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Restaurants ‘have no choice’ but to raise wages even more, strategist says

The clearest sign that the leisure and hospitality labor shortage isn’t yet easing — at least in the short term — is the rise in employee wages.

As vaccination rates climb and more Americans dine out, restaurants can’t find enough cooks, waiters, and dishwashers to keep up with demand.

Restaurants “have no choice” but to raise wages, BTIG Managing Director Peter Saleh told Yahoo Finance Live this week. “They need to increase benefits to attract employees or else they can’t serve the guests. So they’re going to do it. And in the end, all this really means is inflation to the end consumer…. We’ll be paying more.”

Workers in leisure and hospitality, typically low-paid sectors, saw average hourly wages of $18.23 in June. That was up from $17.02 a year before, and $16.90 — or 7.8% — from February 2020, right before the coronavirus pandemic shut down much of the U.S. economy.

Compare that to overall hourly wages in the U.S. which averaged $30.40 in June, up 6.6% from February 2020.

Sales at restaurants are accelerating as consumers feel more comfortable socializing and dining out. Growth in demand for services including lodging and restaurants is close to two-year highs, according to a recent Bank of America analyst note.

The industry posted 6.6% sales growth in June, a 1% improvement over May and the fourth consecutive month of sales growth, according to BlackBox Intelligence. “For the job market to fully recover, the increased wage trend must continue,” BlackBox said.

And it isn’t just higher hourly wages being dangled in front of workers. The big chain restaurants that can afford to are trying to lure workers with hiring bonuses, interview bonuses, and health care benefits. Struggling to fill jobs, last week McDonald’s franchisees said they are boosting hourly wages, and offering paid time off and tuition assistance to attract employees, while Papa John’s is paying bonuses up to $400 to its employees.

“They’re trying to find every way in addition to obviously paying more to get employees to come back,” said Saleh. “For some it’s working a little bit, but I still think we’re vastly underemployed.”

Despite their efforts, it doesn’t look like restaurants will be able to reach pre-pandemic staffing levels anytime soon. “We have yet to see signs of labor shortages easing and we do not expect retailers to signal any differently on upcoming Q2 earnings calls,” Morgan Stanley analysts wrote in a note on Monday. (Chipotle reports second-quarter earnings after market close on Tuesday.)

As on July 9, job postings in the food prep industry are up 39.4% compared to Feb. 1, 2020. For hospitality, the number is 9.17%, according to Indeed.com. Overall, the leisure and hospitality industry remains more than 2 million jobs below pre-pandemic levels.

Pedestrians walk past a

Pedestrians walk past a “Help Wanted” sign posted at restaurant looking for line cooks and servers on June 22, 2021 in Los Angeles, California. (Photo by Frederic J. BROWN / AFP)

“The demand is outstripping the ability of the restaurants to fill it,” said Saleh. “I think this will be a problem throughout the course of the summer. Hopefully it resolves itself in the fall, but at this point I think the restaurants are still struggling to find employees.”

Get ready for those menu prices to climb: Historically, Saleh said, restaurants have raised prices by 2% every year. “I think this year it will be closer to 4%,” he said.

Lisa Scherzer is an editor at Yahoo Finance.

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