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Fast food CEO: Minimum wage hikes closing locations

CKE Restaurants' roots began in California roughly seven decades ago, but you won't see the parent company of Carl's Jr. and Hardee's expanding there much anymore.

What's causing what company CEO Andy Puzder describes as "very little growth" in the state?

In part it's because "the minimum wage is so high so it's harder to come up with profitable business models," Puzder said in an interview. The state's minimum wage is set to rise to $9 in July, making it among the nation's highest, and $10 by January 2016.



Employees at a Hardee's restaurant in Pasadena, MD.
Sarah L. Voisin | The Washington Post | Getty Images
Employees at a Hardee's restaurant in Pasadena, MD.

In cities in other states where the minimum wage has gone up considerably, Puzder said "franchisees are closing locations" after riding out lease expirations.

If the federal minimum hourly pay shoots up to $10.10 from the current $7.25—as many lawmakers and President Barack Obama are advocating—Puzder predicts fewer entry-level jobs will be created. If this happens, CKE would also create fewer positions, he forecast.

A recent nonpartisan Congressional Budget Office study also predicted mass job losses, estimating that a hike to $10.10 could result in a loss of about half a million jobs by late 2016, even as it lifted many above the poverty line.

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"When the minimum wage increases, there are two things you can do," he said. "One is you can reduce the amount of labor that you use or you can increase your prices."

But with increased costs from food, taxes, fuel, health insurance and regulatory compliance, Puzder said businesses can only raise prices so much before customers become less willing to shell out.

Obamacare regulations, which impact businesses with 50 or more workers more than those with fewer employees, are also affecting CKE's franchise growth.

"I actually have franchisees...who've either gotten out of the business or refused to build two restaurants because with one restaurant you have less than 50 employees," he said. "With two, you have more than 50."

Instead, some cautious franchisees are considering alternatives to expanding their businesses.

"They're actually looking at other investments, which have less risk and lower costs—for example, bonds," he said.

Puzder says it's difficult to justify the risk of opening a business when government policies have hindered would-be entrepreneurs' ability to generate profits due to increases costs.

Indeed, jobs data reflects this hesitancy.

Over the past two decades, businesses with 500 or fewer workers created about two-thirds of net new jobs, according to CNBC's analysis of BLS data. This portion had dropped to about half by 2013.

"People don't just grow because it's Tuesday," he said. "They grow because they think they can make a profit."

To boost U.S. growth, Puzder says more business sympathetic policies need to be in place.

"I'm not saying the government should disappear or I hate the government," he said. "We need a government. We have a good government, but the government's gotten overzealous with respect to what it thinks it should do...The government needs to get out of the way."

—By CNBC's Katie Little

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