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Seems like they should just raise prices on the food to control demand and provide additional capital for paying workers. Basic economics 101. What am I missing

Seems like they should just raise prices on the food to control demand and provide additional capital for paying workers. Basic economics 101. What am I missing here?

crdoconnor 9y ago
Restaurant customers are quite sensitive to price increases. This is why restaurants sometimes reduce the size of meals instead of raising prices. In any case, the real reason for the article and its complaints about a "tight" labor market is to lobby for low wage immigration: "Our industry is very much in need of a temporary visa program for the low-skilled, essential workers,” said Shannon Meade, the National Restaurant Association’s director of labor and work force policy. " Translation : pretty please send cheap labor our way; our profit margins aren't high enough.
- mc32 9y ago
  Pretty much that. Then we go full circle and need to add additional services to support people who need to take two hubs to survive. Switzerland seems to have achieved some balance in this regard. Japan too, although their wages are artificially depressed via other means.
- jmagoon 9y ago
  Yep. Having worked in the restaurant industry, it also means they don't want to pay healthcare, give sick / vacation time, or even hire enough employees to cover all shifts. ("Oops, no one is scheduled for tonight, guess you have to work a double!") It's way easier to exploit temp visa workers who are a missed shift away from getting deported. I actually really loved working in a kitchen but it's absurd how bad the labor conditions are.
garrettdc 9y ago
Price elasticity of demand IIRC. Demand functions aren't generally straight like the illustrative graphs used in intro classes. What you end up with is easy replacement with similar goods. Being able to differentiate goods in food-service seems like a very difficult proposition without some sort of brand recognition. Because of that, if someone can purchase some food that is equal or close enough to equal at a significant (significance as defined by the consumer utility) then they will go with the cheaper option. While raising prices seems like the simple solution to this issue, the reality is likely that they would quickly - if not immediately - price themselves out of the market.
- hkarthik 9y ago
  It feels like a straw man argument. Food is a basic necessity, and there is a threshold where you grumble but still open your wallet to pay up, rather than walk away. Overtime you get de-sensitized to the higher price and the fact that the everything on the dollar menu actually cost $1.29 doesn't phase you. I think the restaurant industry should look more holistically at options for dynamic pricing ala Uber. These could increase their margins enough to actually address the labor costs more effectively.
  - CocaKoala 9y ago
    Well, food is a basic necessity but restaurants aren't. Prices going up at a restaurant doesn't necessarily mean that the local Safeway needs to raise their prices as well.
- mauvehaus 9y ago
  Supply and demand curve apply to labor too though, right? At some point (in the near future if the premise of the article holds), the labor won't be available at the current price. Restaurants that won't raise wages won't be able to offer good service to their customers, and ones that do raise wages will be able to offer good service. The competing classes of restaurants are no longer substitute goods. (Not an economist, for the benefit of anybody who doesn't find that patently obvious ;-) ETA: I don't see the reason for the downvotes on the parent. It seems like a pretty reasonable explanation as to why there would be a brutal race to the bottom in restaurant industry. But again, my economics background is limited. Maybe somebody could explain the flaw in the argument?

Seems like they should just raise prices on the food to control demand and provide additional capital for paying workers. Basic economics 101. What am I missing here?

crdoconnor 9y ago

Restaurant customers are quite sensitive to price increases. This is why restaurants sometimes reduce the size of meals instead of raising prices. In any case, the real reason for the article and its complaints about a "tight" labor market is to lobby for low wage immigration: "Our industry is very much in need of a temporary visa program for the low-skilled, essential workers,” said Shannon Meade, the National Restaurant Association’s director of labor and work force policy. " Translation : pretty please send cheap labor our way; our profit margins aren't high enough.

mc32 9y ago
Pretty much that. Then we go full circle and need to add additional services to support people who need to take two hubs to survive. Switzerland seems to have achieved some balance in this regard. Japan too, although their wages are artificially depressed via other means.
jmagoon 9y ago
Yep. Having worked in the restaurant industry, it also means they don't want to pay healthcare, give sick / vacation time, or even hire enough employees to cover all shifts. ("Oops, no one is scheduled for tonight, guess you have to work a double!") It's way easier to exploit temp visa workers who are a missed shift away from getting deported. I actually really loved working in a kitchen but it's absurd how bad the labor conditions are.

garrettdc 9y ago

Price elasticity of demand IIRC. Demand functions aren't generally straight like the illustrative graphs used in intro classes. What you end up with is easy replacement with similar goods. Being able to differentiate goods in food-service seems like a very difficult proposition without some sort of brand recognition. Because of that, if someone can purchase some food that is equal or close enough to equal at a significant (significance as defined by the consumer utility) then they will go with the cheaper option. While raising prices seems like the simple solution to this issue, the reality is likely that they would quickly - if not immediately - price themselves out of the market.

hkarthik 9y ago
It feels like a straw man argument. Food is a basic necessity, and there is a threshold where you grumble but still open your wallet to pay up, rather than walk away. Overtime you get de-sensitized to the higher price and the fact that the everything on the dollar menu actually cost $1.29 doesn't phase you. I think the restaurant industry should look more holistically at options for dynamic pricing ala Uber. These could increase their margins enough to actually address the labor costs more effectively.
- CocaKoala 9y ago
  Well, food is a basic necessity but restaurants aren't. Prices going up at a restaurant doesn't necessarily mean that the local Safeway needs to raise their prices as well.
mauvehaus 9y ago
Supply and demand curve apply to labor too though, right? At some point (in the near future if the premise of the article holds), the labor won't be available at the current price. Restaurants that won't raise wages won't be able to offer good service to their customers, and ones that do raise wages will be able to offer good service. The competing classes of restaurants are no longer substitute goods. (Not an economist, for the benefit of anybody who doesn't find that patently obvious ;-) ETA: I don't see the reason for the downvotes on the parent. It seems like a pretty reasonable explanation as to why there would be a brutal race to the bottom in restaurant industry. But again, my economics background is limited. Maybe somebody could explain the flaw in the argument?