there. And that of course assumes they can make all of that up with increased prices which is in no way a given.
Jesus actually commented on this:
Let them be. Blind guides is what they are. If a blind man leads a blind man, both shall fall into a pit
But that doesn’t mean that there’s not collateral damage.
Agreed, but Cali and the PNW (and others) are going to do what they are going to do even if it means destruction (or milking the federal dollars) … and there is not much the sane folks can do about it.
Cali and the PNW need to secede and spare the rest of us from their self-destructive and ungodly self-righteousness.
Unrelated question. In the 60s, there was a cartoon called “Tovor the 8th Man” (sadly I even still remember the opening song). Does that have anything to do with your moniker
The pit remains after two men fall in and the water fall of human waste begins.
All, that is but the carve out for the Newsome contributer, Panera Bread
Agreed but … if you’re looking for a job … are you looking to make $15 at Panera or $20 at Burger King? This will hurt Panera as well. Of course, once the automation occurs and jobs are lost all over the place … Panera will probably be able to get enough staff.
MCD stand alone outlets are not thousands of pizza stores. If hundreds of pizzerias in CA shut their doors doctors and pharma will get hurt the most. Carbs + fat + plenty salt ==> turns the survival switch on and makes us fat (Dr. Richard Johnson). We are addicted to junk food. That’s how we became obese. Your overwhelmed body cannot help u
Don’t shortchange pastries and chocolate.
One point that needs mentioning when states lose population is that if enough depart, they may lose seats in Congress, which are based on population counts. This reduces the states political power and is something that should be used against existing administrations at election time.
But recall that they count and push for the continuation of counting all residents in the census, including illegal immigrants, so that even though (if!) they don’t vote, they still impact the apportionment. Don’t understand how that is allowed or justified but that’s what I had read.
Yes. In theory there is no difference between theory and practice. In practice there is.
So they get more representation in Congress, but they’re replacing ignorant illegals with educated professionals and skilled middle class. Yeah, that makes sense from a Californian legislature’s perspective.
California will lose at least two reps after the 2030 Census (even with illegals) to Texas and Florida. Some forecasts have Texas total population exceeding California by then anyway.
Order #1,500 x $8/average cost = $12k/day. $12K x 365 days ==> $4M/$5M/Y. Open between 6AM and 10PM. The skeleton early in the morning and at night makes more. They peak at lunch time and dinner. On Sat & Sun MCD employs kids.
The kids are making good money.
The mgr has two assistance mgr. The cooks and the takeout ladies are under a lot of pressure. It’s a war zone. they repeat 1,500 times a day : “thank u very much. Have a great day”. MCD is a very profitable business. They can afford the raise, bc the mgr preempted and raised everything on the menu, ex senior coffee.
OK, so that’s 16 hrs open plus another couple of hours of cleanup and prep after working hours. Lets say 18 hrs a day you need staff. Lets say they always need 3 people there (non managers) and 6 during peak hours and lets say peak hours are 6 hrs a day (2 morning, 2 lunch, 2 dinner).
At 20/hr that’s 60 hr at non peak and 120 at peak. 12 non peak hrs is 60×12 = 720 and 6 peak is 120×6 = 720 for a total of 1440 a day. At 365 days that’s 545,600 in employee salary (non managers) assuming all at minimum wage (which won’t be true since longer term employees will make more than the 20 minimum). So that 545,600 represents the lowest possible cost. Now, the employer cost essentially doubles that (UI payments, health insurance and so on) to 1,091,200 or just over a million dollars. Figure another 400K for managers (1 manager at 100K costs 200 after employer cost and 2 assistants at 50K cost 100K after employer cost) and you are at 1.4 million AT MINIMUM WAGE for everyone with actual costs probably well over 1.5 million.
McDonalds still has to:
– Buy ingredients to make food, buy the paper/plastic to wrap food, bathroom supplies, cleaning supplies etc.
– Electricity/water etc to keep the lights on.
– Building maintenance/insurance costs.
– Pay rent (if renting) or mortgage (if not fully owned building)
– Pay a franchise fee to McDonalds itself
– Pay taxes to the government
All out of the remaining 2.5 million. I suspect most of that 2.5 million gets eaten up by those costs I just mentioned and probably several others I didn’t.
Once they route 80% of people through the app … and the other 20% thru kiosks … there is no need for cashiers. Add in some food prep/cooking automation and maybe 25% fewer people in the rest of the staff. This is what the raise will bring on. Automation keeps getting cheaper, wages keep getting more expensive … it’s inevitable
If they can cut jobs and still deliver the same service, why haven’t they done so before and increased profits?
They absolutely would have if they knew that for sure.
The reality is they likely won’t deliver the same service.
Exactly. Restaurant margins are very slim. You’d be lucky to get 3 cents on the dollar in profit.
California stopped having good weeks when they failed to recall Gavin Newsom last year. Sacramento is filled with people I would not trust to watch my dog let alone pass laws.
The bible states: A man reaps what he sows. The one who sows to please his sinful nature, from that nature will reap destruction.
Almost time for harvest
“Some restaurants there are already laying off staff and reducing hours for workers as they try to cut costs.“
Watch! I bet my bottom dollar that some state representative will propose that the next time a wage increase is implemented that the impacted industry or businesses cannot lay off workers–retaining them will be the law.
That would be ludicrous, but we are talking about Californica.
One package of McDonald’s medium fries costs $4.25 in Oakland, California. $4.25 will buy twenty pounds of potatoes most stores. Those who haven’t figured it out deserve to go hungry.
10 bounds not 20
Thank you. The last time I bought potatoes they cost ten cents a pound. I thought I was being generous but Joe Biden inflation is a lot higher than 2%.
Sell it all and get out while you can
Most people will only try to leave after the levee breaks. That’s human nature.
As I noted in a previous comment, the LA Times in 2023 stated that over 40% of Californians have thought leaving the state. There’s a reason. The lunatics are running the asylum.