Rising Wages in the Restaurant Industry Spell Difficult Market for Labor All Around

PHOTO: JEFF HERR FOR THE WALL STREET JOURNAL
PHOTO: JEFF HERR FOR THE WALL STREET JOURNAL

Wages in the Food-service industry have been reported by the Bureau of Labor Statistics as increasing faster than normal across the nation, by 3% annually, while restaurants at all levels experience a shortage in employment. However, the strange aspect about this counter intuitive data is that both food establishments and employment numbers have both seen faster than average increases in their volume as well. Basically put: there are more restaurants opening and more employees joining the work force in this industry so that employees who are already well qualified seem to be moving on to better positions due to increased competition among the food establishments for quality employees. Why is this phenomenon happening? Eric Morath and Jeffrey Sparshott of the Wall Street Journal say that

In past economic cycles, low-skilled workers have been among the last to see a pickup in wage growth. But the latest gains suggest a consumer-driven recovery could draw more Americans back into the job market and further bolster consumption, a key driver of economic expansion.

There are many ways to explain this growth in the Food-service industry, including: increased minimum wages in multiple states, low gas prices causing a surplus in disposable income, and the barriers for entry into this types of industry as being relatively lower compared to others. Among these causes for the employment boom in this sector of the economy, disposable income increases for consumers seem to be influencing the demand for meals had outside of the home more so than ever before.

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Six years out from a major recession, Americans seem to be more comfortable now with their spending than in previous years, which could be attributed to a domino effect from lower gas prices at the pump meaning there is more money left over from consumers to indulge. The Wall Street Journal reports an increase in restaurant spending by 11.3% within the past 12 months. Regardless of this fact, the increase in demand in the Food-service industry means that other restaurants wish to expand while profits from their businesses are seeing an increase.  Simultaneously, many food establishments have been reported by the Wall Street Journal as opening at an abnormally brisk pace in order to get their piece of the pie in this increasingly lucrative venture as well. This however, means that competition for employment will tighten even more, despite the fact that job numbers are increasing rapidly.

A lot of new [establishments] are popping up and those restaurants want experienced people…There is fierce competition

This statement, said by Patrice Rice, the chief executive of a restaurant staffing firm called Patrice & Associates, mirrors the struggle in the industry to find workers as of late. Other areas of the economy that are seeing increases in wages, such as in retail business with Walmart, may be trying to outmaneuver the effects of increased minimum wage that nearly 17 states have increased.

Photo: Yelp
Photo: Yelp

The increased wages in different parts of the economy could be affecting the wages in this sector as a result to maintain workers who would be incentive to switch jobs for the higher wage in a different field, despite their current experience with food. As seen in the graph by the Labor Department below, the average wage for all employees in food services and drinking places is shown to be $12.48 as of 2014. The DOL reports that higher growth in this field of 3.1% out-competes other industries such as retail trade, which had an increase in wage of 2.7% from 2013 to 2014. Even other unskilled jobs such as construction had a low rate of wage increase, with a rate of 2.2% from 2013 to 2014. These lethargic rates for other unskilled labor translate to a better looking incentive for individuals to desire jobs in the Food-services industry more so than ever. This factor is further compounded by the low education requirements for these jobs which mean switching employment is easy for these workers.

Source: Graphical-The Wall Street Journal; Data-the Labor Department

One thing’s for certain as of late: the US economy is improving. As a result, the labor market has seen to be tightening at all levels, however the lesser skilled positions appear to be competing more so than most. Attractive benefits, better pay, and more opportunities with new businesses opening up, all contribute to the increased levels of competition for these jobs. The Food-services industry is seeing this effect as well for hiring and maintaining their employees. With the American people more comfortable with spending while having an increased level of disposable income due to lax gas prices as of recent, jobs in the restaurant and food sector of the US economy will continue to rise. However, the shortage in workers will only be a temporary gap as other industries adjust to keep their employees on. Their increase in benefits and wages could mean that they have to cut jobs eventually, which would lead to the excess number of workers seeking a job once more to fill the openings from this boom in this opposite side of the economy.

Sources: The Wall Street Journal, Bureau of Labor Statistics, US Department of Labor, Yelp, LoopNet

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