Fast-Food Price Hikes and the 50-100% Cost Pass-Through: Who Pays for the $20 Wage?

Fast-Food Price Hikes and the 50-100% Cost Pass-Through: Who Pays for the $20 Wage?

A critical piece of the minimum-wage puzzle is how businesses absorb the increased cost of labor. Rather than resorting directly to immediate headcount reductions, public quick-service restaurant (QSR) chains have heavily relied on price increases to offset the $20 wage mandate (AB 1228). However, two major pricing studies published in 2026 present vastly different findings on the exact scale and mechanism of this cost pass-through.

The 100%+ Pass-Through and Competitive Market Model

In NBER Working Paper 34990 (2026), Jeffrey Clemens, Olivia Edwards, Jonathan Meer, and Joshua D. Nguyen analyze Consumer Price Index (CPI) Food Away From Home (FAFH) data. They find that California fast-food prices rose by 4.9% to 5.1% relative to other MSAs between September 2023 and December 2024.

The authors calculate that if fast-food restaurants had fully passed through the minimum wage increase to consumers, prices would have risen by only 2.4% (assuming labor represents roughly 30% of operating costs and wages rose by about 8% on average). Because the actual price increase (4.9% to 5.1%) was double this static benchmark, Clemens et al. argue that the market behaved like a competitive low-wage labor market where firms passed through more than 100% of the cost. They attribute this excess pricing to:

• Selection Effects: Cheaper, lower-rated restaurants closing, which artificially drags the average price upward.
• Reduced Competition: Remaining restaurants raising prices in response to market consolidation.
• Service Quality Upgrades: Restaurants hiring higher-skilled workers to justify premium pricing.

The 50% Pass-Through and Monopsony Model

Conversely, Michael Reich and Denis Sosinskiy (UC Berkeley Center on Wage and Employment Dynamics, March 2026) utilize granular pricing data compiled from Uber Eats. They find that fast-food prices increased by a much more modest 1.5% compared to controls (equivalent to 6 cents on a $4 hamburger).

Reich and Sosinskiy estimate that employers passed through approximately 50% of the higher wage costs to consumers as higher prices. They argue that a 50% pass-through rate is highly consistent with a monopsonistic labor market model. In a monopsony, firms have wage-setting power and face costly employee turnover. When a minimum wage is enacted, the firm's labor supply stabilizes, and the reduction in costly employee separations (as documented by Dube in California's $20 Fast-Food Wage: Studies Converge on "Modest Aggregate Effects, Concentrated Harm" — While Both Camps Keep Their Old Headlines) offsets a substantial portion of the labor cost, reducing the need to fully pass costs to consumers¹.

Public Market Context and Corporate Pricing Actions

Public market data for major quick-service chains reveals how these pricing dynamics translate into corporate performance. Despite the wage pressures, major chains have maintained robust gross margins, indicating successful cost mitigation:

• Chipotle Mexican Grill (CMG): Chipotle reported a strong TTM gross margin of 39.4% and TTM revenue of $12.42B (+9.3% YoY) as of mid-2026. The company implemented a 6% to 7% price hike in California to offset the $20 wage floor.
• McDonald's Corporation (MCD): McDonald's maintains an exceptional gross margin of 57.4% and TTM revenue of $27.70B (+3.7% YoY) as of mid-2026, despite trading near its 52-week low.
• Wingstop Inc. (WING): Wingstop maintains a high gross margin of 49.4% with TTM revenue of $720.7M (+6.4% YoY) as of mid-2026.

These figures demonstrate that public restaurant chains have successfully defended their margins through a combination of strategic price increases and operational efficiencies, validating that the cost of the wage floor has been shared between consumers (via modest to moderate price increases) and operational savings (via reduced turnover).