California fast food workers now earn $20 an hour. Franchisees are responding by cutting hours.

LOS ANGELES (AP) — Lawrence Cheng, whose family owns seven Wendy’s stores south of Los Angeles, took orders at the register on a recent day and emptied steaming baskets of fries and chicken nuggets, salting them with a flourish.

Cheng used to have nearly a dozen employees on the afternoon shift at his Fountain Valley location in Orange County. Now he schedules just seven for each shift as he struggles to absorb a dramatic rise in labor costs after a new California law increased hourly wages for fast food workers on April 1 from $16 to $20 per hour.

“We kind of cut it where we can,” he said. “I schedule one less person, then I go in at that time I didn’t schedule and work at that time.”

Cheng hopes that the summer, when business is traditionally busy with students out of school and families traveling or spending more time eating out, will bring a better profit that can cover the additional costs.

Experts say it’s still too early to tell the long-term impact of the wage hike at fast food restaurants and whether there will be widespread layoffs and closures. Previous wage increases have not necessarily led to job losses. When California and New York nearly doubled their previous minimum wage to $15 compared to the federal level of $7.25 per hour, job growth continued, according to a study from the University of California, Berkeley. to study.

So far, the industry has continued to show job growth. In the first two months after the law passed on April 1, the industry gained 8,000 jobs, compared with the same period in 2023, according to the U.S. Bureau of Labor Statistics. There are no numbers available yet for June.

Joseph Bryant, executive vice president of the Service Employees International Union, which pushed for the increase, said not only has the industry added jobs under the new law, but “several franchisees have also noted that the higher pay is already attracting better job candidates, therefore reducing turnover.”

But many major fast food chain operators say they are cutting hours and raising prices to stay in business.

“I’ve been in the business for 25 years with two different brands and I’ve never had to raise the prices I did last April,” said Juancarlos Chacon, owner of nine Jersey Mike’s in Los Angeles.

A turkey sandwich for under $10? It now costs $11.15. While customers still arrive, he sees them reduced – no drinks, no fries, no dessert.

As its main activity is lunch, Chacón has been reducing its staff in the morning and evening. He also cut some part-time employees, going from 165 total to about 145.

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It wasn’t just entry-level workers who received a pay rise. Shift leaders, assistant managers and everyone else in the hierarchy also had to receive raises, and labor accounts for about 35% of their costs.

“I’m very nervous,” Chacon said.

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he has received panicked calls from California restaurant operators and suppliers who are still recovering from the COVID-19 lockdown. He predicts a growing divide between companies like McDonalds that have the money to invest in automation and reduce costs through “menu reconfiguration, versus smaller, more regional chains that could go out of business or face a large reduction in stores.”

Cheng said he has no plans to lay off any of Wendy’s 250 employees and has instead decided to cut overtime and reduce the number of workers on each shift. He also raised menu prices by about 8% in January in anticipation of the law.

Still, he said his books show he was $20,000 over budget for a two-week pay period.

Jot Condie, president and CEO of the California Restaurant Association, which has opposed the minimum wage, said businesses are simultaneously feeling the pinch from rising rents and food costs.

“When labor costs increase by more than 25% overnight, any restaurant business with already thin margins will be forced to reduce expenses elsewhere,” Condie said. “They don’t have many options other than to raise prices, reduce operating hours or reduce the size of their workforce.”

Julieta Garcia, who has worked at a Pizza Hut in Los Angeles for just over a year, said she now works five days instead of six. But that’s not a bad thing, she said, since she can spend more time with her 4-year-old son. The extra money means she can pay her cell phone bill on time, rather than having to disconnect the service, and take her son to get his tonsils checked, she said.

Howard Lewis, a 63-year-old retiree who works at a Wendy’s in Sacramento, said he has been investing his extra money.

“Today was payday and I bought $500 worth of stock,” Lewis said. He is also helping his ex-wife fix the brakes on her car.

Gov. Gavin Newsom said the raise was necessary to give the state’s more than half a million fast food workers a living wage.

“We are a state that cares about fast food workers – who are predominantly women – who work two and a half jobs to make ends meet,” Newsom said in his State of the State address posted on social media.

For Enif Somilleda, general manager of Del Taco in Orange County, the increase has been mixed. She used to have four people working per shift. She now only has two.

“Financially it helped me,” she said. “But I have fewer people, so I have to work a lot more.”