Wednesday 27 June 2018

Land costs and labour costs

The New York Times has a great piece on what happens in high cost cities. Land use regulation has made San Francisco incredibly expensive. Consequently, there are some tasks there that are on the way out: the value of the task is not high enough to meet the cost of getting a worker to perform the task.

San Francisco's $15 minimum wage certainly isn't helping, but wages would be being pushed up anyway because you have to meet a participation constraint: it would be difficult to find somebody willing to perform any task in San Francisco at a low hourly rate because the cost of living is too high, and there aren't easy commute-in options from less expensive bedroom communities. In that environment, the least-valuable tasks are priced-out first, and it ratchets up from there.

And so even up-market restaurants are shifting from having table service to counter service.
Restaurateurs here have taken a model familiar to taquerias and fast-casual, cafeteria-style places like Sweetgreen and Chipotle Mexican Grill, and pushed it further up the fine-dining food chain. Call it fast-fine, they suggest, or fine-casual. Or counter service “in a full service environment” that includes $11 cocktails and $22 pan-roasted salmon.


Enrico Moretti, an economist at the University of California, Berkeley, estimates that when housing prices rise by 10 percent, the price of local services, including restaurants, rises by about 6 percent. (The median home price in San Francisco has doubled since 2012.)

So burgers get more expensive as houses do. But even wealthy tech workers will pay only so much to eat one. “If we were to pay what we need to pay people to make a living in San Francisco, a $10 hamburger would be a $20 hamburger, and it wouldn’t make sense anymore,” said Anjan Mitra, who owns two high-end Indian restaurants in the city, both named Dosa. “Something has to give.”


Innovations in farming machinery or microwave meals, for instance, freed up people to be more productive, and better paid. But that is not entirely what is happening here. Restaurants haven’t developed a way to serve meals with less labor. They’ve gotten customers to do the labor they had been paying employees to do.

There is something innovative in reprogramming diners to decouple fine food from full service. But the fact that restaurants have to do this speaks to deep fears here of what the Bay Area will look like if certain classes of workers can’t afford to live here.
It'll be interesting to see what happens with New Zealand's coming higher minimum wages, and what happens if Auckland's housing affordability issues aren't sorted. 

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