The Franchise-Level Reality: Headcount Stability vs. Drastic Labor Hour Cuts
A major source of confusion in the minimum-wage debate is the contradiction between macro-level econometric studies (which often find stable overall employment headcounts) and negative reports from franchise owners. A landmark March 2026 study from the University of California, Santa Cruz (UCSC), led by Stephen Owen, bridges this gap by analyzing the operational and financial records of over 100 fast-food franchise locations in California.
The study reveals that while headcounts may appear stable, franchise owners have aggressively adjusted to the 25% wage increase (from $16 to $20) by slashing employee labor hours, eliminating overtime, and reducing shifts.
1. The Labor Supply and Demand Mismatch
The $20 wage floor made fast-food jobs highly desirable, triggering a massive surge in labor supply. For example, a Burger King franchise group operating over 50 California locations saw a 400% year-over-year spike in job applications in August 2024, with applications remaining highly elevated into 2025.
However, as labor supply exploded, labor demand from franchise owners contracted sharply due to increased operating costs:
- Burger King (Coastal Markets): The same Burger King franchise group reported a 21% decline in shift work/hours for employees between October 2023 and October 2024. While some hours were partially restored by 2025, they remained significantly below 2023 levels.
- McDonald's (Central Valley): Across 18 McDonald’s franchise locations, total labor hours declined by nearly 12% between April 2023 and March 2025. This 12% reduction in hours is equivalent to the loss of 62 full-time jobs for a year.
As Stephen Owen explained:
"While most now earn substantially more per hour, many may now work fewer hours, potentially limiting improvements to their overall earnings. Reduced hours may also mean that fewer employees are able to qualify for benefits. In addition, many franchises report eliminating overtime, which had previously been an important way for longer-term employees to increase their earnings."
2. The "Efficiency Wage" Offset
The UCSC study confirmed a key argument of minimum-wage proponents: higher wages act as an "efficiency wage," leading to a significant drop in employee turnover. Franchise turnover rates, which historically ran between 150% and 300%, fell to 150% to 200% following the wage hike.
While lower turnover reduces training costs and improves productivity, the savings have not been sufficient to offset the 25% wage spike. Franchisees have continued to rely on hours-slashing, menu-price hikes, and accelerated automation (see Wage Pressures as an Accelerator for Fast-Food Automation: Kiosks, AI, and Kitchen Robotics) to preserve margins.
3. Spillover Pressures on Non-Covered Independent Restaurants
Although AB 1228 technically exempts independent restaurants and smaller chains (those with fewer than 60 national locations), the UCSC study documented severe market-driven spillovers. Independent restaurant owners in Santa Cruz reported facing intense pressure to match the $20 starting wage to compete for labor, squeezing their already thin margins and forcing them to raise prices or cut staff despite being legally exempt.