Average Wages Are Going Up, And So Are Prices
Employers have figured out what it takes to find workers in a tight job market: higher wages. Restaurant wages have increased almost 10% over the last year, which could affect menu prices.
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A lot of workers in the U.S. are getting raises, but some of that extra pay is being gobbled up by higher prices. We'll get the latest snapshot on inflation tomorrow and more on the extent to which bigger paychecks are contributing to a higher cost of living. NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: Restaurants around the country have been scrambling to hire more cooks and servers as business picks up, and many have had to raise wages to get people in the door. The burrito chain Chipotle boosted its average pay to $15 an hour this summer to cover the cost of that pay increase, Chipotle raised prices 3.5% to 4%. CEO Brian Niccol said on a conference call there was no drop in demand for carnitas and guacamole.
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BRIAN NICCOL: We saw very little resistance to the price increase.
HORSLEY: Lyle Margolis is not surprised. Margolis is a senior director at Fitch Ratings, and he says after more than a year of pandemic restrictions, restaurants are in high demand.
LYLE MARGOLIS: People are tired of cooking their own meals. They're tired of cleaning up after themselves. They want to be waited on, and they want to be social, and restaurants are a great place to do that.
HORSLEY: As a result, Margolis says, many restaurants are finding themselves in the unusual position of being able to pass along higher costs to customers.
MARGOLIS: For the restaurant industry, that tends to be a last resort. But, in many cases, that's where we've gotten to, and management teams do feel like they have pricing power.
HORSLEY: And if higher wages for cooks and servers find their way into higher restaurant bills, that can become a driver of inflation. The price of restaurant meals in June was 4.2% higher than it was a year ago, the biggest jump in more than a decade. The government is set to report on July's inflation rate tomorrow. Inflation has been higher than usual in recent months. But, so far, that's not been caused by wage gains. It's largely been the result of pandemic bottlenecks, like the shortage of semiconductors that limited new car production and caused a big spike in the price of used cars. Still, economist Shannon Seery of Wells Fargo says, rising worker pay could be a factor in higher prices going forward.
SHANNON SEERY: It is encouraging that wages are rising - right? - because some of these lower-paying sectors are seeing higher wages, which, in turn, hopefully will bring more workers back to the labor force, but it does suggest that this inflationary environment is broadening out beyond the supply constraints that we were initially seeing from the reopening.
HORSLEY: And it's not just restaurant prices that could be affected. Meatpacker Tyson says it plans to raise prices for chicken and pork, in part to offset higher wages in its processing plants. Amazon, the nation's second largest private employer, has been paying more to attract workers to its giant warehouses. Brian Olsavsky is the company's chief financial officer.
BRIAN OLSAVSKY: We have raised our wages and have increased the use of incentives to hire people. We're watching it carefully, but it's probably one of the bigger elements of inflation in our business right now.
HORSLEY: In the 1970s, a dangerous feedback loop of rising wages and prices led to years of runaway inflation, but Federal Reserve Chairman Jerome Powell sees little danger that this year's pay hikes will lead to a similar wage price spiral.
JEROME POWELL: A lot of that is driven by new hires, and it's - a lot of it is driven at relatively low-paid jobs in the service industries as people come back. That's not troubling.
HORSLEY: In a tight job market, restaurant wages have jumped more than twice as fast as overall wages in the last year, but wage gains are likely to level off as more people return to the workforce. What's more, many employers have found more efficient ways to operate, so pay increases don't automatically have to be passed on to consumers. In other words, you can enjoy your slightly more expensive Chipotle burrito without a case of inflationary indigestion.
Scott Horsley, NPR News, Washington.
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