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.
I 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.
Restaurants 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.
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?)
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.
Yeah, 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.
I 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.
Thanks for the recommendation! I went looking for a Kindle edition, and unsurprisingly for a book from the late 19th century, there are quite a few of varying quality. I downloaded several of the free samples, and this one may be my favorite:
It was edited, abridged, and translated to modern language by Bob Drake of the Henry George School of Chicago.
As always, I recommend downloading the free Kindle sample or reading the free preview on the website before buying.
Here's an example, the first two paragraphs of the Preface in the original language:
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THE views herein set forth were in the main briefly stated in a pamphlet entitled “Our Land and Land Policy,” published in San Francisco in 1871. I then intended, as soon as I could, to present them more fully, but the opportunity did not for a long time occur. In the meanwhile I became even more firmly convinced of their truth, and saw more completely and clearly their relations; and I also saw how many false ideas and erroneous habits of thought stood in the way of their recognition, and how necessary it was to go over the whole ground.
This I have here tried to do, as thoroughly as space would permit. It has been necessary for me to clear away before I could build up, and to write at once for those who have made no previous study of such subjects, and for those who are familiar with economic reasoning; and, so great is the scope of the argument that it has been impossible to treat with the fullness they deserve many of the questions raised. What I have most endeavored to do is to establish general principles, trusting to my readers to carry further their applications where this is needed.
---
And in the modern edition:
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In 1871, I first published these ideas in a pamphlet entitled Our Land and Land Policy. Over time, I became even more convinced of their truth. Seeing that many misconceptions blocked their recognition, a fuller explanation seemed necessary. Still, it was impossible to answer all the questions as fully as they deserve. I have tried to establish general principles, trusting readers to extend their application.
While this book may be best appreciated by those familiar with economics, no previous study is needed to understand its argument or to judge its conclusions. I have relied upon facts of common knowledge and common observation, which readers can verify for themselves. They can also decide whether the reasoning is valid.
A 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.
At 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.
I 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).
WA state added a law to override local zoning regulations in order to encourage density.
I have seen new multi apartment construction in Ballard, Cap Hill, and some other places, but there is a construction backlog going on for years.
Also, the problem in Seattle, same as SF, is that there are too many SFHs vs multi apartment buildings/townhomes.
It will take several years until offer surpasses demand.
Seattle 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.
I'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'.
Thanks 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.
I've been seeing that housing supply / demand and pricing is complicated by many other factors beyond population. It can less or more obvious depending on location.
I've watched one of my favorite cities housing go crazy because of many factors including investors buying up properties for airbnb, developers focusing on catering to the coming influx of higher paid amazon / oracle people, and so many betting on those future increases that everything else goes up.
Adding to that, becoming a popular place for people to buy a second (or third / fourth home) - whether it's for a temporary move, to shelter their kids going to college who have chosen here instead of Chicago, trying a lower tax place to move with remote work being easier post 2020, etc..
Good point about new construction costing more, and that in itself has many factors. and depending on exactly when things were purchased making big differences.
With the limited supply of builders, most are choosing to build more expensive places.
Sadly even if we made this place less attractive for people to move to, many of the properties wouldn't go on the market, many would just hold on to the property as a stable investment.
So population numbers are not the primary weight in the supply / demand equation in many places is something I have been learning.
With 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.
Which 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.
Australia 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.
> 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.
Yes 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.
When the number is 50 no, it isn’t. This feels somewhat disingenuous and clearly this doesn’t disprove the larger point. Not to mention, again, several states are barely north of that.
If you want me to acknowledge “some” isn’t enough then fine: “most states are at the minimum wage or up to $10, which is pitiful.” $1600 or less a month is pitiful. Not to mention the states with the lowest minimum wages are by and large the ones with the weakest social safety nets, so the problem is compounded. Can we move on and get back to the real point here?
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.
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.
I'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)
I 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.
Wild 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.
I 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.
If people are only worth 10/hr, but they need 15/hr to not die, the state has to step in to subsidize the exploitative business. Alternatively, the employees turn to crime, which is again a costly externality the company causes, or they die and the companies back to not having employees (or customers).
I absolutely agree that some of the regulations are bad, and in general building more is the main solution to these problems. Zoning and parking space requirements are especially egregious in the USA.
The example in this thread, of "co-locating" everyday commercial with residential, is another part of the solution. I can move further away from the city if the daily necessities are easier to reach. This would also help with traffic, which would then help people needing to commute.
See, 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.
Your beliefs don't change economic reality. Some workers simply aren't capable of generating $10/hr of economic value. If wages are fixed at a higher rate then all of those people will be unemployed. Employers won't voluntarily hire them and lose money. Instead the work will be automated or not done at all.
One potential solution is for government to subsidize their wages through mechanisms like the Earned Income Tax Credit. That helps low-skill workers to gain some experience and move up the ladder without artificially distorting the labor market.
> Some workers simply aren't capable of generating $10/hr of economic value.
The only ones that I believe this can genuinely be true of are people with various types of disabilities. Which I addressed in my post.
The idea that there's this large percentage of fully able-bodied workers who are completely incapable of ever being trained to do any kind of skilled work doesn't pass the smell test. At best, it reeks of various racist/eugenicist ideas.
I guess your belief is based on "vibes", not on actually hiring low-skilled workers. A lot of people are not medically disabled but are just kind of lazy or incompetent or unreliable. This has nothing to do with race or whatever so it's weird that you would bring that up.
Some of those workers can be trained to be more valuable. But employers generally aren't going to hire them based on hope.
You 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.
> 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.
It'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
> 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.
I 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.
The 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.
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.