Madison Aument: For 91.9 KVCR News, I'm Madison Aument, and this is Economics IE. Daniel MacDonald is a professor of economics at Cal State San Bernardino. He also writes a free Substack newsletter called Inland Empire Economic Intelligence. A few weeks ago, he published a response to a report authored by Chris Thornberg with Beacon Economics.
Last year, the FAST Act was passed, which raised the minimum wage for fast food workers in California to $20 an hour. In his report, Thornberg argues that employment in the fast food sector declined since quarter two of 2024, when the Act was passed. MacDonald disagreed and authored a response to this report on his Substack, which he's talking to us about today.
Daniel MacDonald: The main argument that Dr. Christopher Thornberg is using is he's comparing employment in limited-service restaurants in California to what he calls a "balance of U.S. states." Basically, he's taking a look at the rest of the United States, aside from California, and looking at limited-service restaurant employment in a collection of those states. I argue that this is not the correct approach.
California is very different from the rest of the U.S. It's a much higher-wage environment. The labor market is just very different in California compared to the national average. And so we should be looking very specifically at limited-service restaurant employment in states close to California that are also higher-wage. So in my response, I look at Oregon, Washington, and Colorado.
Aument: And then what were your next points that you make in the essay?
MacDonald: My second point was actually taking Dr. Thornberg up on something that he mentioned.
So my first follow-up was I basically looked at a very closely related industry, which is full-service restaurants — table-service restaurants, your sit-down restaurants — and those restaurants were not affected by the FAST Act.
Even among limited-service restaurants, not all restaurants were affected, only the ones that are parts of national chains. But full-service restaurants offer an interesting comparison group because, prior to the FAST Act, employment in full-service restaurants very closely tracks employment in limited-service restaurants.
This is especially true in California because we are one of seven states that don't offer a tip credit. Unlike most states, in California, if you are wait staff, you don't start at, you know, $2.50 an hour and then have your pay offset by tips. You start at $16 an hour, or whatever the minimum wage was. But the FAST Act didn't apply to you if you worked in a full-service restaurant.
What happened to employment in full-service restaurants after the FAST Act? You know, we should not see any change from the usual in that industry. And indeed, when you overlay a graph of limited-service restaurant employment and full-service restaurant employment in California before and after the FAST Act, they're both essentially moving the same — both before and after the FAST Act.
So this suggests to me that the FAST Act didn't really have some kind of significant impact on limited-service restaurants, because if it did, we would see a kind of divergence — and we didn't see that.
My second follow-up was again kind of taking Dr. Thornberg up on something that he mentioned in his report. He said that, well, you know, in addition to the employment effects that he's worried about, he's also worried about things like hours and also just closures.
And Dr. Thornberg says in his report that limited-service establishment data are not available, but they are. They're part of the same Quarterly Census of Employment and Wages data that he got his jobs data from, just kind of indirectly.
So I dug back into those data, and I looked up the number of limited-service restaurant establishments in California, and they've been increasing even after the FAST Act was passed in April. Establishment counts in quarter two and quarter three of 2024 — that's all the data we have right now — were both increasing. They were up year over year.
So if you compare them to quarter two and quarter three of 2023, they were up. They were even up relative to those comparison groups that I mentioned earlier — Washington, Oregon, Colorado.
Basically, my finding there was again that it doesn't seem like the FAST Act had a very significant impact on jobs, and in some ways it might have grown some things, like establishments.
Aument: That was Daniel McDonald. KVCR reached out to Chris Thornberg but did not get a response. You can find this segment and others on our website at kvcrnews.org. Support for this segment comes from the NOBUCK Family. For KVCR News, I'm Madison Aument.
Here's a link to Inland Empire Economic Intelligence