In 2024, the California Fast Food Council—composed of worker, industry, and government representatives—instituted a $20 minimum wage for workers at large chain fast-food restaurants. The Council is also empowered to protect this new wage standard from inflation by raising it by the annualized increase in the consumer price index or 3.5%, whichever is lower.
The Council was preparing to discuss a wage adjustment in June 2025 when the chair resigned. It is expected to take up the issue when the governor names a new chair, which has yet to happen. Given that almost two years have passed since the initial setting of the $20 wage standard—a year and a half that has seen continued inflation—the Council should prioritize this cost-of-living adjustment in 2026 to prevent rising prices from erasing the gains made by fast-food workers. One impediment to this adjustment is opposition from fast-food restaurant operators, who argue that raising workers’ pay to $20 damaged their businesses and that they cannot absorb any further increases.
This debate in California between fast-food workers and employers highlights the importance of regular and automatic adjustments to wage standards (like minimum wages) that ensure inflation-adjusted living standards for low-wage workers do not erode over time.
Indexation is often an afterthought in debates over wage standards. But it can turn out to be the most important part of any policy that sets a wage standard. This report examines salient issues related to indexing wage standards and offers recommendations for policymakers. Its key arguments are:
- Wage standards are necessary and efficient because of unbalanced power in labor markets.
- Wage standards that are fixed in nominal terms and have no automatic adjustment (like the federal minimum wage) get weaker every single year that passes without a legislated increase. The cumulative erosion of inflation-adjusted wage standards often exceeds the initial legislated increase.
- For example, in inflation-adjusted terms, the federal minimum wage today is lower than it was in 2007, the last time a new standard was passed into law.
- Mandating higher wages for any group of workers will set off a chain of adjustments elsewhere in labor and product markets. What these adjustments eventually mean for relative incomes, prices, and employment is an empirical question.
- Thankfully, minimum wage increases are some of the most well-studied events in economics, and the weight of empirical evidence is that they do not measurably increase overall inflation or lead to significant job loss, but they do raise the inflation-adjusted pay of targeted workers.
- Adjusting wage standards only for increases in inflation is actually a conservative policy in the sense of minimizing potential burdens on low-wage employers. More ambitious targets for adjustment—like wages or even productivity—could be preferable depending on the specific case.
- In the case of the California Fast Food Council, providing a price-based adjustment to account for inflation since the initial adoption of the $20 minimum wage in April 2024 is an appropriate andmodest step.
- A 3.5% increase in the wage standard—the maximum adjustment the Council can recommend—is also conservative because it will only partially offset the actual 4.2% cost of living increase since April 2024 and because it does not account for ongoing productivity improvements in the sector.
- Over the past decade—and continuing since April 2024—the inflation rate faced by lower-income households has been higher than the overall inflation rate, largely because housing is a higher share of lower-income households’ budget. This means indexing based on the average inflation rate would fail to fully restore the affordability lost to fast-food workers since the enactment of the $20 wage standard, making such an adjustment even more modest (and even more necessary).
