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We're going in the opposite direction. High minimum wages are making it nearly impossible to run small restaurants. We're seeing restaurant apocalypse happenin
by mediaman 1y ago
We're going in the opposite direction.
High minimum wages are making it nearly impossible to run small restaurants. We're seeing restaurant apocalypse happening in places like Seattle and Denver, because high wages result in high prices which causes lower customer volume which causes higher fixed costs per unit, which causes a death spiral. Denver, for example, has 30% fewer restaurants now, because it's so hard to run one profitably.
Lots of little tasty restaurants and high wages for service staff are basically incompatible. Many people in the city don't realize this and advocate for both.
Of course, high wages are desirable if they can be accomplished without tradeoffs, but the tradeoffs are there.
High minimum wages favor high-volume, fast service chain restaurants that are more labor efficient.
Perhaps eventually automation will relax this tradeoff, but I would expect automation to primarily benefit corporate restaurant chains over small local eateries, unless the automation is so general that any restaurant can start using it without technical expertise or R&D.
- zer00eyz 1y ago> High minimum wages are making it nearly impossible to run small restaurants. Not as much as one would think. Rent (literal) and rent seeking (lending in this case) are the biggest drivers in food costs today. The family restaurant in an owned building is a distant memory. The wholesale price of food is very low at the point of production (farming) and absolutely bonkers at the retail and wholesale levels. Mostly because at every step of the chain there is debt, and massive interest payments that need to be made. The HN set is on one side of the K shaped economy and the other half is looking very much like late stage capitalism. Case in point: Fritos. 4.50 a bag, while the Walmart generic version is under 2 bucks. Why? Because Pepsi (owner of Fritos) is competing with apple for customers, aka SHAREHOLDERS, and has a massive amount of debt compared to Walmart. The primary input in Fritos is corn, whos price is close to 2019 levels.
- jdlshore 1y agoI don’t think that story illustrates the point you think it does. Prices aren’t based on cost, they’re based on perceived value on the part of the buyer, and the marketing and brand recognition behind Fritos raises its perceived value much higher than the generic brand. To put it another way: all generic brands are cheaper than their name-brand counterparts, and that fact has nothing to do with debt or cost structures.
- lotsofpulp 1y agoThe lower bound of a price is the cost (or ability and willingness of a seller to sell), the higher bound of a price is the ability and willingness of a buyer to pay.
- catlikesshrimp 1y agoYou probably won't like not having employees. Those employees can start their own small cafeterias where the are owners who manage and work their business. The real problem is affordable housing.
- Izikiel43 1y agoAt least in Seattle, I believe the high minimum wage is due to CoL in the city, which is very high due to rent cost, which is high because of geography and not building a lot. If there was a building boom which led to a surplus of rental units, and rents went down, you wouldn't need such a high minimum wage.
- ummonk 1y agoI thought Seattle has started addressing the housing shortage? At some point though for a rapidly growing city you can’t really lower housing prices below the cost of building housing, and construction labor and cost of materials becomes a constraining factor (5 story housing projects can’t be built super cheaply).
- lotsofpulp 1y agoSeattle will always have high real estate prices due to its relatively high desirability in the world. What it doesn't have is a large supply of immigrants and/or illegal immigrants willing to work for low wages in restaurants, like NYC and California.
- toast0 1y agoI'm sure it'd be better to find graphs about King County or the greater Seattle area, but I found these graphs from the City of Seattle [1]. What I get from the graph is that there is growth in housing units, but there's also growth in population, so there's probably a lot of years at the current trends, before the housing shortage is 'satisfied'. [1] https://www.arcgis.com/apps/dashboards/c8cfcb827e564623a6fa3af6360141fe https://www.arcgis.com/apps/dashboards/c8cfcb827e564623a6fa3...
- ummonk 1y agoThanks for providing the data. I think that backs up my assertion that Seattle doesn't have a housing shortage as such. The relative growth in housing units since 2010 has been higher than the relative growth in population and jobs, so housing price growth since 2010 can't be explained by a shortage of supply. The issue is that the rapid pace of growth means there isn't much old stock housing on the market to provide cheaper options to homebuyers -- most of the housing on the market will be new stock for which the minimum price will be driven by the cost of construction.
- Forgeties79 1y ago> High minimum wages are making it nearly impossible to run small restaurants The federal minimum wage in the US is pitiful and yes some cities and states do higher ones, but frankly if you’re operating on such small margins then you need to increase your prices. I’ve seen a trend of new restaurants opening with fixed menus/prices per head. They aren’t cheap, but they aren’t unreasonable, and it’s looking like at least here they are finding real footing. We’ll see in 5-10 years what the survival rate is I suppose. During Covid I did a lot of interviews with very high-level restauranteurs (mostly chefs) in my city, several of which had James Beard awards and beyond. This is not a flex, it’s purely for context. These are considered some of the best in the city. They all said the exact same thing: Everyone is pushing their prices too low and promising high-quality, fresh ingredients that are all locally sourced and yada yada. That’s great, but it can’t be done in a sustainable way. Not if you want to actually pay a living wage or offer even the most modest benefits to your employees. The larger population needs to accept the fact that if we want restaurants to actually survive at all, we have to pay more for it and treat it as more of a luxury. Good, ethical, cheap. Pick two.
- potato3732842 1y agoA large majority of states specify a minimum other than federal.
- Forgeties79 1y agoYes I acknowledged they exist but no it’s not a “large majority.” Roughly 20 IIRC are at the federal minimum. Of those that aren’t many of them are not much above, generally $8-10. I don’t think this is worth nitpicking.
- potato3732842 1y ago3/5 would be an overwhelming majority in literally any other policy context.
- Forgeties79 1y ago
- cjbgkagh 1y agoI think it’s first order the rent (commercial) and second order the wages needed to pay rents (residential). Having seen the rents in the major cities I don’t know how people manage - it’s insanity.
- rkomorn 1y agoVirtually nobody's mad at commercial landlords for being the only people actually making money in the (non-chain) restaurant industry though.
- throwaway2037 1y agoThe profit margin for commercial real estate (in a highly developed country) is probably similar to a non-chain restaurant.
- alright2565 1y agoAnd chain restaurants are often a large part real-estate plays: https://qz.com/965779/mcdonalds-isnt-really-a-fast-food-chain-its-a-brilliant-30-billion-real-estate-company https://qz.com/965779/mcdonalds-isnt-really-a-fast-food-chai...
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- estearum 1y agoLand Value Tax fixes this
- Sohcahtoa82 1y agoI'd love to see a law that ties the minimum wage to the average rent in the nearby area. Make the business owners and the landlords battle it out. Obviously, this suggestion is extremely tongue-in-cheek and would probably be absolutely awful in practice for a million reasons.
- spankalee 1y ago> High minimum wages It is not the (not actually high) minimum wages. Stores I've known that had problems staying open were having to pay more than the minimum wage because housing is so expensive.
- bobthepanda 1y agoYeah, the ice cream parlor in my neighborhood in Seattle was at one point advertising $27/hr to scoop ice cream because the housing shortage and worker shortage was so tough. That’s well above minimum.
- walthamstow 1y agoI posted this yesterday on an unrelated thread but it is again relevant here: every problem in Anglo societies comes back to property and housing prices.
- LunaSea 1y agoThis is true for most of the West / developed nations / developed cities.
- saalweachter 1y agoYou could probably generalize that cleanly to comes back to rent seeking behavior. Literal landlords are just where ordinary people notice they're getting squeezed.
- kelipso 1y agoThey are all just following the basic principle of pricing everything as high as the market can handle. Too bad advances in data science has made the margin so tight that people are feeling squeezed.
- estearum 1y agoEverything is the price of land. Read Progress & Poverty -- it's a literally life-changing experience.
- LunaSea 1y agoA different analysis of the same situation could be that there were actually too many restaurants that were not profitable and thus couldn't pay their workers a living wage thus needing to close down. And maybe also that people don't have the means (anymore) to go to the restaurant every other day.
- quickthrowman 1y agoIt’s not the wages, it’s the (commercial) rent. Guaranteed.
- potato3732842 1y agoIt's not just wages, it's every single avenue on which the government is forcing them to incur some cost and in every case it favors the big chain that has more locations, more meals, more everything to amortize the costs over. It was ignorable with some mental gymnastics and cognitive dissonance when times were good but now that they aren't it's more obvious. Normally it's worth blaming rent to some extent but commercial RE is crap right now so that ain't it
- mulmen 1y agoWild take. If you can’t pay a living wage your business shouldn’t exist. Restaurants closing due to wage increases means workers were being exploited to cover unsustainable costs. Rents have to come down or wages need to go up across the board to cover the higher prices. The billionaire class can’t eat enough food to keep restaurants open. They need to outsource it to the middle class.
- exoverito 1y agoI appreciate where you're coming from, but you risk making the perfect be the enemy of the good. What's worse, being paid less than a 'living wage' or being unemployed? The problem with a minimum wage is that if it's set to 20/hr, but some people are only worth 10/hr, then they become unemployable and have 0 income. Price controls result in shortages. In this case it's a shortage of jobs. Same phenomenon results from rent control, you will get a shortage of space at the enforced price level. The main solution is to increase economic freedom and reduce regulatory burdens. Allow people to build. Too often they are prevented by restrictive zoning laws, absurd environmental reviews, everything-bagel mandates for diverse contractors, etc. Ironically, big corporations and billionaires often love regulation because it raises the barrier to entry and reduces competition.
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- danaris 1y agoSee, there's a fundamental flaw in your logic, at least based on my own: I don't believe that any human being is "only worth" $10/hr, or whatever arbitrary level you set. Every human being deserves to have the resources to live. And to a first approximation, every human being is capable of doing enough work to be worth that. (The exceptions are people with various kinds of disabilities, whom we should be caring for, without question or reservation, and providing accommodations for those who can work, if they aren't just expected to Not Be Disabled.) If a job wants to create a position to do [thing], but [thing] will only bring in, say, $5/hr worth of profit...then the job simply shouldn't create that position as-is. Either the owner needs to do it themselves, or they need to find a way to change what the job does so that it makes them enough money to cover labor costs.
- Gigachad 1y agoAustralia has even higher minimum wages and chain restaurants are fairly rare and unpopular. Almost everything I see on the street is a small business with likely only one location.
- danaris 1y ago> High minimum wages are making it nearly impossible to run small restaurants. Another way of putting this: "Small restaurants can only operate at a profit if they're allowed to pay people so little they can't afford to live off of it." Any business that can only survive by exploiting its workers does not deserve to exist. The fact that there were many small restaurants that were operating just fine when the minimum wage was, relatively speaking, much higher (ie, you could work full-time waiting tables at minimum wage and still afford a house and kids) strongly suggests that this claim does not hold water.
- dv_dt 1y agoThe presence of so many food trucks to me points to real estate and rent prices as a higher order driver than wages
- jermberj 1y agoBingo
- stevenicr 1y agoWith food trucks I've learned that rules, regulations, construction costs may be bigger factors. In most cases if you attach 50 grand worth of stuff to a building and can't pay your rent one month you may be legally required to leave most of your equipment with the landlord, and could be required to pay for additional construction. Many landlords require certain insurances you can bypass with your truck. The public can't sue the building owner for things. Inspections are also easier to handle with smaller places to tidy up, and everyone in your restaurant can see an inspector coming before they get inside. Also if you get a bad inspection or bad reviews, just put a new wrap on your truck and it's not like a bad reputation for a specific building is set in.
- dv_dt 1y agoWhich is some excellent insight on why wages are not the driving cost, but real estate is. There are some insurance costs that get carried with a food truck, but I think the simpler direct ownership structure minimizes them.
- bruce511 1y agoRestaurants are for those who are cash rich, but time poor. The cheapest way to eat is to buy ingredients and cook it yourself. Restaurants buy ingredients, and cook, but also have to add costs like rent and labor. Thus as money supply constricts businesses like restaurants see a slow down in customers. The current economic policies in the US are explicitly designed to raise the prices of goods and services like health care. This will, as a first order effect, reduce the disposable cash available. Restaurants will suffer first, they are a luxury easily and quickly discarded. But they are the canary. Expect to see all kinds of businesses, especially small businesses suffer, as these policies play out. And just remember, you voted for this, and many people explicitly support these policies and their effects. These are not bugs, they are explicit design goals.
- hatradiowigwam 1y ago> And just remember, you voted for this, No...definitely did not vote for this, maybe you did? I voted against this in every way, and see how that worked out. Democracy is grand.
- bruce511 1y agoI omitted my usual explanation of this phrase. So sure, I'm not saying 100% of people voted for this. The "you" in this context is 2nd person plural; the collective "you". As you note, democracy is the will of the majority imposed on the minority. Personally I'm not convinced that's a great approach, but I'm also not a fan of minority rule either. Ultimately I guess, whenever there are choices to be made, someone's not going to like the outcomes. I sympathize with your current plight. Welcome to the minority. My only approach at this point is to keep reminding people that they chose this, that their vote matters. Perhaps when people understand that causal link then they'll make better choices in their own interest. (Whom I kidding right?)
- eli_gottlieb 1y agoI don't mean to be spitefully political, but shouldn't we perhaps compare wage costs to other costs in determining whether the business can run profitably? I've seen a lot of small businesses fall to rising real-estate costs.
- miki123211 1y agoThis is where drone deliveries will shine. Drone deliveries are a lot more like social media, hotels or flights, and a lot less like traditional deliveries. Once you build out the infrastructure, your cost-per-delivery (OpEx) rounds to zero. You want to spread out your infrastructure costs across as many deliveries as possible, so it makes sense to increase utilization, even at extremely low delivery prices. This is the "Ryanair model." Because drone deliveries are so cheap (and so fast, there's no traffic after all), long-range deliveries make much more sense. If you can do long-range, you care a lot less about where your restaurant is located and how many customers you have passing by. This makes your rent go down. Long range also increases how many customers you can realistically serve. You can exploit this in two ways, either by hyperspecializing in some particular kind of food, or by introducing standardization and automation. A large part of the reason why restaurants aren't automated is that they just don't have that many customers. It doesn't make sense to pay for expensive machines (or even design them) if you are constrained by both rent and range. If neither are a constraint, you can go wild.
- blehn 1y ago> There's no air traffic after all No air traffic until their are drone deliveries. What will the sky look like when you take every _individual_ package from Door Dash, Uber Eats, Postmates, Instacart, Amazon, UPS, Fedex, DHL, etc etc etc and put them on _individual_ drones? Even if the logistics could be sorted out, I worry about the quality of life issues it poses for communities, especially with the amount of noise drones make. NYC handles 3,000 flights a day; it handles 2,300,000 package deliveries a day.
- LocalH 1y agoI've been thinking lately about the merits of the idea of repealing minimum wage coupled with a healthy UBI that's linked to the price of basic housing in a given district. Of course, that's not perfect, as no idea is. But clearly, companies (as an aggregate of the entirety of the commercial economy, and especially the largest ones) are not willing to lower their revenue such that minimum wage increases are not necessary. The idea that costs should be "what the market will bear" is a cancer in economic thinking, as it encourages testing the waters to see how high one can raise their prices, without increasing wages in tandem to ensure there are still the maximum number of potential customers (if you price me out of purchasing your product, I am no longer a potential customer, and the size of non-customers is rising in almost all fields that aren't B2B)