Rubio’s Coastal Grill, a Carlsbad, California-based fast-casual restaurant chain known for its fish tacos, announced the closure of 48 of its California locations on Monday, citing the state’s new $20 per hour minimum wage law as the reason for the closures.
According to The San Diego Union-Tribune, Rubio’s released a statement through the crisis management firm Sitrick & Co. explaining the decision to close the stores.
“Making the decision to close a store is never an easy one,” the company said. “The closings were brought about by the rising cost of doing business in California.
“While painful, the store closures are a necessary step in our strategic long-term plan to position Rubio’s for success for years to come.”
Founded in San Diego in 1983, Rubio’s bills itself as “The Home of the Original Fish Taco” and offers an array of Baja-inspired Mexican cuisine.
The chain has faced significant hardships in the last few years, according to the Union-Tribune, which reported it had 170 locations just under four years ago.
With the closures, the company will be down to 86 locations in California, Arizona and Nevada.
In October 2020, Rubio’s filed for Chapter 11 bankruptcy as financial woes caused by COVID-19 pandemic shutdowns took a significant toll on business. While the company was able to recover, California’s new minimum wage law has delivered the chain another blow.
On April 1, Assembly Bill 1228 went into effect in the Golden State, raising the minimum wage for fast-food restaurant employees to $20 per hour.
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Businesses felt the effects of the law even before its effective date. The Wall Street Journal reported in March that fast-food restaurants had begun laying off employees in anticipation of the wage bump.
According to Alan Gin, a University of San Diego economics professor who spoke with KNSD-TV about Rubio’s decision to close the locations, the wage increases were a financial obstacle that the company could not overcome.
“The initial thought that came to mind was that they are going to really be hit hard by this increase in the minimum wage for fast-food workers from $16 per hour to $20 per hour, but there are some other issues as well that Rubio’s is facing,” Gin said.
“They’ve been having financial difficulties for a long time,” he said. “I haven’t looked at their books or anything like that, but I do know that in 2015 they had 193 locations nationwide. So — they’ve cut about a third of those and so they’re going to cut another third with the closings that were announced yesterday.”
Although Rubio’s has had a number of financial challenges, the closures demonstrate the profoundly negative impact increases in the minimum wage can have on businesses.
Economists and experts have long debated the economic efficacy of raising the minimum wage.
Some, such as those at the liberal Center for American Progress, claim that raises in the minimum wage, particularly at the federal level, would incite an economic recovery and decrease economic inequality in the United States.
Others, such as the Harvard Business Review, highlight that raising the minimum wage entices employers to shift more and more workers to part-time status, which would render them ineligible for certain benefits, causing negative effects on workers notwithstanding the fact they are still employed.
Still, some are not convinced one way or the other. In a 2021 study, economist Jeffrey Clemens of the University of California, San Diego noted that certain conservative and liberal stereotypes on the effects of minimum wage increases are not necessarily accurate, and stressed the need for additional empirical research.
What’s better than research, however, are real-life situations like the one facing Rubio’s.
Undoubtedly, when the minimum wage increases, restaurants face direct effects such as higher labor costs. However, many indirect costs can surface that can exacerbate the negative effects.
For restaurants, there’s a chance the cost of business will go up across the board — things such as food, supply and rent costs are likely to go up when wages increase artificially without a genuine increase in demand. This will lead to restaurants trying to pass on these costs to customers by increasing menu prices.
Minimum wage increases don’t exist in a vacuum. They can have an impact on a multitude of areas in the economy.
If costs are increasing across the board and restaurants turn to part-time employment, the workers won’t be better off as they’ll face increasing costs in the face of similar or lower real wages.
While the $20 minimum wage may have been just one factor in the decision to close the Rubio’s locations, it surely had no positive impact on the company’s business operations.
Regardless of whatever talking points politicians make on the need for higher wages, California shows how forcing restaurants to pay higher wages has undoubtedly had a negative effect on a state’s economy.
