Restaurants: Canaries in the Coal Mine of the Covid Labor Reset?

Early in the Covid pandemic, some economists thought to raise the issue of whether it might have a serious enough impact on the labor market so as to give workers more bargaining power against employers and so result in higher pay and improvement in condition. Experts almost universally dismissed that notion, pointing to the fact that Covid fatalities were nothing like that of the Black Death, which did produce a labor market reset, and the very bad Spanish flu had not had a lasting impact on wage rates.

That initial assessment is now looking a tad premature. No one (except those who recognized that there is no durable immunity to a coronavirus) then thought Covid would become a chronic, widely circulating disease that now also mutates a plenty. And no one (except those who knew the pathology of SARS-1) thought it would produce significant levels of lasting disability, in the form of Long Covid. The risk increases with each infection. A report by Statistique Canada showed that the risk of Long Covid was 38% with three infections. Studies in other countries suggest even greater incidence:

Lambert has taken up the labor market impact of Covid as a beat. We came up with little in the way of studies and asked an economist who has an encyclopediac knowledge of research and keeps up on new work. He said that this was not something economists were up on; Lambert would do better going to science and public health sources. So you can expect them to be laggards on this topic.

The work that Lambert nevertheless did find featured Long Covid prominently. From his initial foray:

In the previous round-up, I cited two studies. One estimated the total impact of the Covid pandemic at $14 trillion; the other estimated the impact of Long Covid at $3.7 trillion[4]. Today we have two additional studies on Long Covid, the first on disablity in the United States, the second on the labor participation rate in the EU.

1) “Long COVID Disability Burden in US Adults: YLDs and NIH Funding Relative to Other Conditions” (preprint) [medRxiv]. Data from the US Census Bureau’s Household Pulse Survey (HPS) and the Institute for Health Metrics and Evaluation (IHME) /Global Burden of Disease (GBD) Long COVID Study Group:

Long COVID represents a mass disabling event of significant public health concern. Long COVID is associated with a 21% loss of health – comparable to traumatic brain injury or complete hearing loss. Among US adults, 5.3% reported having Long COVID in October 2023 and 1-in-4 with Long COVID consistently report significant activity limitations from its symptoms. Across the 12-month sample of n=757,580 US adults, 1.5% (n= 10,401) met our case definition of disabling Long COVID. Their estimated frequency of the population equates to 3,801,986 adults with long term symptoms after COVID that significantly limits daily activity.

(I would tend to equate disabled with being out of the labor market entirely.) 3,801,986 is a lot, especially considering that we’ll keep adding to the total, if current trends continue.

2) “Long COVID: A Tentative Assessment of Its Impact on Labour Market Participation & Potential Economic Effects in the EU” (PDF) [The European Commission].

To the best of our knowledge, so far, no study has explicitly addressed the impact of long COVID on the EU labour market. The present paper provides a tentative assessment using available estimates from surveys, clinical follow-up studies and model simulations of the prevalence of long COVID. This tentative approach yields an estimated prevalence of long COVID cases of around 1.7% of the EU population in 2021 and 2.9% in 2022, resulting in a negative impact on labour supply of 0.2-0.3% in 2021 and 0.3-0.5% in 2022. In person-equivalents, this means long COVID is assumed to have reduced labour supply by 364,000 – 663,000 in 2021 and by 621,000 – 1,112,000 in 2022 – combining the effect of lower productivity, higher sick leaves, lower hours, and increased unemployment or inactivity. … Available labour market data suggest a mixed picture when it comes to the impact of long COVID…. Other indicators suggest that in 2022, health-related issues (COVID-19-related or of other origin) contributed more than in previous years to a reduction in labour supply at the external (i.e. transition into inactivity) and the internal margin (i.e. a reduction in hours). Notably, there has been a sizeable increase in sick leave reported by several EU Member States in 2022, with acute COVID, long COVID and seasonal respiratory illnesses all likely to have been significant contributors. There has also been an increase in people reporting disability or longterm illness, people inactive due to illness or disability and in part-time work due to illness or disability. The timing and distribution of these observations (with women being more severely affected) could mean that long COVID is a contributing factor. Overall, the health impact of long COVID warrants careful monitoring.

2.9% * ~450 million (the EU population in 2022) = 13,050,000 people. That’s a lot, comparable to the 16 million (CDC) with Long Covid in the United States.

An end-of January Bloomberg report gave prominent play to the fact that German data showed that ongoing illness was creating a bigger economic drag than during the pandemic (notice Bloomberg drafted the piece to present Covid as over). From the story:

German officials insist their economy doesn’t merit the “sick man of Europe” label, but a new study suggests illness is really playing a part in its poor performance.

Gross domestic product would have risen 0.5% last year if it hadn’t been for work absences due to poor health — a tally that surpassed pandemic totals to reach a record in 2023, according to analysis by VFA, the country’s association of research-based pharmaceutical companies.
Some €26 billion ($28.2 billion) in real income was lost due to illnesses among employees — equivalent to about 0.8 percentage point of total output, economists Claus Michelsen and Simon Junker wrote in a report released on Friday. High levels of absences in November and December point to another hit in the current quarter too….

If absences due to sickness recorded over the past two years were to become the new normal, the economy would lose the equivalent of 350,000 employees, the study showed. That tally is twice as much when also making up for some overtime and productivity improvements.

Now admittedly no where does Bloomberg, and one assumes the German officials, attribute the persistent increase in health-related absences to Covid. But despite cheery CDC’s and other public health officials’ near total silence on the matter of long-term harm from Covid infection (save now some acknowledgement of Long Covid), many studies have found evidence of direct and durable damage from Covid, including impairment of the immune system. And given the correlation in timing, it seems reasonable to think that Covid has a big role in Germans’ health decline.

Now to the Wall Street Journal article. It describes how “independent” restaurants, meaning non-chain eateries, are in a world of hurt due to rising costs and many are at risk of closure due to a terminal budget squeeze. A secondary cause is erratic traffic, which it depicts as a post-Covid effect (think for instance that work at home means fewer with set commutes on weekdays, which in turn has an impact of their restaurant patronage). I dimly recall an article years back (in one of the CA non-mainstream pubs?) describing how there were simply too many restaurants in the moderately-to-pricey-but-not-special-occasion/expense account category to survive, that a shakeout would come).

And restaurants are a difficult business to begin with. The hours and work pace are hard, and there is no way to lock in customers. It has low barriers to entry, so a successful-looking venture is vulnerable to new establishments winning over their patrons.

While the story weight heavily on rising expenses, for most dining spots, the biggest pressure is the rising cost of help. But oddly, they don’t connect the tight labor market, particularly for low-end workers, to Covid.

Let us consider what it takes to work in a restaurant. Pretty much every position requires a decent amount of physical stamina and executive function. You are on your feet for most of your shift. You have to juggle orders and deliveries to tables. Waitstaff have to deliver dishes to the person who ordered them. Even lowly busboys have a routine for table setup and clearing they need to follow.

Even though public health official and the press loath to connect persistent labor market tightness to Covid, the usual handwave, of attributing it to the baby boom cohort retiring, does not have much explanatory power for restaurant workers, who skew young. For instance, I recall one reader describing how his joint were ruined by 20+ years of being a cook. Notice how the Journal, at the top of the piece, identifies rising labor costs as the biggest pressure:

Independent restaurants are on financial life support, owners say, squeezed between escalating payroll costs and diners’ dwindling tolerance for ever-higher checks. Wages for waitstaff, table bussers and line cooks will grow more expensive for many eateries this year, with 22 states in January raising the minimum wage for hourly workers….

Restaurants’ food bills have stopped their pandemic-era surge. But payroll costs are still climbing.

In January, 59% of small-business owners reported higher labor costs were their biggest source of inflation, according to a survey of more than 425 entrepreneurs conducted for The Wall Street Journal by Vistage Worldwide, a business-coaching and peer-advisory firm….

As a percentage of sales, restaurants rely on labor more than other retail sectors, making the rise in wages particularly draining on profits, according to industry economists. It takes 12 employees to generate every $1 million in restaurant sales versus roughly three employees at grocery, general merchandise and clothing stores, according to analysis by the National Restaurant Association….

Labor costs have been rising faster and longer at independent restaurants than in the economy as a whole, with full-service restaurants seeing the biggest increases over the last year, according to an analysis by Gusto, a small-business payroll and benefits provider.

Again, one can correctly point out that minimum wage increases are long overdue. Obama in his first bid for the presidency promised to increase the Federal minimum wage to $9.50. It is still $7.25 (we’ll skip over the sub-minimum wage for restaurant workers; the point is the long duration of no increase for low-end work). So arguably, restaurants that depended on really cheap labor have been living on borrowed time.

But the reason minimum wage increases are sticking in so many state is not just due to inflation but also to businesses acquiescing, presumably because they can’t get enough adequate people at the current minimum wage anyhow.

The piece neglects to mention that one of the dining spots it showcases, Chef Zorba’s Restaurant, is in Colorado where the minimum wage has increased to $14.42 in 2024, up from $13.65 in 2023. Another is Johnny Roger’s BBQ & Burgers in North Carolina, where the minimum wage remains $7.25 an hour. Only for the third does it make explicit that the rise in pay costs have nothing to do with higher minimum wages:

Evan Kelamis, owner of breakfast and lunch spot Savoy in Tulsa, said his labor costs increased by more than 16% in 2023 alone—though the minimum wage in Tulsa has stayed at $7.25 per hour—because he has to pay more to attract and retain workers.

The Colorado restaurant reports having to improve benefits too:

In addition to minimum-wage increases, LuKanic now spends thousands of dollars a year for paid sick leave and other employee benefits. She said she’s increased salaries of her managers to around $65,000 a year to remain in line with her hourly workers’ additional pay.

Some longer term data:

There were also interesting tidbits that the article did not pursue, presumably due to the focus on the profit squeeze. For instance, the North Carolina restaurant saw its takeout business go from 20% pre-pandemic to 80% now. That’s a remarkable change. It would be nice to know if it is representative, since as the story points out, it does have a big operational impact. Sadly it is more likely due to diners having become habituated to eating at home, as opposed to Covid cautiousness.

It is not hard to imagine why the restaurant operators might not want to consider that Long Covid is contributing to their budget woes. They, like everyone in the hospitality and travel business, needs Covid to be over. They want the old normal back even if that will never occur. Thinking that Covid is still circulating and can (will!) further reduce their labor pool and make their workplace hazardous is not something they can entertain.

This long-ish piece does note in passing that the restaurant workers even in the relatively-well-remunerated Colorado eatery are having trouble making ends meet. So one could imagine that if worker scarcity persists, there will be yet more increases in pay at the low end of the scale.

Admittedly, Covid health effects and vanishing workers only a part, and a hidden part, of this particular picture. But the failure to manage this crisis better is already inflicting sizable costs on the economy, and it’s set to only get worse with Covid reinfections having a cumulative cost.

Like the war in Ukraine, the officialdom chose to rely on shock and awe, here of vaccines, and weren’t willing to pursue other measures seriously because that would have been real work, such as incurring costs (such as for distribution of high quality masks) and involved spending political capital (for instance, requiring better ventilation in schools and hospitals). And now we are seeing that over-reliance on a simple-seeming solution is producing serious blowback.

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  1. The Rev Kev

    I don’t know about North America but some of the loudest proponents here in Oz for ending the lockdowns and going back to normal – whatever the hell that is – were the restaurant and cafe owners. They were really loud on the subject and the media here fell over themselves making sure that their views aired on TV. Surprise. Turns out that they were wrong. Thing is, the number of people falling sick long term is getting to be cumulative which is really bad news. But wait, there’s more-

    ‘According to research published in the New England Journal of Medicine on Thursday, patients who had recovered from coronavirus symptoms had a cognitive deficit equivalent to three IQ points compared with those who had never been diagnosed with it. Meanwhile, study participants with unresolved persistent symptoms had an IQ decline of six points.

    The Covid impact was even more pronounced when it came to those who were admitted to the intensive care unit, with the IQ loss reaching nine points compared to the control group. At the same time, the scientists “observed a small cognitive advantage among participants who had received multiple vaccinations,” the research claims.’

  2. TomDority

    What impact does the physical facility overhead (rents, energy) contribute to profit squeeze? and how does that compare to the wage profit squeeze? which is the larger contributor?

  3. vao

    the North Carolina restaurant saw its takeout business go from 20% pre-pandemic to 80% now. That’s a remarkable change.

    I believe that restaurants as we know them are bound to disappear in droves, leaving only (from the more expensive to the cheapest):

    1) high-end eateries that can pay reasonable wages and the rent for premises, patroned by people only on festive occasions (e.g. a wedding, a graduation, a birthday);

    2) caterers, that take orders and then deliver dishes directly to the customer’s home (or office) or let customers take them out, but which are not organized for on-premises consumption;

    3) street stalls preparing and selling a limited selection of take-away food for employees who cannot return home for dinner, for tourists, for workers on construction sites, etc.

    (3) is actually standard in many parts of the world (Asia, Africa, Latin America), and anectodically, I have seen a few such stalls where I live popping up when the Covid-19 pandemic started — and they are still there. (2) was the standard way of arranging a meal into about the inter-war period. (1) was an innovation (going to a place where one sits and orders dishes from a carte) dating back from the very late 18th century. Before that, hostels did not give a choice of what to eat — or one had to bring one’s own food.

    The lack of personnel (because of low wages, health risks, and debilitating Covid infections), as well as the lack of a sound economic basis (what the article implicitly states is that most restaurants cannot survive without exploiting seriously underpaid labour, not to mention cheap premises) make the traditional restaurant an increasingly obsolescent business model.

    1. Dessa

      I would add seasonal resturants that can predictably scale labor. Low commercial real estate costs keep expenses down in the off-season.

    2. Belle

      I happen to work in fast food in an area that was a COVID hotspot (even mentioned in the NYT). I have a feeling fast food will stay, but with a smaller role. We are still busy, but most of the business is drive-through. Dining room is still open (franchise district manager’s orders), but not as busy as it once was. Alas, we do not have a full-time crew for dining room. I once worked cashiering and cleaning in dining room, but starting 2019, a crew member left, and I was forced to work drive-through. COVID shifted us to full-time drive-through, though every day I was there, someone wanted to get into dining room, despite the sign on the door. When we finally opened, we had signs on tables for which ones not to sit at- which people ignored. We never hired any full-time dining crew. (It should be noted that we are still making lots of money. Many days we even have a double-digit surplus of crew hours by the end of lunch.)
      I do apologize for rambling, but I did want to give a bit of the ground-level view from the food service industry.

      1. kareninca

        The McDonald’s that I drive by in Silicon Valley has become very, very busy over the past six months, even with all of the layoffs in the area. I think fast food will do fine. From what I read it has become crazy expensive, but it seems to be worth the cost to a lot of people. A lot of local non-chain restaurants have shut down, and likely McDonald’s is getting some of their customers. But it isn’t going to be a cheap meal for a family at the new prices.

  4. PlutoniumKun

    I don’t know the situation in the US, but in my personal experience of Ireland/UK, is that a significant issue that makes assessing the restaurant industry difficult is that many are, and always have been ‘stealth’ takeaways. In general, because of the association of take out only restaurants with anti social behaviour (i.e. drunks on the way home congregating for food late at night, and traffic congestion from people stopping off to pick up their dinner on the way home), its often much easier to get through local zoning and other obstacles if you set up a restaurant instead. This is one reason that so many Chinese and Indian restaurants in towns and cities across the UK and Ireland can be empty most of the time, but still profitable. Many don’t use the main apps, preferring using local delivery drivers recruited by word of mouth, so much of this is probably off the books.

    Often, ethnic restaurants operate on an almost completely different economic planet from other restaurants and food based industries. A distant relative of mine used to be a bookkeeper in NY – he regularly regaled us with stories of 2 and even 3 entirely separate sets of books he has to prepare, each for a separate set of eyes (the tax authorities, investors in the ‘old country’, etc). I recall my puzzlement years ago when some Asian students I know were talking about their restaurant jobs. They were asking each other whether they were paid ‘Irish’ or ‘Chinese’ wages. Irish wages were the statutory minimum (at the time, around 8 euro an hour), ‘Chinese’ were 5 euro an hour.

    1. Dessa

      I notice many more of them are family ventures as well. Child Labor laws specifically have an exception for family, and even those are lilely easily skirted since kids aren’t out reporting their parents.

      I’ve seen 6 year old kids rolling silverware, young teens serving, bussing, etc. All that work is essentially nonwage that gets paid out to workers in the form of family profits.

    2. Adam1

      My stepdad had a construction company and I grew up in farm country so I knew a fair number of kids who worked real hard for family. Whenever I did farm work I was always paid on the books (because I wasn’t family), but it was often joked about that sometimes you worked with pay and other times without pay when it was family who was doing the paying. And I got that too from my stepdad – at least when I was younger (after HS I was always paid on the books). In hind sight, at least for us, I think it was often tied to cash flow. When cash was readily on hand you got paid and maybe paid more than you were expecting, but when it was tight you got what you got but the expectations of the quality and amount of work didn’t change.

    3. ChrisPacific

      That’s an interesting observation. We have a few of those in our neighborhood, a suburb with much lower rents than the central city. We actually ate in at one of them (pre Covid) that we particularly liked. It was a decent enough meal, even though the furnishings were pretty perfunctory, but we were the only ones there. There was, however, a constant stream of customers coming in and leaving with big paper bags. I realized the restaurant had actually done a lot of turnover that day even though we appeared to be the only diners.

      The other thing we’ve seen (that predates Covid, but was probably supercharged by it) is delivery specialists with just a kitchen and pickup window. These don’t need premium real estate or store fronts (one example here is essentially some shipping containers in a mall parking lot) so they are able to keep their rent low. UberEats and its competitors provide the entire market for these, although some will allow you to pick up in person if you want.

  5. chuck roast

    Yeh…raising the minimum wage. My bus driver is paid an entry level wage of $25+/hr. And apparently, there is a shortage of drivers. I have to say though, most of the drivers are friendly. They greet you and say goodbye. Doubtless the decent wage helps their outlook. Nine-fifty an hour. Geez, you have to summer on Nantucket to be this clueless.

    1. JBird4049

      Using back of the envelope math, it would require $30 per hour to have the same standard of living as my parents had using the minimum wage they were earning in the 1960s. Both times are in the San Francisco Bay Area. It is not just Covid. Covid is just the final straw.

      It is more with the relentless squeezing of wealth from the bottom 90% to the top 10% However, that is misleading as most of the wealth going to the top 10% goes to the top 1% and most of that finally goes to the 0.1%

      So we have the majority of the population increasingly unable to afford the very services that they provide and now Covid. We could still eliminate or extremely reduced Covid as we have done that with every other infectious disease and bringing back the taxes and social benefits as well as breaking the monopolies to what they were in the 1960s (not to mention universal healthcare) would do.

      But that really is crazy talk, isn’t? However, it needs to be done or it is over for us.

  6. Sheldrake

    “That initial assessment is now looking a tad premature.”
    That is wages and bargaining power are going up.

    Nothing that importing 7 million desperate people into the country and giving them work permits can’t take care of.

    Besides, you have more customers for junk food and willing workers up and down the supply chain which can increase profits and lower wages there as well.

    1. Yves Smith Post author

      The problem is labor is not fungible. Unskilled non-fluent in English workers can do construction and work with a Spanish-speaking boss, ditto in janitorial work…but the list shortens after that.

      1. ambrit

        I saw general contractors start requiring foremen to be semi-fluent in Spanish as far back as the 1980s. A mid-sized contractor in Louisiana had a Spanish phrasebook distributed for general foremen back in the same period. I swear that one of the Spanish language “Basic Phrases” highlighted at the back of the booklet was, “I am NOT from Immigration!”
        I have seen crews of skilled workers, as in plumbers, form builders, concrete pourers and finishers, electricians, carpenters, etc. all from “South of the Border” in all phases of construction since the 1990s.
        What I am trying to say here is that the trend, at least in the South is for the “system” to adjust to the most exploitable workforce, not the other way around.

  7. Tedder

    The American response to the COVID pandemic was purely neoliberal. As Lambert or Yves point out, taking the easy ‘silver bullet’ approach to the pandemic, rather than doing the hard work and spending capital, has resulted in disaster. The same can be said for the financialized economy that has deindustrialized America and destroyed infrastructure through neglect. American neocon foreign policy is also an example of the same kind of stupid.
    Wars, disease, climate change will end us all without a change in collective consciousness.

  8. alwayscurious

    USA, Pacific Northwest has seen an explosion of food carts — even before 2020. The pandemic accelerated the spread of food carts. At least 60 new food carts have opened up in town since the pandemic started and any time one fails, 2 more sprout up to take its place. A new “food cart” pod started last year with 20 carts oriented around a taphouse (beer service only, no food service) which provides a bathroom and seating area. Food carts are no panacea but they do successfully minimize labor and property expenses.

    I also, gladly, observe an uptick in restaurants getting more creative in trying to establish new revenue streams. Some sell merchandise (Human Bean hoodies anyone?), others offer membership programs that provide novel benefits: Panera Bread offers bottomless refills for a monthly fee and McMenamins’ passport program is a fixed cost to join but offers incentives to visit (and eat at) all of its locations. Overall, I love to see creative solutions to problems because those businesses are adapting to the changing world rather than complaining that the world isn’t conforming to their expectations.

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