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National Restaurant Association - Labor shortage making a comeback?

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Labor shortage making a comeback?

Restaurants have added more than 1.8 million jobs since the end of the recession, and the expectation is for continued growth in the months ahead.  However, there are indications that job vacancies are becoming more difficult to fill, according to the NRA’s Chief Economist Bruce Grindy.  His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.

The restaurant industry closed out the summer with a solid month of job growth, according to preliminary figures from the Bureau of Labor Statistics (BLS).  Eating and drinking places added a net 26,000 jobs in August on a seasonally-adjusted basis, which pushes the industry’s post-recession payroll growth above the 1.8 million mark. 

Although restaurant job growth shows no signs of slowing – 2015 will mark the fourth straight year with employment gains of at least 3.5 percent – there are indications that job vacancies are becoming more difficult to fill.

The average monthly job openings rate in the restaurants-and-accommodations sector* rose to a post-recession high during the first half of 2015, according to Job Openings and Labor Turnover (JOLTS) data from BLS. 

End-of-month job openings in the restaurants-and-accommodations sector averaged 650,000 during the first half of 2015, which represented an increase of nearly 70,000 job openings over what was reported during the first half of 2014. 

At the same time, the pace of hiring in the hospitality sector is also the rise.  Restaurants and lodging places filled an average of 773,000 positions each month during the first half of 2015, which represented the strongest pace of hiring since 2007. 

Note: The ‘hires’ figures represent the total number of additions to the payroll during the month.  Net job growth – which for eating and drinking places is in the +30,000 to -30,000 range during a typical month – is the difference between total hires and total separations during the month.

Overall, both hiring and job openings trended upward during the last few years, as would be expected during an economic recovery.  However, as the chart below illustrates, the gap between monthly hires and job openings is much smaller than normal.  In fact, during the last 12 months, the average gap between the two indicators is the smallest that it has been since the JOLTS data series began in 2000. 

While these recent developments indicate that the restaurant industry’s labor market is likely tightening, the same data series suggests more significant labor challenges for other industries.  In the health care and social assistance sector, average end-of-month job openings exceeded monthly hires by 66 percent in the first half of 2015.  In the manufacturing and professional-and-business services sectors, average monthly openings were 12 percent above average hires. 

In the overall private sector, average end-of-month job openings were essentially on par with hires during the first half of 2015.  This is a divergence from the historical patterns in the JOLTS data, where hiring exceeded openings.  Although some slack still remains in the labor market, this development will likely put upward pressure on wages in the private sector. 

For their part, restaurant operators are starting to echo the reemergence of a tighter labor pool.  In both the July and August editions of the NRA’s Restaurant Industry Tracking Survey, 18 percent of restaurant operators said ‘recruiting-and-retaining employees’ is the number-one challenge currently facing their business.  Both readings were post-recession highs and ranked only behind ‘government’ as the top concern identified by operators.

In a historical context, the proportion of operators reporting labor availability as their number-one challenge remains well below 2006-2007 levels, when the reading averaged more than 30 percent and consistently topped the list of concerns.

However, it signals that many restaurant operators are experiencing the double-edged sword of stronger customer traffic and a shrinking labor pool that comes with an improving economy and job market. 

*Note that the figures presented are for the broadly-defined Accommodations and Food Services sector (NAICS 72), because the Bureau of Labor Statistics does not report data for restaurants alone.

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