Unintended Consequences for Restaurants, Employees?

 

When the Federal Government starts dictating compensation in private business, a flag goes up. Laws on wages are useful in establishing expectations and creating a sort of order in an economy that actually works, and labor laws at one time helped create a living wage and build a middle class that empower this nation.

But financial distortions can create the dreaded unintentional side effects. Let’s hope it’s not the case here, but the restaurant business for one probably isn’t too happy about this or any other tinkering into the wages and salaries it must pay.

For starters, the restaurant business is extremely competitive on all fronts. Restaurants compete for visitor traffic with each other, and that in and of itself is quite a bloody battle. But they also compete for the food dollar wherever it is spent. The American stomach — though quite large — is a share battle that’s equally bloody. As a result, it’s no small wonder that restaurants fail often and fight for every dollar of margin then can squeeze.

Anything that raises costs to a restaurant dents the value equation, plain and simple. At the risk of losing share-of-stomach to an alternative, the restaurant has to a) find new ways to deliver additional value or b) find ways to avoid the cost.

The best operators are already quite keen on avoiding costs. Look no further than the average chain’s procurement process and bidding wars to see how they’re doing. Or ask about their efforts to manage food waste or to build in sustainability practices to stay economically competitive.

With salaries and wages, the trend has been to avoid them. Them, of course, being people who earn and live off those salaries and wages. The push to raise the minimum wage to $15 may be helpful to those working these traditionally transient jobs in a restaurant. But the movement is now on a quickening pace for restaurants to install new technology to reduce the number of people taking orders and prepping foods.

Is this a bad thing? The opportunity is there for those who develop, build, install and maintain those systems. It’ll shift things slightly towards technology some would argue our restaurants have always needed and wanted. And it’s going to make restaurant’s more efficient than ever, and that’s a good thing.

But if this all translates into a barrier to entry for start-ups or a discouragement for investors, we all lose right along with the restaurant business. We need a robust and free restaurant business. We all benefit when the industry expands. Let’s not forget, the restaurant sector is the largest employer of people in the US, and any weights that slow it down weigh heaviest on the lowest rung or our economy.

And what if changing the salary requirement for paying overtime means that systems that are implemented reduce the overtime for people who were getting overtime pay anyway. Is it possible that the very middle class they are purporting to help will actually be hurt by this new rule?

In the restaurant business in particular, some would question the need for such a rule. Another competitive factor the sector faces is a competition for talent. The good ones are in high demand and movement in and around the industry is fluid. You don’t need a rule on compensation when you have a market that can deliver better compensation to those being abused financially if they are willing to make a move.

Others, obviously, differ — hence the new rule. Perhaps it is needed because those same aforementioned competitive conditions have done more to take it out on the employees than to give to them. Perhaps the restaurant business has trapped them and we need a rule to protect them. Perhaps its really not intended specifically for foodservice, but is to help people in other lines of business.

But upon reading the article, I saw the flags flying. I saw the politics, the lobbyist, the unions and the posturing and it didn’t feel right. I’m not one to judge or know the motives of those making these laws, and I’m all for the betterment of everyone. I just can’t help but wonder about economic distortions and unintended consequences that result from government policy.

Now, go out to a nice restaurant and discuss among yourselves.

http://wapo.st/1R8pty5