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Is restaurant productivity booming? (Probably not)

Summary:
This tweet caught my eye: Notice that sales have recently increased much faster than employment.  A bit of that might be inflation, but surely that cannot explain such a massive divergence occurring over just a few months.  Another part of the increase might reflect a make-up rise in productivity after the recent recession.  But even that cannot explain the size of the increase. More likely, the productivity numbers seem higher because restaurants are understaffed.  I base that claim on three facts: 1. Personal observation.  In recent weeks I’ve experienced some of the worst restaurant service in my entire life, most notably long waits in line at times of day when there would normally be no line at all. 2. News reports.  There are many stories in the media

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This tweet caught my eye:

Is restaurant productivity booming?  (Probably not)

Notice that sales have recently increased much faster than employment.  A bit of that might be inflation, but surely that cannot explain such a massive divergence occurring over just a few months.  Another part of the increase might reflect a make-up rise in productivity after the recent recession.  But even that cannot explain the size of the increase.

More likely, the productivity numbers seem higher because restaurants are understaffed.  I base that claim on three facts:

1. Personal observation.  In recent weeks I’ve experienced some of the worst restaurant service in my entire life, most notably long waits in line at times of day when there would normally be no line at all.

2. News reports.  There are many stories in the media indicating that restaurants are severely understaffed.

3.  Logic.  How could restaurant productivity all across the country soar in a period of just a few months, after rising at very slow rates from almost the beginning of recorded history?  If there were some incredible recent technological breakthrough in providing restaurant services, wouldn’t we all have heard of it?

Restaurants had the option of raising prices enough so that sales matched the staffing levels available to serve customers, but prices are sticky in the short run for all sorts of reasons.

To summarize, restaurants have recently become more “productive” in the sense of delivering more pounds of food per worker.  But in terms of actual economic productivity—delivering a nice experience to customers—I see no evidence of a recent surge in restaurant productivity.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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