May Jobs Report Shows Wage Growth for Restaurants, but That Doesn't Tell the Whole Story

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Restaurant wages rose recently -- or did they?

May's recent jobs report painted a pretty encouraging picture: The U.S. unemployment rate declined to 5.8%, and 559,000 jobs were added.

But that report also included apparently conflicting information. While jobs were added, the labor force shrank by 53,000 workers, leading many to believe that we now have a labor shortage. Yet the U.S. economy is still down 7.6 million jobs compared to February 2020.

How could there be a shortage of labor and a shortage of jobs at the same time?

Buried in this information is also strange news about rising wages, particularly in the labor and hospitality sector, which includes restaurants. Hourly pay for this sector apparently rose 9% over the past year to $15.87 for non-managers. That's important for one big reason -- leisure and hospitality seem to be key drivers of labor shortage numbers.

That 9% wage increase may not be due to an increase in employer-paid wages. Rather, it could be the result of more generous tipping on the part of customers sympathetic to restaurant workers after the events of the past 15 months.

Low wages are still a problem for jobless restaurant workers

Why is all of this significant? In March, the American Rescue Plan, which put stimulus checks into millions of bank accounts, boosted unemployment by $300 a week through early September.

So far, 25 states are pulling the plug on that extra $300 a week in June or July. The reason? Labor shortages.

In May, leisure and hospitality jobs grew by 292,000 -- the most of any industry. Yet restaurant workers are often used as an example of why states should pull boosted unemployment. The argument is that if workers continue to earn more money on unemployment -- enabled by that $300 weekly boost -- they won't be motivated to go back to a job.

But wait -- we just learned that wages for restaurant workers increased substantially, averaging $15.87 an hour. At 40 hours a week, that's $634.80, a more generous paycheck than the typical state unemployment benefit plus $300.

So is there a labor shortage or not? And did restaurant workers really get a pay bump or not?

Right now, the data is still pretty fuzzy.

But here's what we do know. Restaurant workers have long struggled to earn a livable wage. The restaurant industry is also desperate for workers right now -- so much so that it's turning to gig workers to take the place of permanent employees.

Some lawmakers argue that jobless restaurant workers are incentivized to stay home through early September because of the $300 weekly unemployment boost. The simplest way to get those workers back at restaurants would therefore seem to be actually raising their wages -- not leaning on tips, which may not stay high, to claim an uptick in wages. Rather than pull unemployment benefits and leave things at that, state lawmakers should perhaps brainstorm ways to get restaurant owners to offer a higher base wage. That could be a combination of regulations and incentives.

Labor shortages are bad for the economy. Unbearably low wages are bad for workers. Fix the latter problem, and the former could resolve itself fairly quickly.

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