On the Margin
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Wages rise with fewer available workers

This post is part of the On the Margin blog.

The restaurant industry added 18,900 jobs in November, according to the latest federal data.

Overall, employers added 178,000 jobs during the month, meaning the restaurant industry added one out of every nine jobs. That’s generally in line with historical norms, but is actually down from trends in recent years as the industry expanded at a rate well beyond that of the overall economy.

To be sure, such hiring seems a contradiction. After all, industry same-store sales have been weak all year, leading many to wonder whether restaurants are in a recession.

Yet, as we’ve written about numerous times, there is a lot of money being invested into the space, both by lenders and by private-equity investors. That’s driving up pressure on restaurant executives to add locations. They are less likely to close locations in response, and thus we get an environment in which the supply of restaurants keeps growing even though traffic growth is nonexistent.

Continued employment growth, however, continues to sap the supply of workers while driving up wages. The resulting labor shortage, far more than increases in the minimum wage, is the biggest reason for rising wage rates.

According to federal data, wages in the hospitality sector increased 4 percent year over year in November. Given that all of the employment growth in that sector is coming in the restaurant industry, it’s a good bet that restaurant wages are growing at an even higher rate.

Several chains reported wage pressure in their most recent quarters, driving up labor costs. Brinker International, for instance, said wages increased 3.3 percent in the quarter ended Sept. 28.

There are also numerous, anecdotal reports of restaurants around the country shrinking hours because they can’t find enough workers. Others are offering signing bonuses and other incentives to get workers.

In many cases, chains have been able to offset these higher wage rates because they’ve been increasing prices while commodity costs are falling. So the higher prices have masked rising wage rates.

With commodity costs expected to fall again next year, and operators concerned about the potential for labor costs to impact profits, we’d imagine more would raise prices next year. Yet with sales weak and the number of restaurant choices continuing to expand, restaurants likely don’t have the pricing power to do that — especially as grocers will be more likely to reduce prices further next year.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

TAGS: Workforce
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