This isn't entirely correct. Your example refers to two demand-supply pairs, but your analysis equates them. Consumers demanding restaurant meals, and the supply of those meals constitute one pair. Restaurants themselves demanding workers, and workers being reluctant to work for current prices constitute a second demand-supply pair.

For the first pair, since the change in the supply (a shift of the curve itself, not a walk along the curve) of restaurant meals is negligible except in the case of restaurants closing in aggregate, a left and downward shift of the demand curve (as you note) has the net effect of downward pressure on both prices paid and quantities supplied of meals.

The second pair's supply curve itself shifts left and upward (not downward), which results in a net effect of increasing the prices (wages) of restaurant labor, and decreasing the quantity supplied (number of workers).

A similar analysis could be performed from the new state of each pair: the first pair might actually see its supply curve shift left and upward due to these dynamics (restaurants may close in aggregate), causing the quantity of meals supplied to decrease further and prices of meals to rise, possibly though not necessarily up to the level they were before. For the second pair, demand for workers might increase in aggregate, resulting in a right and upward shift in the demand curve, which would further ratchet wages upward (barring another supply curve shift) and would help increase the number of workers to a level closer to what it was before any of these shifts took place.

I don’t think so. Hilton Head Island, SC is a great example of the trend that COVID accelerated.

Hilton Head is a popular vacation destination, but as development started radiating inland towards I95, all of the workers are priced out. The housekeeper at the hotel I stayed at in 2019 commuted 2.5 hours daily, and restaurants started reducing hours due to labor shortages. COVID made it worse, but the problem existed because you can’t work in most places without covering the cost of operating a car.

My understanding this year is that popular restaurants require reservations 60+ days in advance.

There may be some demand shifts at the low end from sit down to fast casual, but those are the places where tipped workers are paid the least. A waiter at a good steakhouse is making a good living, an IHOP waiter makes $10/hr or less.

At the low end, I think those workers have shifted to curbside retail. I’d guess the average Target has 12-30 more staff to handle curbside orders alone.

I'm not sure a waiter at a good steakhouse is making a good living. It's been a while since I worked food service, so I might be making some poor assumptions, but:

1. Most waiters don't get health benefits 2. Most waiters don't get retirement plans 3. Most waiters are at the whim of the restaurant managers 4. There's only so many tables you can turn in a shift, and tips average under 20%. 5. Most waiters don't get any PTO

Say you have a four-top that has meal service of $120 (booze tips usually go to cocktail waitresses, wine goes to waiter). An average section for a "good" steakhouse will have no more than 5 tables per waiter; otherwise service sucks.

So each table earns the waiter $24 in tips. With 5 tables, that's $120 per turn. High end steakhouses don't turn fast; again, the appeal is having a long, hearty meal. So maybe 2.5 turns on a good night. That would be $300 in tips. But then you have to tip out. Busboy gets $25 (helps you turn faster, helps with some service), dishwasher gets $10 (should get $100), hostess gets $20 (so your section gets sat promptly), and at least $50 for the line cooks who are the real stars. Now you're done to $195. That needs to be reported as income, so it gets held back by mgmt for tax.

You get 3 good shifts a week, and 2 crap shifts. After a week you've made $195x3 plus $125x2 for a grand total (pretax) of $835/week. So your gross is $44K. I'm ignoring the base hourly wage because it's usually nothing.

$44k isn't bad money. It's above the nationwide median, but considering all the downsides, it's not "a good living." If you get sick, tough shit you lose out. If the chef jacks up the menu, you lose out. And it's a young person's gig. People want their waiters to be young and attractive, not balding and showing grey hairs.

Your numbered points stand - no healthcare, no retirement, or other benefits a FAANG employee would have, but your numbers are low for a high end restaurant. A good steakhouse for 4 might cost closer to $500, $800 for just food at the highest end, with booze being another couple hundred on top of that. And then there's the cash aspect of it. Each night's tips are required to be declared to the IRS, and not reporting it would be tax fraud, but the reality is I'm sure not everything gets reported, boosting take home amounts, making the numbers incomparable without further analysis.

I've heard of bartenders making more than $100k/yr, (but still with no benefits).

A "good steakhouse" doesn't charge $200 per customer unless it's selling Kobe/Wagyu. And the percentage of customers buying Wagyu over the $50 ribeye is very small.

Even with the $50 ribeye, that four-top is still generating $200 on food per turn, more than the grandparent's original $120 estimate.

Maybe my view is skewed from seeing prices in expensive cities, but I think the beef alone at a good steakhouse is gonna run you more like $75-$100 per person, and that's not even for the high-end wagyu (which will probably run $150-$250 for most cuts). Then add another $10-$30 per person for appetizers and side dishes, and maybe dessert on top of that.

I feel like it's pretty hard to walk away from a good steakhouse spending less than $80 or so, even if you have nothing to drink. And the more common case is probably quite a bit more than that...

> It's above the nationwide median, but considering all the downsides, it's not "a good living."

I think well educated professionals sometime miss what reality is for millions of people. $44k for a few shifts is better and more reliable income than a retail gig. The similar premium gig for a low skill person is probably a janitor.

For a few shifts? That's five shifts, and usually a good eight hours each. And the income is sporadic; during the offseason (in tourist areas) your income might be halved.

Even with your understated numbers, with everything being as worse as possible, you ended up with a pretty decent wage for 5 evenings of work.

In reality, half of the US population lives in a state with a regular minimum wage for waiters (California, New York, Washington, and a bunch of other states), and the other half averages $5/hr which is $7800/yr if you work 30 hours a week. Also there's cash tips that aren't reported on taxes. And like others have said, you're estimating $30/person at a steakhouse which is TGI Fridays prices.

Put that together, and you're looking at the equivalent of six figures pre-tax for 5 nights of work, with no email at night or on-call. Sounds pretty good to me.

Restaurants are hiring if you want the job…

Not reporting tips on taxes only hurts the waitstaff even more. It blocks you from being able to get loans/credit. Reporting them and keeping track of them then paying your taxes at the end of the year is the only way...but of course that assumes the bank doesn't deem your income as "not steady/stable" because of course...it isn't a salary.

In my area some waitstaff also make $3.50/hr because the company assumes they make tips. Some also hold all your credit card tips and give them to you on the paycheck...so it isn't all roses.

"restaurants started reducing hours..." >> This is EXACTLY what I mean by "supply curve shifting down." Restaurants are not willing to supply the same number of meals/hours to the market at the given price.

"My understanding this year is that popular restaurants require reservations 60+ days in advance." >> This is what a shortage looks like. Long lines and empty shelves. People who are willing to pay the advertised price, but can't because there isn't anything to buy.

"started reducing hours due to labor shortages." >> Meaning that there is more demand for labor than supply at the current price (wage). The supply curve for labor moved down, causing a shortage of labor at the current price. That's a 'shortage' as perceived by businesses that don't want to pay the actual market clearing price/wage.

In your example, a labor shortage is leading to a restaurant shortage. In both cases caused by changes in the supply and/or demand curves (down and/or right, respectively).

You could also go farther upstream to the housing market and say that because the supply curve of housing moved down, house prices went up, and that caused labor's supply curve to move down accordingly.

All of these things ultimately mean fewer things and less stuff, at higher prices.

So, I’m from Hilton Head and that is a fairly accurate telling of the issue (though the 2.5 hours commute is a bit uncommon.) They’ve attempted to alleviate it with shuttles from Bluffton and even Northern Beaufort County to little avail.

We have similar issues up in Charleston, with my girlfriend ‘s restaurant in an HCoL (Mt. Pleasant) really struggling to find staff beyond the 16-26 “living with mom & dad” crowd where HCoL is little of a factor.

I would add I have at least a half-dozen friends in BoH that intentionally (an)used our state pay benefits for a free vacation to smoke weed and play X-Box though sadly citing it as their first vacation in a forever. There’s definitely a problem a multi-faceted problem here.

Is it really a shortage? If the preferences of potential restaurant customers simply changes such that they're no longer willing to pay enough for a restaurant meal for the restaurant to stay financially solvent, that's not a shortage. It's only a shortage if something is preventing the market price from changing (in this case, the price of a restaurant meal increasing) or preventing restaurants and customers who are willing to transact from being able to do so. Is that the case here?

"A shortage, in economic terms, is a condition where the quantity demanded is greater than the quantity supplied at the market price." https://www.investopedia.com/terms/s/shortage.asp sounds like it fits the situation to me.

Indeed, investopedia's definition seems to include any time supply is insufficient with no regard for the reason that the market price is not increasing.

This is because the reason is irrelevant to whether there is a shortage or not. A shortage is when at the given price a higher quantity will be demanded than will be supplied.

The normal market solution to a shortage is to raise prices until there is no longer an excess of supply at that higher price

Investopedia’s definition treats the condition where price has not yet aligned to a new equilibrium as equivalent to one where there is a constraint preventing price adjusting to equilibrium. Leaving aside the fairly arbitrary question of whether it is correct to call both conditions “shortages”, it is important to note that they are fundamentally different situations, especially from the perspective of “is a policy change needed to address it and what policy change would that be.”

If my arm hurts, it doesn’t matter if I strained something or it’s bone cancer. To me, they present the same.

In economics, outcomes are all that matter.

does it matter if it's a technical shortage or just and observed one?

The only thing preventing restaurants from changing their prices is the 'penguin on an iceberg' issue. You may be correct in raising your prices, but if other restaurants are willing to lose money longer before they raise their prices your business may suffer/fail because of it before the rest of the market changes their prices/wages.

Kinda, but not really. Remember that a shortage is an excess of demand at a given price. Meaning implicitly that, at the margin, prices could go up some small amount and there will still be a queue/line/excess of people willing to pay that marginally higher price.

So as a restaurant, very roughly speaking, you basically can raise prices until the line starts to go away. Unfortunately customers can be very stubborn and would rather wait in a 1hr line somewhere else, or not go out at all, for quite a while before eventually coming around to the new normal and accepting your new, higher price.

And you will still probably end up with fewer restaurants along the way, as those least-profitable and with the shortest lines outside, go away.

Are customers that aware of price increases? Unless you're eating out at the same joint every day, a 10% increase isn't very noticeable. Say you have an item priced at $9.99, bumping it up 10% makes it $10.99.

Restaurant sales are rarely made up of price conscious buyers. Sure there's a limit, but short of the blue light special crowd, most customers are eating out for either variety, social reasons, or being tired of cooking.

> Are customers that aware of price increases?

Yes. This is exactly the question answered by the concept of supply and demand curves. Of course you can argue about the shape of those curves but their existence is not in doubt.

Supply and demand curves don't address the customer's awareness and perceptions at all price increases. Sure if the price doubles, they'll notice. But a 5-10% increase in something infrequently purchased would not be noticeable to the average consumer. Now if it's something they purchase everyday? They'd notice a penny increase.

> does it matter if it's a technical shortage or just and observed one?

Yes. A so-called “observed shortage” is not a shortage, its just buyers wanting a good without wanting to pay the price it costs to buy in the present market conditions.

A real shortage involves either a constraint which prevents price adjustment to an equilibrium of supply/demand or demand and supply curves shaped in such a way that no equilibrium point exists (which, I guess, is just a very special equilibrium-preventing constraint.)

The solution to an observed shortage of labor is “employers pay more and quit whining”.

The solution (if it is solvable at all) to a real shortage depends on what constraint prevents equilibrium from being reached.

There is a slight distinction here though. I would tend to only describe the situation as a "shortage" if there is insufficient supply to meet demand at the actual price sellers are offering. If restaurants double their prices and thus a lot of people are no longer willing to pay (and are upset), that's not what I would consider a "shortage" (although it might certainly be described as such in headlines or in conversation). In my view that's no more a shortage than the ongoing lack of supply for private jets at the price of $10,000. I'd pay $10,000 for a private jet!

But there can also be a fuzzy area here. There may be situations where most sellers have not raised their prices to respond to decreased supply (for a variety of reasons), and therefore other mechanisms (like who gets in line the earliest) determine who gets to buy. At the same time there may be a small number of sellers who do raise prices (think of the toilet paper hoarders who resell on Craigslist at huge markups). If you consider that higher reseller price to be the "market price" then that wouldn't wouldn't strictly be a shortage, but if you consider the unchanged price to be the market price then that would indeed be a shortage. (In fact, this is why for every natural disaster there are articles with headlines like "Price gouging is actually a good thing; it's the solution to shortages.")

"The solution to an observed shortage of labor is “employers pay more and quit whining”." - Keep in mind that going along with higher prices (wages), there will be a lower quantity (jobs). At least according to your Econ 101 book.

> "The solution to an observed shortage of labor is “employers pay more and quit whining”." - Keep in mind that going along with higher prices (wages), there will be a lower quantity (jobs).

No, that would only be true if there was not an observed shortage; that is, if the current market price was clearing the market with no unmet demand at the market clearing price.

An observed shortage that is not a real shortage means that the market price can rise to the point of market equilibrium without reducing quantity traded. In fact with a normal supply curve shape, the minimum price increase to achieve equilibrium will increase the quantity traded compared to the status quo, as quantity supplied will increase with price. Quantity demanded will be lower than in the status quo, but since the “observed shortage” is quantity demanded being above quantity supplied and, therefore, traded at the current price, that reduction is literally just reducing the “observed shortage” to zero, not reducing quantity traded.

I'm no expert in how economists use the term, but I suppose it could certainly be called a shortage if there is some systemic reason why restaurants can't (or at least think they can't) raise prices in the short term. Personally I don't find that likely, at least based in my region where restaurants have indeed raised prices and many seem to be thriving (although many others failed in 2020).

In a normal economy, most restaurants fail for two simple reasons; poor location and undercapitalization. If you sell a good meal, in a good location, people are very tolerant of price. Getting to that point is where 99% of restaurants fail.

That seems to assume that the products are completely interchangeable. Even between restaurant chains I don't think that's true. And independent restaurants are very individual, even unique. Some people like one type of food or dining experience, some another, and they may forego dining out altogether rather than substitute.

It is a shortage until prices rise, quantity demanded goes down, quantity supplied goes up and a new equilibrium is attained. This might take a few minutes, or even milliseconds, or it might take many months, or it might never happen.

I think the market is going to split soon. The lowend local resturant will die because they wont have access to the ecconomyies of scall that will allow them to raise wages and the market wont pay more just for being "local". so small burger joints cafes and such will suffer. the mid to hig end will raise wages and most will survive.

Then those the are unwilling to raise server wages will either die due to lackmof labour or become ghost kitchen fire the serving staff and do take out and delivery exclusively.

I think delivery and take out is going to stick around in a big way. there is less expectation to tip the restaurant when not eating on premises. and it think wage regulation of gig work is coming for the likes of ubereats doordash and grubhub

on the cheap end you will have take home food with no tips and on the high end a living wage will become standard with less pressure to tip

There is no change in people's interest in eating out. They couldn't because of covid, but demand is rapidly shooting back up.

+1, I would have to see evidence that the demand curve has permanently shifted or is generally shifting left. Because it doesn't match with my experience at all, that people love restaurants and have been eagerly waiting out the pandemic so they can go to restaurants again. Restaurants in some areas of the US now are so busy that they stopped takeout service because they have so much inhouse service.

I don't think there's much evidence of a sustained decrease in demand for dining.

> The supply curve might shift back up if, for example, government wage supports are reduced.

This is the key... the problem isn't really the market... it's the market interference.

First COVID and the "lockdowns" (effective or not)... and then the resulting "free" money that makes it more lucrative to be on unemployment than working a job.

Max unemployment in my state is around $365. On top of that is a fed bonus of $300 (was formerly $600).

$665/40=$16.63

The financial incentive to not work is strong. Add in 40 extra hours of free time...