The last minimum wage increase wasnt for six bucks an hour thats why they typically only do it in quarters or fifty cents at a trime, doubling the cost of labour in 1 foul swoop is going to come with big time price shocks in that industry. Basically the entire profit margin in the restaraunt business comes from low wages.
That's some good info. We both live in Toronto and know what a dive most of the city is. So I can't imagine its easy to eek out a living running a bar, unless its a major club like Muzak or Circa. The only bar owner story I know is some coke dealer who bought a bar to launder drug money. Go figure The Keg. Now there's a restaurant franchise.
Those major clubs are also tough because they tend to be trendy, and they usually have huge leases on those places cause they are in popular areas, so you need them full all the time, one day your the most popular club in town, the next day everyone thinks your place is a dive, he specifically avoided that model cause he failed at it a couple times, he found you just need to have the right location for a bar/restaraunt, and the numbers will be consistent. Oh yeah one other thing i forgot to point out is that a third to a half of this guys revenues come from VLT's (Video lottery terminals) which is basically pure cash. He said without the VLT's it would hardly be worth it to own a bar/restaraunt because hes only making 150-200k a year working 18 hours a day, there are lots of safe jobs a guy can get if your willing to work those kinds of hours andf your smart. Any kind of fire, or any hiccup when your only making 150-200k per yuer on 3 mill in revenues, and you are toast.
Aug 13, 2015 @ 05:00 AM 11,148 views Higher Minimum Wage Is Not Killing Restaurant Jobs Erik Sherman ,Contributor The right-leaning American Enterprise Institute released an analysis of data from the Federal Reserve Bank of St. Louis claiming that the minimum wage increase in Seattle was responsible for a loss of 1,300 restaurant jobs in that area. Unfortunately, the analysis is poor, riddled with problems, and ignores another major metropolitan region in which restaurant jobs increased in number after a recent hike in the minimum wage — data, again, from the St. Louis Fed. I suspect that the AEI’s apparently general opposition to minimum wage caused someone’s work to go off the rails. I’ll approach this in three stages: show how the analysis of data itself was done poorly; look at the other factors hitting the restaurant industry; and examine data from the other city, San Francisco, with a different outcome To start, recognize the concern, at least, that the number of jobs could decrease under a higher minimum wage is potentially valid. It’s basic economics, really. Labor prices go up and, in theory, it might be that companies cut back on help to lower costs or they might even go out of business. That is certainly a possibility when companies have, as part of their business model, a dependence on paying people wage rates too low to reasonably live on. There is another possibility as well: Higher wages could mean more money to be spent and a better economic climate that allows businesses to expand. Or both could happen, with some companies being crushed by the new conditions while others thrive. If you’re actually interested in income inequality and a sustainable economy for all, lending blind allegiance to some political philosophy or other can be a mistake. You might end up interpreting data to best support your view. AEI’s poor initial analysis The St. Louis Fed published data about the number of all employees at food service and drinking places in Seattle-Tacoma-Bellevue. The full data runs from January 1, 1990 to June 1, 2015. AEI specifically looked at January 2002 up to June 2015 combined with the first regional minimum wage increase to $11, a step toward an eventually $15, took effect on April 1, 2015. The analysis said that the decline started around the first of the year, when the state minimum wage went to $9.47. As the city minimum wage rose to $11, things got worse, with “the 1,300 job loss between January and June is the largest decline over that period since 2009 during the Great Recession.” Furthermore, national restaurant employment supposedly increased by 1.2 percent during the same period. Seattle employment overall increased by 1.2 percent, or 21,800 jobs. Non-Seattle region restaurant employment was up by 3.2 percent, or 2,800 jobs. It sounds convincing on the surface. But now look at a full chart, from 1990 to June 2015, from the St. Louis Fed: More >>
Ricter, the problem with debating you is that you have so little understanding of economics that you rely on links and blog posts to speak for you but you rarely understand the nuance in the data or what it's saying. I spend a lot of time working with data and it's very messy and if you bring a bias to the table, whether it be political, personal or even financial, it makes a huge mess of things. You need two things to do this well and this is why most fail at trading. You need to be very agnostic AND you need to have a very strong fundamental background of the economics. Simply pasting links and and coping other people's words is disingenuous to the data analysis process because you are leaving out 95% of the meat. Not sure what else I can say except I guess you have an orthodoxy in which you believe and you will probably take it to the grave. My advice, don't ever trade. Markets put targets on guys like you really fast and they won't even leave enough money in your wallet for a cab ride home.
Nice digression. I posted data assembled by someone who spends their days on the topic. After all, you did say we should raise the bar above "someone I know". And looking into it more, there is ample data showing strong restaurant growth and strong restaurant employment growth. So the demand is there and has been there, despite the rising cost of inputs. Edit: what I haven't been able to find is US number of restaurants per capita by year. I know people dine out a lot more now than they did when I was a kid, but it could be to a smaller selection of restaurants, per capita (in which case your assertion about perpetual indebtedness by franchisees might be plausible).
Ricter, almost all that data is going to be biased if you don't know how to interpret it. It's like me posting data from Jim Chanos who is a notorious perma-bear and saying he spends all his days focused on the topic of markets and he says the markets are going to crash. That is not say he is wrong, but again, remember what I said about financial bias. You just are ill-equipped to properly have this discussion. For example, when examining data on the restaurant traffic in Seattle is it possible that the overall economy in Seattle also improved over that same period which led to a proportional increase in restaurant spending. In fact, most of the east and west coast saw strong upticks in their economies since 2009 that was more then likely the effect of increased restaurant traffic. Also, Seattle, a rather progressive city by most estimations has a much smaller percentage of "fast food" restaurants. Their eateries are more expensive then fast food and so they are not going to be affected by an increase in wages. Try doing that in Ohio and get back to me. Just to give you some background here Ricter, the general idea here is, raising wages is not a bad idea "if" the market is providing a sub-optimal level of pay. In that case, raising wages can produce a positive effect but only if that is the case. In most cases, you will get a more efficient outcome either by simply letting restaurants keep the current wage and simply offering the equivalent increase in the form of a payroll tax cut or simply increasing welfare in the form of a tax credit to the poor workers. This would not alter the input cost for restaurants and would achieve a superior outcome for the poor. The problem with simply raising wages especially for fast food is that those restaurants do not have the ability to pass the increase in food costs on to the consumer. As counter-intuitive as it sounds, you WANT them to be able to raise prices. The problem is its shit food that no one will pay a premium for and rightfully so. There are industries though where you can pass the costs on to consumers and they will absorb the burden while at the same time allow higher wages to be given to employees and that is where economists want to see wages increased. But fast food restaurants have no pricing power so increasing their labor costs while leaving them powerless to raise prices squeezes them on the margin which means any business operating on the margin will go out of business by economic definition. So I don't think I'm going to get anywhere with you on this until you learn economics yourself vs passing the baton to a fellow blogger to speak on your behalf.
None of this digression on why you should in theory know more actually supports your assertion that most fast food franchisees are unprofitable, deep in debt and just running "zombie shops".
Ricter, I don't know how to explain this to you since you have never taken a damn risk in your life, but most businesses fail whether they are restaurants or not, that is a FACT. Restaurants have the unfortunate quality of being in a very low margin business with lots of competition. Ricter, apply some basic logic here if you can, if running a business was easy and profitable, everyone would do it. There is a reason why most people don't. Because it's really hard, just like trading is very hard. Most traders fail to. I'm sorry to have to be the one to give you this news.