At Restaurants, Prices Can’t Keep Up With Pay Hikes

If businesses have to raise wages, they’ll hike prices by just as much, right? That’s not always the case—at least not in the restaurant industry, at least not yet.

At both fast-food and sit-down restaurants, entry-level workers are in such high demand that their wages have been outpacing increases in the prices restaurants are charging their customers, according to data from the Bureau of Labor Statistics. 

The chart below shows how wages at restaurants have spiked, while prices for meals have increased steadily over time—but not as quickly nor in tandem with pay.

Across much of the economy, prices have been going up so fast, they’ve effectively wiped out the pay raises workers have been getting.

But not at restaurants or other businesses in the leisure and hospitality industry, one of only a handful where pay is growing faster than inflation. Inflation-adjusted wages in leisure and hospitality have increased 1.6% since 2019, while in most other sectors, they have fallen, according to a recent analysis of wages and inflation trends by Jason Furman, a Harvard economics professor and former advisor to President Barack Obama, and Wilson Powell III, a researcher at the Harvard Kennedy School.

“Wages for line workers at limited service restaurants have jumped 10% since last summer and have been rising at a 16% annualized rate since the end of last year,” said economics writer Matthew C. Klein in a newsletter Wednesday. That can be “annoying” for restaurant owners who may be limited in how much of those costs they can pass on to diners by raising prices, said Klein. 

As for the broader picture, it’s still unclear what the pace of wage increases in the restaurant industry “means for the overall inflation outlook,” Klein said.

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