Friday, August 14, 2015

US Labor Market Observations

After years of moribund job growth post the Great Financial Crisis (GFC), the national psyche is still focused on jobs, at least if one looks at what the focus group-driven presidential candidates talk about. It felt like it was going to be bad "forever." A small group in Finance Twitter (@groditi @conorsen for example) has started taking the other side of the debate more recently: the labor market is getting tight fast. While they focus on sectors like homebuilding (experiencing a rebound), trucking and payroll tax witholdings, I like looking at restaurant employment as a proxy for what is going on.

There are a few reasons:
(1) The US food service labor market is probably the deepest and most liquid labor market in the US. At the entry level, there are no entry barriers either in terms of credentials or task skills (people already make sandwiches and wash dishes at home).

(2) The labor force in the industry is big: 14 million people, or about 10% of the labor force (National Restaurant Association data)

(3) Employee turnover is very high: it was 66% in 2014 and 81% in 2007 (chart at the bottom of the linked article). So at the entry level, 100%+ turnover is likely the norm. This means that employers, as a whole, pay the market rates: there is no lag or scheduled increases (ex of local min wages), unlike professional or unionized industries

(4) Publicly traded restaurant companies generally report direct labor costs in their filings, unlike retail establishments (another large liquid labor market). My impression is that this fosters labor discussions more often than in retail.

Here is a selection of comments on labor from the most recent conference call transcripts in the industry, starting with MCD on top (market cap $90+ bn) all the day down to a few of the sub-$500 mm players.

All transcripts via Seeking Alpha