The people industry’s people problem.

Since the pandemic started, an estimated 4 million workers have left the hospitality and restaurant industries–about a quarter of their workforce.

While the food industry added more than 60,000 jobs in March–the 15th consecutive month of job growth–it is still about 820,000 jobs behind pre-pandemic levels.

So while business has been increasing as restrictions are lifted, why haven’t employment levels grown more?

To be blunt: These industries have had a long-standing people problem, the root of which is low wages.

The average annual income for a server is $29,020, according to the U.S. Bureau of Labor Statistics. And while competitive pay is certainly not the workforce’s only pitfall, it does serve as the crux of the issue. Chaotic schedules, meager (or non-existent) benefits, and emotional taxation can certainly be softened, if not solved, by competitive (and livable) wages.

In his 2022 State of the Union speech, President Biden called on lawmakers to raise the minimum wage to $15 an hour. It’s not a new proposition–$15 has been the rallying cry from many politicians for well over a decade. And while new legislation has already been created, the Raise the Wage Act of 2021 has yet to pass either the House or Senate.

With the federal minimum wage holding steady at $7.25, and many states remaining below $10, it is going to be up to businesses to adapt if they want to attract and keep employees.

Wage increases are arguably easier for large retailers like Target, Walmart, and Costco. Target pays their workers $15 an hour, and is exploring raising base pay to $24 depending on role and location. The bump is part of a larger initiative that includes revamped health benefits, and free educational opportunities, all with the goal of attracting and retaining more workers.

However, we have to ask if this is a realistic model for small businesses.

Raising wages for a mom-and-pop restaurant is not an easy task. Small business owners must consider supply costs, cash flow, inflation, etc. — all of which can have deep implications on a business's ability to break even, much less remain competitive.

To circumvent this challenge, restaurants have been looking into alternative options to the tip-based wage model. Service charges are becoming more common as a way for restaurants to pay higher hourly rates and/or add other benefits–like health. For example, a restaurant called Fight Club in Washington, DC includes a 15% service charge that is divided up amongst servers and kitchen staff. Customers can still add an additional tip if they like.

So as the workforce shortage continues to rage on, restaurants need to serve up new and creative ways to retain and hire staff. And, if they want to keep their doors open, they’ll have to do so quickly.

Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.

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