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JAIMIE DING Associated Press

LOS ANGELES – Lawrence Cheng, whose family owns seven Wendy's locations south of Los Angeles, was taking orders at the cash register recently, emptying steaming-hot baskets of French fries and chicken nuggets and salting them with a flourish.

Cheng used to have nearly a dozen employees on the afternoon shift at his Fountain Valley, Orange County, location. Now he's down to seven per shift as he tries to cope with drastic labor cost increases after a new California law raised the hourly wage for fast-food workers from $16 to $20 on April 1.

“We simply cut back where we can,” he said. “I schedule one less person and then come in at the time I didn't schedule and work that hour.”

Cheng hopes that summer, when business is traditionally good because students are out of school and families travel or spend more time at restaurants, will yield better profits to cover the additional costs.

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Experts say it's too early to tell the long-term impact of the wage hike on fast-food restaurants and whether it will lead to mass layoffs and closures. Previous wage increases have not necessarily led to job losses. When California and New York previously nearly doubled their minimum wage to $15 compared to the federal minimum wage of $7.25 an hour, job growth continued, according to a study from the University of California, Berkeley.

So far, the industry continues to see job growth. In the first two months after the law was passed on April 1, the industry added 8,000 new jobs, compared to the same period in 2023, according to the U.S. Bureau of Labor Statistics. Figures for June were not yet available.

Joseph Bryant, vice president of the Service Employees International Union, which pushed for the increase, said the industry has not only created new jobs as a result of the new law, but “several franchisees have found that the higher pay is already attracting better applicants, thus reducing turnover.”

But many major fast-food chains say they are shortening their opening hours and raising their prices to stay in business.

“I've been in business for 25 years and have two different brands, and I've never had to raise my prices as much as I did last April,” said Juancarlos Chacon, owner of nine Jersey Mike's stores in Los Angeles.

A turkey sandwich for under $10? Now it costs $11.15. Customers are still coming, but he sees that they are getting less – no drinks, no chips, no dessert.

Because lunch is the restaurant's core business, Chacon has reduced the number of morning and evening staff and laid off some part-time workers, bringing the number down from 165 to about 145.

It wasn't just entry-level employees who got a raise. Shift managers, assistant managers, and everyone else at the higher levels also had to get a raise, and labor costs account for about 35% of his costs.

“I’m very nervous,” said Chacon.

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he has received panicked calls from California restaurant operators and suppliers still recovering from the COVID-19 lockdown. He predicts a growing divide between corporations like McDonald's, which have money to invest in automation and cut costs by “redesigning the menu, and smaller, more regional chains that may go out of business or face a significant reduction in their stores.”

Cheng said he has no plans to lay off any of his 250 Wendy's employees. Instead, he has begun cutting overtime and reducing the number of employees per shift. In anticipation of the law, he also raised menu prices by about 8 percent in January.

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 opposed the minimum wage reform, said businesses are simultaneously feeling the pressure of rising rents and food prices.

“If labor costs increase by more than 25% overnight, any restaurant business with already thin margins will be forced to cut expenses elsewhere,” Condie said. “They will have no other options than to raise prices, reduce hours or reduce their workforce.”

Julieta Garcia, who has worked at Pizza Hut in Los Angeles for a little over a year, said she now works five days instead of six. But that's not a bad thing, she said, because it allows her to spend more time with her 4-year-old son. The extra money means she can pay her cell phone bill on time instead of having to turn off the service and can take her son for a tonsil check, she said.

Howard Lewis, a 63-year-old retiree who works at Wendy's in Sacramento, said he invested his extra money.

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

Governor Gavin Newsom said the wage increase was necessary to ensure a living wage for the state's more than half a million fast-food workers.

“We are a state that doesn't care that fast-food workers – overwhelmingly women – 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, manager of a Del Taco in Orange County, the raise was a mixed bag. She used to work four employees per shift. Now she works two.

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

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

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