2012 September 23 Sunday
Declining Restaurant Labor Costs And Living Standards

Upscale restaurant sales are up while the middle class is treading water. Take this as a warning. Try harder.

At Darden’s premium brand, the steakhouse chain Capital Grille (where the average per-person check is between $70 and $72), same-restaurant sales rose 4 percent. At the firm’s restaurants aimed at the middle class, same-restaurant sales were more mixed: up 0.3 percent at Olive Garden and down 2.6 percent at Red Lobster.

You've got a choice: Try to go up or let economic forces pull you down. High unemployment rates translate into lower wages and declining labor costs.

In the 2010 fiscal year, labor costs represented 33.1 percent of sales; labor costs fell to 31.3 percent in the 2012 fiscal year and down to 30.4 percent in the first quarter of the 2013 fiscal year.

Restaurants are an industry ripe for automation. Imagine being able to order your food before you get there and robots that set out your food before you arrive. Pizza chains such as Dominoes, Papa Johns, and Pizza Hut already accept online orders. I've ordered and paid online. I see from a quick Google search that some online ordering companies offer online ordering services to any restaurant. Information flow is especially easy to automate. You shouldn't have to wait for the check. A touch panel on the wall should give you your costs and let you slide a card thru a card reader to pay your bill.

The physical work of a restaurant is harder to automate. But robots in the kitchen will eventually take over most food preparation work. The future employment prospects for lower skilled workers look grim.

Share |      By Randall Parker at 2012 September 23 10:04 PM  Economics Living Standards


Comments
Black Death said at September 24, 2012 8:31 AM:

Robert Samuelson says that the American Dream is dead, or at least on life support. He's probably right:

http://www.washingtonpost.com/opinions/robert-samuelson-the-american-dreams-empty-promise/2012/09/23/e630946c-0428-11e2-8102-ebee9c66e190_story.html

Half Sigma said at September 24, 2012 2:06 PM:

People LIKE being served by a human waiter or waitress. Otherwise, self-service would have already taken over, but currently it's only for "fast food" and not for "real" meals.

I do expect that McDonalds and places like that will become more automated in the near future.

Zamman said at September 24, 2012 3:50 PM:

I don't mind being served by a robot waiter/waitress, as long as the human waiter it replaced is not unemployed. Good service will obviously have to be expected from machines.

Mike M said at September 25, 2012 12:50 PM:

"You've got a choice: Try to go up or let economic forces pull you down. High unemployment rates translate into lower wages and declining labor costs."

The flip side is that when we prevent wages from going down by interfering with market forces, i.e. by enacting minimum wage laws, this translates into higher unemployment and an effective drowning of the lower class workers by the government. But this is usually the case whenever government steps in under the guise of helping those it deems unable to help themselves.

As to the physical work of a restaurant being hard to automate, I would have guessed the same to be true with regards to nurses dispensing medications, but several university hospitals have implemented pilot programs showing that it's not only feasible, but that it drastically cuts down on errors.

As to Zamman's comments about the evil robots putting waiters out of a job, I'll reiterate a story by Milton Friedman. Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat (one of Zamman's Asian brethren perhaps) explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.” Zamman was obviously impressed by Obama's moronic remark that bank ATM machines are evil because they put tellers out of a job.

Zamman said at September 25, 2012 3:23 PM:

Of course waiting robots makes sense, as well as constructing robots, cleaning robots and even perhaps teaching robots. My words were that I don't mind being served by a robot waiter/waitress...

Human waiters will pretty surely cease to exist. What I'm saying -you idiot- is that those humans who will not do a robot's job any longer -whatever the job might be- can all have the opportunity to find and keep a job OTHER than serving tables or any other robot's job. Unless of course in your imagination robots and machines take over all jobs and all the world, and put humans out of business like in the Matrix movie you probably believe to be true.

Don't be infantile Mike M. Nobody is impying what you imagine them to.

Zamman said at September 25, 2012 3:25 PM:

implying that is. Before you go on with your typo critique.

Randall Parker said at September 25, 2012 10:27 PM:

Zamman,

Regards waiters getting other jobs: The people with higher paying jobs are going to have a declining need to get help from low skilled people. As it stands now I no longer need to deal with humans to do banking, filling my car with gas, or ordering clothes and other products. I'm going to spend less and less of my time interacting with people when I spend money. So I'm wondering how the human servants are going to get jobs when our need for human servants goes down steeply.

Mike M said at September 26, 2012 7:48 AM:

Randall - They're not too worried about it. They'll just elect Obama II and let the government support them with OPM.

Mike M said at September 26, 2012 7:54 AM:

Zamman - I would tell you what you can do, but according to Clint Eastwood, you can't do that to yourself. Rather than walking back your foolish statements ("as long as the human waiter it replaced is not unemployed") , please take responsibility for your words rather than proving yourself to be not only an idiot, but an angry liar as well.

J. said at September 26, 2012 12:53 PM:

So Robert Samuelson has capitulated in the face of the facts? None too soon. I can remember, years ago, reading upbeat Robert Samuelson columns in which he argued against the facts (such as wage stagnation).

Randall Parker said at September 26, 2012 9:50 PM:

Mike M.

Cut back on the insults please. They do nothing to convince anyone positive about your own reasoning and position. Also, I'm liable to delete them and then you won't convince anyone of anything.

Randall Parker said at September 26, 2012 9:57 PM:

J.

The longer reality ceases to be a simple projection of past trends the more people will wake up and start questioning their assumptions. Some people have a long intellectual road to travel way from the wrong models they built up. Some have a lot of reputation invested in their wrong models.

Mike M,

As my grandmother used to say "Idle hands are the devil's workshop". What are these unemployed people going to do?

I do not see how we avoid the rise of the Zero Marginal Product workers. It looks like the era of ZMP workers (or former workers) has already arrived. Go for job skills that will last longer.

Mike M said at September 26, 2012 11:28 PM:

What are the unemployed people going to do? I would like to think that they would do the same thing that unemployed buggy whip makers did 100 years ago, i.e. become gainfully employed doing something else. However, our government makes it too convenient for them to remain unemployed. I personally know at least a dozen people who lost their original job, went on unemployment and have turned down jobs paying at least $45,000 per year (plus benefits) because they could get just as much or nearly as much by remaining unemployed.

As long as we have the federal government issuing mandates for our local schools and making it too easy to be unemployed, fewer people will have both an incentive to and a means of becoming productive. Some will argue that this is compounded by our advances in technology with machines taking the place of humans. I am not convinced that this is really the case and feel that it is just a convenient excuse. Men have been making better "tools" longer than history has been written. This has never resulted in worse living standards for humans. Rather, it has always resulted in an improvement in our living standards and permitted men to do and build more things.

I'm sure that when various farm machines were invented someone must have fretted about the fate of all the soon to be unemployed farm workers, but that tragedy was never realized. Perhaps it's time to step out of the box and take a look at the bigger picture!

bbartlog said at September 27, 2012 6:04 PM:

'Men have been making better "tools" longer than history has been written. This has never resulted in worse living standards for humans.'
If you mean 'humans overall', maybe. But that doesn't mean that *specific sets* of humans (sometimes quite large!) haven't gotten the short end of the stick as a result of technological advances. The Luddites didn't fight the British Army because their lives had been improving. Likewise your comment about farm workers betrays an ignorance of history; never heard of the Swing Riots (and the miseries leading up to them)?

Stephen said at September 27, 2012 6:21 PM:

Mike M said: "i.e. become gainfully employed doing something else"

The problem is that sooner or later there'll be a tipping point where automation (or rather, true AI) will leave too few jobs being competed for by too many humans.

Sure AI will ultimately disrupt the prevailing economic model (which at its heart is still just capital vs labour) and that will be good for humanity, but before that point there'll be a huge amount of pain for several generations as capital fights to retain the existing economic model.

Stephen said at September 27, 2012 6:23 PM:

Randall is right that the best way for your genes to survive the coming turmoil is to be capital rather than labour.

Randall Parker said at September 27, 2012 7:51 PM:

Stephen,

What has changed: It used to be that the accumulation of capital made labor more useful because labor operated the capital and the more capital that got operated the more got produced and so the demand for labor to operate capital rose. It was less a case of capital versus labor than of owners of capital versus labor unions. At least there was a "versus" because the owners of capital needed labor. But I see this as a transitional phase.

Mike M,

Once robots become advanced enough why should the owners of capital use low-skilled labor? Suppose I own lots of copper mines and someone else owners lots of titanium mines and someone else owns lots of aluminum mines and someone else owns lots of farm land and someone else owns lots of forests. We all sell the output of our mines and buy robots. We still need to trade with each other and with the robot makers. But why do we need to trade with very low skilled workers? We don't need them. I mean, we've got robots to take care of our homes, our cars drive themselves, we've got robots to cook for us, we've got robotic airplanes built by robots. What does the 90 IQ guy have to offer us? Squat. Nothing. Nada.

Mike M said at September 27, 2012 8:01 PM:

Bbartlog - The vast majority of today's "poor" in the US have it far better than nobility of mid-19th century Britain where life may have been better than in Hobbes days, but it was still, at least by today's standards, nasty and short. For the vast majority of the populace in the mid-19th century - and this was after the Industrial Revolution. I hope your view of history is not so narrow mined and short sighted that you believe the world is worse off due to the machinery that enabled fewer workers to produce edible goods and at cheaper prices freeing labor to engage in other productive activities. Today, the term "Luddite" is used derisively for a reason! Your comments frighten me that Schumpeter was probably correct in his predictions.

Stephen - throughout the history of the world, the old ways of doing things have constantly been endogenously destroyed and replaced by new ways (it's called progress) and this progress has always been accompanied by the worried warnings of those timid souls who lack the vision and the courage to lead rather than to follow. I would urge you dream of things that never were and ask why not rather than dwelling on problems that may never develop. That's not to say that we should not prepare for the worst. On the contrary, we should, but we should do that by actively participating in progress rather than allowing ourselves to become obsolete. I'm sure you can appreciate that when we look at the history of man, it's a relatively recent phenomenon that men are not engaged sun up to sun down solely in tasks devoted to feeding himself. Surely, you can envision a future where technological advances allow us even more leisure time - or at least more time to creating things that perhaps we really don't need instead of things that merely allow us to survive. As it always has, the unstoppable train of progress will come. One just has to decide whether he is on the train or under it. It's a choice.

Stephen said at September 28, 2012 12:07 AM:

I surely do envisage that the trend line will continue in the right direction for humanity, but I also think that soon after AI becomes readily available there'll be a dark age for a few generations while the existing economic model breaks. Once that's done, I'm kinda hopeful that the trend line will turn steeply upward.

And no, I'm not imagining a dark age caused by Terminator-style robots turning on humanity. Rather, it'll be imposed by those who first obtain the benefits of AI. They'll quickly accumulate the vast majority of capital and productive labour will become mere consumers. The haves will be nasty to the have nots, and once the consumers have transferred all their capital, the economic system will collapse. A new system will replace the old and things will settle down and we'll all be nice to each other.

Well, maybe not that very last bit.

bbartlog said at September 28, 2012 9:49 AM:

Mike M: I conceded in my opening that humanity as a whole has benefited from technology(*) and I am not against technological progress. You seem to be ascribing positions to me that I don't hold in an effort to make some sort of easy argument (isn't there a name for that?). Anyway, to make my point a little more precise: you wrote '...someone must have fretted about the fate of all the soon to be unemployed farm workers, but that tragedy was never realized.'. I have provided a historical example of the tragedy, realized; England 1810-1830, roughly, culminating in massive unemployment, the Swing Riots, and later various political reforms. The question of overall human benefit is entirely different from the question of whether the newly obsolescent (ex-)employees will everywhere and always transition to new and productive work.

Mike M said at September 28, 2012 3:04 PM:

bbartlog - I'm not trying to beat you (or the strawman) up over the issue. I concede that progress and "creative destruction" implies (in practice, if not in theory) that at lest some of those engaged in the "old way" of doing things will "suffer", if that's a term you prefer, at least in the short run. However, that's not a convincing argument that (a) society as a whole will not benefit, (b) the temporarily displaced workers will not benefit in the long run, or (c) that someone else's right to develop and implement the "new way" should be infringed upon. To support my previous ascertain, I would argue that people tend to concern themselves more with the economic consequences that are immediate and seen than the consequences that are either more remote or that they cannot visualize. To twist a phrase, they see what is and ask why rather than dream about what isn't and ask why not. Of course, this acting in one's self-interest is understandable - but then again, so is the implementation of new technology by the farm owner. I do appreciate the hardships one faces when displaced by technology. However, I suspect that the severity of the hardship was made more dramatic by those whose interest was in maintaining the status quo and was given more weight (hence the reforms) because of their numbers (much as politicians today deprive individuals of liberties in exchange for the votes of a larger majority). I guess it boils down to a matter of rights - does one favor individual liberty or the tyranny of the majority. Anyway, thanks for engaging in the debate.

DirkY said at September 28, 2012 5:53 PM:

"the steakhouse chain Capital Grille (where the average per-person check is between $70 and $72)"

Jesus H Christ rich people in flyover country have no taste. $70 a person for a chain restaurant, and business is doing well? $70 gets you a really really good meal in places like San Francisco and New York. And if $70 is the average at Capital Grille, that must mean some people are paying $100/person, which gets you into Michelin starred territory if you go easy on the wine.

The few times I've been to "high end" chain restaurants (always on business trips to 2nd and 3rd tier cities) the food has always been comparable to cheap chain restaurants like Olive Garden (owned by the same company as Capital Grille), just with a soulless corporate "high end" ambiance. The service is also worse, with the servers using canned phrases like "your dining experience."

Do rich people in flyover suburbs just refuse to eat at independently owned restaurants? Or is the issue that the people capable of opening a quality restaurant refuse to work in rich flyover suburbs? Plano TX and Tyson's Corner aren't that bad, and they could be the big fish in a small pond.

McNeil said at September 29, 2012 3:06 PM:

Mike M wrote: "What are the unemployed people going to do? I would like to think that they would do the same thing that unemployed buggy whip makers did 100 years ago, i.e. become gainfully employed doing something else."

That means Mike M doesn't really know. He just saw the movie "Other People's MOney" with Danny DeVito. He's kind of slow, but with lots of initiative.

Here's one for you to chew on for a while Mike... Try to understand it though.

http://www.zpub.com/notes/idle.html

Mike M said at September 30, 2012 11:46 AM:

McNeil - Indeed, I admit that in terms of specifics, I don't know exactly what they'll do. Back in the 60's, I never would have predicted that so many people would be employed today as IT specialists and I could list thousands of examples of times when certain industries and jobs not only didn't exist, but virtually nobody imagined they would exist. But the old ways were replaced with new ways and those jobs did come into existence and were filled either by people who were no longer employed in the old field or by other who moved from other jobs (and thus allowed the unemployed to fill their spots). So, while I don't know exactly what the newly unemployed will do, I do know that they will find something to do - unless they are encouraged by the liberals to do nothing - and I know that there will be some new Steve Jobs or Henry Ford who will find something for them to do. It's also rather obvious that you won't be the next Henry Ford or Steve Jobs or even the next Joe the Plumber. As far as your juvenile insults regarding my being "slow, but with lots of initiative" - given what is known about success, I'll take that as a compliment (even if unintended) as the overwhelming evidence shows that initiative is far more important than talent. Those who lack initiative - I'll assume you're one of those as you downplay its importance versus "smarts" - will always be the "employees" whose fates rest with someone else, while those with initiative will control their own destinies. Your philosophy explains why you seem so bitter about progress leading to temporary unemployment or the need to change jobs. Don't worry. We'll find you a job - it just won't be on your couch watching movies.

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