Fast food workers are getting a huge raise. Will $20 an hour become San Diego's new minimum wage? (2024)

For the past decade, a Jan. 1 pay raise for San Diego’s lowest paid workers has been about as predictable as the New Year’s Eve ball drop in Times Square. And 2024 will be no different — except for one huge change that could forever reshape wages for hundreds of thousands of employees locally and across the state.

Starting Monday, the hourly minimum wage will jump to $16.85 in the city of San Diego and to $16 in the rest of the county — a modest 3 percent increase. Three months later, though, a far more consequential wage hike will take effect, boosting the hourly pay of California’s half million fast food workers to $20 — a not so modest raise of nearly 25 percent.

The new state-mandated wage floor for fast food employees, believe some economists, could unleash a tsunami of pay hikes across all service industries. While the $20-an-hour rate promises to ease the financial burdens of some of California’s lowest paid workers, it will also likely have a ripple effect on a variety of consumer prices, from the cost of dining out to maintaining your landscaping.

Executives with McDonald’s, Chipotle and BJ’s Restaurants already have telegraphed the very strong likelihood of menu price increases as a result of the new law, but they haven’t indicated by how much. The April 1 wage hike applies to all fast-food brands with 60 or more restaurants nationally.

“My guess is that the new minimum wage in an industry like fast food, which has some of the lowest wages in the economy and lowest requirements for training and experience, will become the de facto minimum wage,” said Daniel Enemark, chief economist at the San Diego Regional Policy & Innovation Center. “It becomes an alternative for someone with a wage under $20 because they know they can get a higher wage in fast food. So it’s going to be very difficult for employers to recruit workers for jobs under $20.

“San Diego’s overall minimum wage is great, but we’ll see fewer and fewer people being paid that wage once this comes out.”

The union-led push for higher wages for fast food workers initially called for a $22 hourly rate but that was lowered to $20 following negotiations between fast food companies and organized labor, with an assist from Gov. Gavin Newsom’s top advisers. The compromise pact also avoided what promised to be a costly fight over a restaurant industry-backed referendum that sought to reverse the worker protection law, which Newsom signed in September.

California already leads nearly all other states in the country with its statewide minimum wage of $16 an hour, effective the first of the year.

Higher fast food prices ahead

Local franchisees affiliated with McDonald’s and Jack in the Box declined requests for interviews, as did Carlsbad-based Rubio’s, which operates more than 150 restaurants. Many franchisees opposed the fast food worker legislation, calling it unfair for targeting a single sector of workers. Many also complained they didn’t have a seat at the table during the negotiations.

Keith Miller, a Northern California Subway franchisee and spokesman for the American Association of Franchisees and Dealers, says the new wage legislation, which includes a provision for annual increases, said he has no choice but to raise his menu prices.

“My biggest concern is most of us are very small-business owners, we’re not big corporate trying to absorb this,” said Miller, who operates three stores. “With a 25 percent increase in labor, yeah, you have to raise your prices and it’s compounded by the fact that we also have to pay more in royalty and advertising fees.

“Why should workers in fast food need higher wages any more than a person at Walmart or wherever else? If you’re going to raise the wages it should be across the board and I do think this will have an effect of across the board.”

The 2024 wage hikes — including still more increases due to go into effect in June that will eventually boost health workers’ hourly pay to as much as $25 — come at a time when wages for service sector employees have been rising well above the mandated minimum wage. Over the last couple of years, as leisure and hospitality businesses were freed from pandemic-era shutdowns, they’ve had to increasingly compete for workers who’ve now become accustomed to commanding hourly wages of $18 and higher.

That keen competition for labor, though, has eased somewhat over the past year as the total number of people employed in leisure and hospitality jobs in San Diego — 210,600 as of November — continues to grow and now exceeds pre-pandemic levels. Of that number, about 51,000 work in fast food jobs, according to the Bureau of Labor Statistics. Harder to calculate, though, is the average pay for non-tipped restaurant workers because the data doesn’t reflect how many hours a week employees are working, Enemark explained.

Square, a financial services platform that recently created a payroll index that measures compensation for service workers, shows a median base wage of $16.50 an hour for San Diego County restaurant workers, not including tips or overtime. That data source, too, has weaknesses, though, because Square targets small businesses, which would exclude larger restaurant chains.

Juan Pablo Sanchez, whose parents have owned Super Cocina in City Heights for more than three decades, said he has long been a proponent of regularly raising the minimum wage but worries that with the much higher threshold now for fast food workers it will force his restaurant to significantly boost pay for entry-level workers scouring the market for the highest wages. Sanchez, who oversees the restaurant operation for his family, says many Super Cocina workers already earn $18 or more an hour.

“You’re going to create an unjust labor market,” Sanchez said. “So people will think, I’ll just go and work at a fast food restaurant. It’s good and bad for us. I compete with fast food price points, and their prices will go up, which will help me, but in terms of my labor, it will hurt me in the sense that it will put pressure on me to raise my wages more than the market is asking me to do or I’ll have to increase our prices for food.”

Sanchez already planned to increase everyone’s pay in anticipation of San Diego’s minimum wage going up to maintain a healthy wage gap between entry-level and more experienced workers, but he’s still weighing what to do once the fast food worker law goes into effect.

So, too, is Dan Pena, director of operations for Crack Shack, a San Diego-based fast casual fried chicken concept, and the upscale fine dining venue, Juniper & Ivy, in Little Italy. Hourly wages for Crack Shack cooks already average $19 to $21, although they’re likely to go higher once the fast food worker pay raise becomes effective, Pena said.

“Once that goes into effect that will impact the work force and who we can hire,” Pena said. “Ultimately, it will raise prices for the guests — not just for us but for every restaurant. We’ve already seen a spike in the cost of goods, and then you add the increase in wages as well. Because we’re a low-margin business and our price point is pretty low, we have no choice.”

A spicy fried chicken chicken sandwich with crispy onions on an artisan potato roll sells for $13 at Crack Shack.

“I don’t expect price increases to be tremendous but there will be increases,” Pena said.

And it’s not just restaurants that will be weighing price increases as hourly wages creep higher. Clarke Ramsey, chief executive of LePerv Landscape, said he no doubt would be forced to raise his rates for his hundreds of clients. The only thing stopping him from doing so are new contracts he recently transitioned to that lock in rates for a year and come with a 5 percent increase.

Ramsey said LePerv already pays its workers $17 to $18 an hour, but the new fast food wages will now put him behind.

“Now it looks like maybe this wasn’t the best timing,” Ramsey said of the new contracts. “My first thought when I heard about the fast food wage was — not the poor restaurants, but poor me. Why would anyone want to work in the sun for $17 or $18 an hour when they can work somewhere else for $20 an hour. So it is a concern.

“If we didn’t already have the contracts set up we would probably increase our rates. At the end of the year, we’ll look at pricing based on what we are having to pay for employees.”

Living paycheck to paycheck

There’s an inescapable reason why San Diego’s low-wage workers are overdue for a significant pay raise — wages have failed for years to keep up with the soaring cost of living in California’s pricey coastal cities, says Kyra Greene, executive director of the Center on Policy Initiatives, a San Diego nonprofit that advocates for economic justice in the workplace.

“If you work at the minimum wage of $16 and work full time, 4.3 weeks per month, or 172 working hours, you’d spend 134 of those hours to afford the median rent on a two-bedroom apartment in San Diego,” Greene said. “Because San Diego is such an expensive place to get housing, even with this latest increase, it will still be challenging to make ends meet.

“I am sympathetic to those trying to run a business, but I worry when my employees can’t pay their bills. This (fast-food pay increase) is not about greedy workers going from one job to another. Even going from a job at $16 an hour to one at $20 an hour, they will struggle to make ends meet.”

The notion that fast-food industry jobs are largely occupied by teens and others looking to make a few extra bucks has long been a false narrative, insists Greene. For many, it is a lifetime career that provides a dependable, albeit meager, income, she says.

“The proof of that is that the union wouldn’t have been able to organize around this if it was just young people cycling in and out,” Greene said.

Sergio Valderrama, a fast food worker at McDonald’s who will get a wage increase to $20 an hour in April, shares a studio apartment in Oceanside with his wife and two kids.

(Hayne Palmour IV/For The San Diego Union-Tribune)

Sergio Valderrama, 45, shares a studio apartment in Oceanside with his wife, son and daughter and works at a Del Mar McDonald’s where he’s currently earning $16.50 an hour as a cashier. Because he averages only 25 hours a week, he supplements his income doing DoorDash delivery, which he needs to help pay the monthly $1,100 rent and $700 car payment.

Given the limited space in the studio, each family members sleeps in a corner of the apartment.

“It’s very difficult because $16.50 an hour sounds good but they’ve started cutting our hours, so now I”m working at DoorDash seven days a week,” said Valderrama, who helped lead the union effort that fought for higher hourly pay. He has spent the last 17 1/2 years working in fast food.

“The raise is going to be very helpful. And once my pay goes up maybe we can go once a month to eat out. We never eat out because we can’t afford it. And I’ll see if I can save some money. I tried to save money before but it’s hard. I basically live paycheck to paycheck.”

Valderrama fears that he will lose still more hours once the new hourly wage goes into effect, but economists like Enemark argue that minimum wage increases do not automatically spawn job losses or cutbacks in labor.

“A very common misconception is that when the minimum wage goes up employment goes down,” Enemark said. “It turns out that there’s widespread consensus in economic literature that that is not the case. There have been instances of big increases in the minimum wage and no decrease in employment.”

A recent layoff announcement by a couple of large Pizza Hut franchise operations affecting hundreds of Southern California in-house delivery drivers seems to suggest otherwise, though. No Pizza Hut franchisees in San Diego County are affected .

Phil Blair, head of San Diego staffing agency Manpower, says he’s unconvinced that the coming fast food wage hike will have the large ripple effect on labor costs and consumer pricing that others are predicting. Pay already has grown rapidly for entry-level jobs and service industry workers because the market has demanded it, he argues.

“Because most people are already making $18 to $22 in other industries, it’s not going to have a huge effect on the general employment market in San Diego,” Blair said. “Amazon, for example, already is paying more. Anybody making $16 an hour now I can get them $18.50-plus in a logistics shop or a production job. Those are the going rates for casual labor.

“My concern is I don’t like government picking certain industries and saying you have to pay this.”

Under the legislation mandating the new fast-food wages, raises will be capped annually at either 3.5 percent or the annual increase in the Consumer Price Index, whichever is the lesser of the two.

There will also be a nine-member Fast Food Council comprised of representatives of employers and workers who will coordinate with state agencies to establish minimum standards on wages, working hours, training and other working conditions. The legislative compromise hammered out by the unions and fast-food companies is due to expire in 2029.