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    Battle Over Wage Rules for Tipped Workers Is Heating Up

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    A system counting tips toward the minimum wage is being fought in many places. Critics say it’s often abused. Defenders say workers benefit overall.With Americans resuming prepandemic habits of going out, eating out and traveling, leisure and hospitality businesses have scrambled to hire, sometimes offering pay increases that outpace inflation.But for many whose pay is linked to tips, like restaurant servers and bartenders, base wages remain low, and collecting what is owed under the law can be a struggle.In all but eight states, employers can legally choose to pay workers who receive tips a “subminimum” wage — in some places as low as $2.13 an hour — as long as tips bring their earnings to the equivalent of the minimum wage in a pay period. Economists estimate that at least 5.5 million workers are paid on that basis.The provision, known as the tip credit, is a unique industry subsidy that lets employers meet pay requirements more cheaply. And even in a tight labor market, it is often abused at the employees’ expense, according to workers, labor lawyers, many regulators and economists.“It’s baked into the model,” said David Weil, the administrator of the Wage and Hour Division of the Labor Department under President Barack Obama, referring to the frequency of violations. “And it’s very problematic.”Terrence Rice, a bartender from Cleveland who has worked in the bar and restaurant industry since 1999, chuckled at the notion that the law is consistently followed.“As long as I’ve been doing this, I have never, ever — not one time — met anyone that’s been compensated” for a below-minimum pay period, he said, adding that slow weeks with inadequate pay are viewed as the “feast or famine” norm in the industry. Busier seasons, weekends or shifts can bring a rush of a cash followed by slow weekdays, bad-weather weeks or economic turbulence.Now the yearslong arrangement is coming under increasing challenge.In the District of Columbia, a measure on the November ballot would ban the subminimum wage by 2027. A ballot proposal in Portland, Maine, would ban subminimum base pay and bring the regular minimum wage to $18 an hour over three years.Employers in Michigan are bracing for increased expenses in February, when the state tipped minimum of $3.75 an hour is set to be discontinued and the regular state minimum wage will rise to $12 from $9.87.Xander Gudejko, a district manager for Mainstreet Ventures Restaurant Group, which owns spots throughout Michigan, offered a common view in the local business community: “When I think of the potential positives for us, I can’t really think of anything.”Though tipped employees can include hotel housekeepers, bellhops, car washers and airport wheelchair escorts, most are in food and beverage service jobs. Perfect compliance may involve a complex dance of having workers clock in at the minimum-wage rate for setup work until opening, clock out, then clock back in at a tipped wage.Businesses using the two-tier system are prohibited from having tipped employees spend more than 20 percent of their shifts on side work like rolling silverware or cleaning. They also cannot include back-of-house employees, like kitchen workers, in tip pooling — the collection and redistribution of all gratuities at a certain rate, usually set by the employer.The last robust compliance investigation of full-service restaurants by the Labor Department is somewhat dated, having ended in 2012, but it found that 83.8 percent of the examined firms were in violation of labor law, with a large share of the infractions related to tips.The National Restaurant Association, which represents over 500,000 small and larger restaurants, argues that instances of illegal underpayment of tipped workers are overstated and that workers, customers and employers, in general, find the system workable.“There’s a reason people choose tipped restaurant jobs — they know the economics are in their favor,” said Sean Kennedy, the group’s executive vice president of public affairs. “For many servers, they’ve chosen restaurants as a career because their industry skills and knowledge mean high earning potential in a job that’s flexible to their needs.”Ryan Stygar, a labor lawyer and a managing partner at Centurion Trial Attorneys, whose practice mostly represents workers in wage-theft cases but also defends businesses accused of violations, called the network of laws surrounding tipped workers “so bizarre and obscure” that employers acting in good faith can still make legal mistakes.Even when the law is followed to the letter, Mr. Stygar said, the system is unfair to workers. “You are sacrificing your tips to meet the employers’ minimum-wage obligations,” he said.Employers are required to keep records of tips and usually do so through a mix of their own accounting, credit card receipts and self-reporting from staff members. Most involved in the system say the tracking works in murky ways.“In reality, who’s monitoring this complex two-tier system?” said Sylvia Allegretto, a former chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley.“The onus is on you, the worker, to possibly enrage, or at least annoy, your boss, who also, coincidentally, controls your schedule,” she said.Talia Cella, a training manager at Illegal Pete’s, a fast-casual burrito spot in Boulder, Colo. The restaurant offers starting pay of $15 plus tips as well as health care coverage.Andrew Miller for The New York TimesIn many civil disputes, employment attorneys have successfully argued before courts that managers implicitly wield opportunities to work more lucrative shifts as a carrot for not rocking the boat on workplace abuse and as a stick to prevent retaliation.Sylvia Gaston, a waitress at a restaurant in Astoria, Queens, said her base wage is $7.50 an hour — even though New York City’s legal subminimum is $10, which must come to at least $15 after tips. Ms. Gaston, 40, who is from Mexico, feels that undocumented workers like her have a harder time fighting back when they are shortchanged.“It doesn’t really matter if you have documents or not — I think folks are still getting underpaid in general,” she said. “However, when it comes to uplifting your voices and speaking about it, the folks who can get a little bit more harsh repercussions are people who are undocumented.”Subminimum base pay for some tipped workers in the state, such as car washers, hairdressers and nail salon employees, was abolished in 2019 under an executive order by Gov. Andrew M. Cuomo, but workers in the food and drinks industry were left out.Gov. Kathy Hochul, Mr. Cuomo’s successor, said while lieutenant governor in 2020 that she supported “a solid, full wage for restaurant workers.” And progressive legislators plan a bill in January that would eliminate the two-tier wage system by the end of 2025.When The New York Times asked if she would support such changes, Ms. Hochul’s office did not answer directly. “We are always exploring the best ways to provide support” to service workers, it said.Proponents of abandoning subminimum wages say there could be advantages for employers, including less turnover, better service and higher morale.David Cooper, the director of the economic analysis and research network at the Economic Policy Institute, a progressive think tank, contends that when wage laws are changed to a single-tier system, business owners can have the assurance that “every single person they compete with is making the same exact adjustment,” reducing the specter of a competitive disadvantage.Still, he acknowledged, there would downsides. Restaurants and bars with less popularity and lower productivity could lose out in a substantially higher-wage environment, leading to higher prices and potentially closings.“This is not costless,” Mr. Cooper said. “But for a long time, we haven’t been internalizing the costs of paying workers less than they can live on.”Some employers who could use the two-tier wage system are taking a different approach.Talia Cella, 33, is a training manager at Illegal Pete’s, a burrito spot founded in Boulder, Colo., with locations throughout Arizona and Colorado. Those states have a subminimum wage under $10 an hour for tipped workers, and a regular minimum under $13. Illegal Pete’s offers starting pay of $15 plus tips as well as health care coverage.Before rising to her current position, Ms. Cella was hired as a server and trained as a bartender in 2016. She was previously making base pay of $5 an hour elsewhere as a waitress and hostess, unable to afford a car and biking to the bus stop in snow to make winter shifts.Even at what her company is paying, Ms. Cella said, recruiting and hiring are “more challenging than ever” because of labor shortages. But she said the business, with the help of a recent 10 percent price increase, remained profitable and was able to expand despite soaring food costs.She attributes this, in part, to “out-vibing” the competition.“Having work be a stable part of your life — where it’s like you go there, you’re getting paid a living wage, you have health insurance, you know this place cares about you — then you’re more likely to show up to work and give your best,” Ms. Cella said. “If you want people to give you more of themselves, more of their time, more of their effort, then you have to be willing to invest more of your company into the individual people as well.” More

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    Chipotle Closes Maine Store Looking to Unionize, Workers Say

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    Workers who filed for a union election at a Chipotle in Augusta, Maine, are accusing the company of seeking to undermine their campaign by closing the restaurant.The company notified employees of the closing on Tuesday morning, hours before the two sides were scheduled to take part in a hearing before the National Labor Relations Board about the possible election.“We have been unable to adequately staff this remote restaurant,” Laurie Schalow, the company’s chief corporate affairs officer, said in a statement. Ms. Schalow added that “because of these ongoing staffing challenges, there is no probability of reopening in the foreseeable future, so we’ve made the decision to permanently close the restaurant.”A lawyer representing the workers filed a charge with the labor board contending that the closing was an illegal act of retaliation.“I’m referring to this as Union Busting 101,” said the lawyer, Jeffrey Neil Young, who frequently represents unions in the state. “It’s a classic response — employees decide to organize and the employer says it’s closing the store.”Read More on Organized Labor in the U.S.Apple: Employees at a Baltimore-area Apple store voted to unionize, making it the first of the company’s 270-plus U.S. stores to do so. The result provides a foothold for a budding movement among Apple retail employees.Starbucks: When a Rhodes scholar joined Starbucks in 2020, none of the company’s 9,000 U.S. locations had a union. She hoped to change that by helping to unionize its stores in Buffalo. Improbably, she and her co-workers have far exceeded their goal.Amazon: A little-known independent union scored a stunning victory at an Amazon warehouse on Staten Island. But unlike at Starbucks, where organizing efforts spread in a matter of weeks, unionizing workers at Amazon has been a longer, messier slog.A Shrinking Movement: Although high-profile unionization efforts have dominated headlines recently, union membership has seen a decades-long decline in the United States.The labor board will investigate the charge and issue a formal complaint if it finds merit in the accusation, at which point the case would go before an administrative law judge. The two sides could reach a settlement beforehand.A handful of workers at the store walked off the job in mid-June to protest what they said were unsafe conditions that stemmed from understaffing and insufficient training.“Not being properly trained to prepare food has a lot of risks to both the preparer and the people eating the food,” said Brandi McNease, a worker involved in the walkout and the union campaign. “You worry about knife skills, using equipment that is dangerous — hot, sharp.”Within a few days, the company closed the store to the public while it sought to improve staffing, including retaining two recruiting experts, according to Ms. Schalow. During this time, workers continued to report to the store, where they received some training and helped clean it, but often for fewer hours a week than they previously worked.On June 22, workers filed a petition to hold a union election. The labor board requires at least 30 percent of workers to indicate their support before it will order one.The hearing scheduled for Tuesday was meant to consider arguments from the two sides about the proposed election. Chipotle had asserted in filings that the election should not go forward, partly because the store was understaffed and so the workers eligible to vote would not be fully representative of its eventual work force.Mr. Young, the lawyer representing the workers, said the closing could chill organizing efforts at other stores in the chain, including those underway in Lansing, Mich., where workers have also filed for a union election, and New York City.“By closing the Augusta store, it’s signaling to Chipotle workers elsewhere who are involved in or contemplating nascent organizational drives that if you organize, you might be out of job,” Mr. Young said.Ms. Schalow, the Chipotle official, said in her statement that closing the store “has nothing to do with union activity.” The company said it had closed 13 locations out of about 3,000 because of staffing issues, performance, lease agreements and other business reasons over the past 18 months. Most of the closings appear to have come in the first half of last year.Chipotle has offered the Augusta workers four weeks of severance pay based on their hours over the past two weeks, which have typically been lower than before the restaurant closed to the public. It has not offered to place the workers at other locations in Maine, the nearest of which is roughly an hour away, according to the company.Ms. McNease said she and her co-workers planned to fight to have the store reopened. “No one is bailing now,” she said.Chipotle is among several employers in the service industry whose workers have sought to unionize over the past year. Roughly 200 corporate-owned Starbucks locations have voted to unionize since last fall, as have workers at an Amazon warehouse on Staten Island, an REI store in Manhattan and an Apple store in Maryland.The labor board has formally accused Starbucks of closing certain stores in retaliation for union organizing. The company has denied the accusations.Last week, Starbucks said it was closing 16 additional stores because of safety concerns like crime, which it said have been reflected in incident reports over the past year. The union representing the newly unionized Starbucks workers has filed charges of unfair labor practices, accusing the company of closing the stores to undermine organizing activity or avoid bargaining with unionized workers. More

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    Private-sector employment has recovered to prepandemic levels.

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    Job growth in June was driven by industries recuperating from pandemic-induced losses, and continued business investment in sectors still benefiting from formidable demand for their goods and services, even as borrowing costs increase.Employment is now just a touch away from prepandemic levels, down 524,000, or 0.3 percent, from February 2020. A recovery in private-sector job creation is responsible for the overall gains. Government employment has lagged, with a shortfall of 664,000. Job growth in educational services was solid, seasonally adjusted, suggesting that employment in that sector fell less than usual at the start of summer.A recent wave of layoffs in the tech and housing sectors have made headlines, yet employment in professional and business services is 880,000 above its February 2020 level, and overall hiring last month showed no sign of slowing.“High inflation and a shift of consumer spending from goods to services is causing job losses in some sectors of the economy, but most workers who are losing jobs are finding new ones quickly,” said Bill Adams, the chief economist for Comerica Bank, a large commercial bank based in Dallas.With the large baby boomer population continuing to age, demand for health care workers is growing and the sector added 57,000 jobs in June, leaving it 1.1 percent below its prepandemic levels.There was also a significant pickup in jobs at child care centers, good news for a sector that has faced a particular labor shortage. Though labor force participation in the economy overall was mostly flat compared with May.Leisure and hospitality businesses, which are benefiting from an early summer surge in travel, dining and entertainment, added 67,000 jobs, including 41,000 in food services and drinking places — a welcome boost to the sector, which is still 1.3 million jobs short of its prepandemic employment level. More

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    North of Atlanta, a Trove of Wineries

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    Georgia actually has a long history with vineyards. About 90 miles from Atlanta, in the shadow of the Blue Ridge Mountains, there are more than 40 wineries and tasting rooms.La Tanya Eiland is from Compton, Calif. and has a passion for wine. So when she moved to Atlanta in 2013, she asked locals the question she always asks when she travels anywhere new: “Where is wine country?”In Atlanta, the most common answer was “north.”About 90 miles north of Atlanta, nestled in the foothills of the Blue Ridge Mountains, the city of Dahlonega has a dozen wine tasting rooms and eight wineries. Nearby communities, including Helen, Cleveland and Sautee Nacoochee, are also home to several establishments that offer local, regional and international wines. In total, North Georgia has more than 40 wineries and tasting rooms in a region that is becoming an increasingly popular destination for day trips and weekends away. More

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    Corporations Raise Prices as Consumers Spend ‘With a Vengeance’

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    Corporate America is lifting prices and bragging about bigger profits as consumers open their wallets and spend heartily.Doughnut sellers, milkshake purveyors, tire manufacturers and rental car agencies are all discovering that something is different about America’s pandemic-weathered economy: People are willing to pay more for the goods and services they want to buy.Companies are taking advantage of a moment of hot and seemingly unshakable demand — one in which consumers are spending “with a vengeance,” to borrow the words of one executive — to cover rising costs and to expand their profit margins to prepandemic or even record levels. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.If it pans out, that trend that could have big economic implications.Planned corporate price adjustments could continue to boost inflation, which is running at its fastest pace in 40 years. The Federal Reserve is trying to assess whether businesses and households are changing their expectations in a way that might make rapid price gains a more permanent feature of the economic landscape.A selection of comments from recent earnings calls show just how companies are thinking about this moment..Rental Car CostsEverything related to automobiles seems to be increasing in cost, and rental cars are the vanguard of that trend. Company leaders are trying to make the profitable moment last.“The overall rent-a-car industry still has more demand than supply,” Joe Ferraro, the president and chief executive officer at Avis Budget Group, the rental car company, said on a Feb. 15 earnings call. “Given the current trends, we are cautiously optimistic about what a rebound in demand could mean once Covid is behind us,” he added.The year “2021 showed us what’s possible,” he said, noting also that he expects the first quarter of 2022 to be the most profitable in the country’s history.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The company has realized, “especially given what we’ve been through in the last two years,” that targeting the most possible rentals — effectively competing by offering lower prices — is “not how you maximize profit,” Brian Choi, its chief financial officer, said on the call.“We choose instead to compete based on the quality of our product and our service,” he said.Tire DemandDemand for cars has also bolstered the market for tires.“It’s a really very, very good constructive pricing environment that we’ve seen right now, probably the best in recent memory,” Richard J. Kramer, the chief executive at Goodyear, said on a Feb. 11 earnings call.The company does look to its competitors as it makes its price increases — but they, too, are charging more.“There are nine competitors that we tend to track, and seven out of the nine have announced price increases in the first quarter, and one of the ones who hadn’t raised prices right at the end of last year,” Darren Wells, its chief financial officer, said on the call. Goodyear saw profit margins expand last year, driven in part by price increases.Sizing Up Beef CostsThe restaurant family that includes Outback Steakhouse, Bloomin’ Brands, is planning to raise prices about 5 percent across its brands to cover rising labor and food costs — and, by pairing that with efficiency improvements, it is managing to increase its profits.“It became clear that the 3 percent pricing we previously discussed was not be enough to offset the increased inflationary pressures our industry is facing,” said Christopher Meyer, the chief financial officer at Bloomin’ Brands, speaking of the last quarter. “Given that we had not taken a material menu price increase since 2019, we are confident that 5 percent is appropriate.”Mr. Meyer noted that operating inflation was 4.9 percent and labor inflation was 8.9 percent in the final quarter of 2021, but that the company had managed to increase its profits through improving efficiency by simplifying its menu and by cutting food waste.In 2022, he said, the company expects beef inflation “in the mid-to-high teens” and wage inflation “in the high single-digit range.”Recovering Profits in FoodShake Shack is among the companies hoping to benefit as consumers spend.Amy Lombard for The New York TimesAs beef and other food costs have increased, so have Shake Shack’s menu prices. But officials think consumers will be able to spend through the burger and ice cream inflation as virus risks fade and foot traffic picks up in the cities where its stores are located.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Inflation Hits the Fast Food Counter

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    On a chilly Tuesday afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.It had been a while since Mr. Marsh had been to Chipotle — he estimated he goes five times a year — and he stopped cold when he saw the prices.“I had been getting my usual, a steak burrito, which had been maybe in the mid-$8 range,” said Mr. Marsh, who trades stock options at his home in Hinsdale, Ill. “Now it was more than $9.”He walked out.“I figured I’d find something at home,” he said.The pandemic has led to price spikes in everything from pizza slices in Manhattan to sides of beef in Colorado. And it has led to more expensive items on the menus at fast-food chains, traditionally establishments where people are used to grabbing a quick bite that doesn’t hurt their wallet.At a Chipotle in Costa Mesa, Calif., the price of a chicken burrito — nothing fancy, hold the guacamole — about a year ago was $7.25. These days, that same burrito costs around $7.95, according to price data collected by analysts. In Ann Arbor, Mich., a ShackBurger at Shake Shack used to cost $5.69; now it’s $6.09. And in Oklahoma City, an order of 50 bone-in wings from Wingstop that cost $41.99 early last year is now $47.49, a 13 percent increase.Last year, the price of menu items at fast-food restaurants rose 8 percent, its biggest jump in more than 20 years, according to government data. And, in some cases, portions have shrunk.In Ann Arbor, Mich., a ShackBurger at Shake Shack used to cost $5.69; now it’s $6.09.Amy Lombard for The New York Times“In recent years, most fast-food restaurants had, maybe, raised prices in the low single digits each year,” said Matthew Goodman, an analyst at M Science, an alternative data research and analytics firm. “What we’ve seen over the last six-plus months are restaurants being aggressive in pushing through prices.”This comes at a time when the hypercompetitive fast-food market is booming.Chains like McDonald’s, Chipotle and Wingstop were big winners of the pandemic as consumers, stuck at home working and tired of cooking multiple meals for their families, increasingly turned to them for convenient solutions. But in the past year, as the cost of ingredients rose and the average hourly wage increased 16 percent to $16.10 in November from a year earlier, according to government data, restaurants began to quietly bump up prices.But making customers pay more for a burger or a burrito is a tricky art. For many restaurants, it involves complex algorithms and test markets. They need to walk a fine line between raising prices enough to cover expenses while not scaring away customers. Moreover, there isn’t a one-size-fits-all approach. Chains that are operated by franchisees typically allow individual owners to decide pricing. And national chains, like Chipotle and Shake Shack, charge different prices in various parts of the country.When Carrols Restaurant Group, which operates more than 1,000 Burger Kings, raised prices in the second half of last year, the number of customers actually improved from the third to the fourth quarter. “Over time, we generally have not seen a whole lot of pushback from consumers” on the higher prices, Carrols’ chief executive, Daniel T. Accordino, told analysts at a conference in early January.Menu prices are likely to continue to climb this year. Many restaurants say they are still paying higher wages to attract employees and expect food prices to rise.“We expect unprecedented increases in our food basket costs versus 2021,” Ritch Allison, the chief executive of Domino’s Pizza, told Wall Street analysts at a conference this month. While Domino’s hasn’t raised prices, it is altering its promotions — offering the $7.99 pizza deal only to customers ordering online and shrinking the number of chicken wings in certain promotions to eight from 10 — in an effort to maintain profit margins.In Oklahoma City, a bucket of 50 bone-in wings from Wingstop that cost $41.99 early last year is now $47.49.Amy Lombard for The New York TimesDespite the higher food and labor costs, some restaurants are seeing sales and profits rebound past prepandemic levels.When McDonald’s reports earnings this month, Wall Street analysts expect that its revenues will have hit a five-year high of more than $23 billion, a $2 billion increase from 2019. Net income is predicted to top $7 billion, up from $6 billion in 2019. Other chains like Cracker Barrel and Darden Restaurants, which owns Olive Garden and Longhorn Steakhouse, have resumed dividend payments or cash buybacks of stock after suspending those activities early in the pandemic to conserve cash.And next month, when Chipotle reports results for 2021, analysts expect revenues to top $7.5 billion, a 34 percent jump from 2019. Net income is expected to almost double from prepandemic levels. In the third quarter, the company repurchased nearly $100 million of its stock. Chipotle declined to make an executive available for an interview, citing the quiet period ahead of its earnings release.While Chipotle executives blamed higher labor costs for a 4 percent price increase in menu items this summer, the company has been looking for ways to boost its profitability.One way was to charge higher prices for delivery. Delivery orders through vendors like DoorDash and Uber Eats exploded for Chipotle and other fast-food chains during the pandemic. But so did the commission fees that Chipotle paid the vendors. So in the fall of 2020, it began running tests to see what would happen if it raised the prices of burritos and guacamole and chips that customers ordered for delivery, executives told Wall Street analysts in an earnings call. It essentially meant the customer covered Chipotle’s side of the delivery costs.The company discovered customers were willing to pay for the convenience of delivery. Now, customers ordering Chipotle for delivery pay about 21 percent more than if they had ordered and picked the food up in the stores, according to an analysis by Jeff Farmer, an analyst at Gordon Haskett Research Advisors.At a Chipotle in Costa Mesa, Calif., the price of a chicken burrito about a year ago was $7.25. Now it costs $7.95.Amy Lombard for The New York Times“I would say that our ultimate goal, so this would be over the long term, maybe the medium term, is to fully protect our margins,” said Jack Hartung, the chief financial officer of Chipotle, on a call with Wall Street analysts last fall. “When you look at our pricing versus other restaurant companies’ for the quality of the food, the quantity of the food, and the quality and convenience of the experience, we offer great value. So we believe we have room to fully protect the margin.”That doesn’t mean customers are thrilled about the extra costs.This month, Jacob Herlin, a data scientist in Lakewood, Colo., placed an order: a steak-and-guacamole burrito for $11.95, a Coca-Cola for $3, and chips and guacamole, which were free with a birthday coupon. The total was $14.95, before tax.But when he clicked to have the food delivered, the price for the burrito jumped to $14.45 and the soda climbed to $3.65, bringing the total to $18.10 before tax, 21 percent more than if he had picked the food up himself.There was more. Mr. Herlin was charged a delivery fee of $1 and another “service fee” of $2.32, bringing the total for the delivered meal to $23.20. He tipped the driver an additional $3.Mr. Herlin said he did not mind paying for delivery and wanted drivers to be paid a decent wage. But he felt that Chipotle wasn’t being upfront with customers about the added costs.“They’re basically hiding the fees two different ways, through that base price increase and through the hidden ‘service fee,’” Mr. Herlin said in an email. “I would very much prefer if they had the same pricing and were just honest about a $5 delivery fee.” More

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    New Virus Restrictions in Britain Worry Businesses

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    “None of it’s going to be good,” an economist warns as people are likely to retreat from some aspects of social life as Covid measures tighten.LONDON — On Thursday morning, a group of 50 called to cancel their holiday party booked for that evening at Luc’s Brasserie, a French restaurant in the financial district of Britain’s capital. That same morning, a group of 21 canceled their party too, also for Thursday night.The previous night, Prime Minister Boris Johnson announced that stricter Covid measures were coming, and the impact was immediate for Darrin Jacobs, the owner of Luc’s. There had been a “multitude of cancellations,” he said.But thanks to a waiting list of reservations, he said, the restaurant was still fully booked until Christmas. And many of the canceled bookings had optimistically rescheduled their celebrations for early next year.“We won’t lose the business, we’ll just move the business on,” Mr. Jacobs said. But “it’s not easy because we’ve already bought food and moved staff around,” he said.For months, businesses across Britain have been desperately trying to maneuver around supply chain disruptions, labor shortages and rising costs as they emerged from various stages of lockdown.Offices reopened, which filled up commuter buses and trains; restaurants and pubs advertised to host holiday parties; and lines grew longer at city center coffee shops.Now, the emergence of the fast-spreading Omicron variant has unexpectedly dealt those efforts a blow. The government has revived coronavirus restrictions that are likely to weigh on hospitality and travel businesses during the critical holiday season and put a dent in the economy.Some 70 percent of British workers said they had traveled to work at least some days each week in early December, according to the Office for National Statistics.Daniel Leal/Agence France-Presse — Getty Images“I don’t know where this is going to go next week,” Mr. Jacobs said. “I think this is a tip of the iceberg-type scenario and it may get a lot worse next week and, if that’s the case, we’ll really have to scale it back.”For now, he’s still cautiously optimistic. But his business relies on people who work in nearby offices and walk to his restaurant in Leadenhall Market, especially several insurance companies. On Thursday, Mr. Jacobs heard that two large companies were closing their offices again.In England beginning Friday, face masks will be required in most indoor public places including cinemas and theaters. Starting Monday, people who can work from home should. And starting in the middle of next week, passes showing vaccination or a recent negative Covid test will be required for large events and nightclubs, Mr. Johnson announced this week. The rules will be voted on in Parliament next week. Scotland, Wales and Northern Ireland have set their own measures, which are slightly stricter.“Unless you go to a full or partial lockdown, the effect of the measures themselves will be rather small,” said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. “What will be hurting the economy is individuals’ responses.” People are likely to take more precautions to protect themselves from the virus, especially by socializing less.While the rules are relatively light, for some businesses this will be an unwelcome retreat.Before the Omicron variant was discovered, the British economy was losing some momentum while prices were rising rapidly, putting inflation at its highest level in nearly a decade. Gross domestic product grew 1.3 percent in the third quarter, down from 5.5 percent in the previous three months. And that growth was driven by spending on services, especially in hotels, restaurants and entertainment as the last of the major pandemic restrictions were lifted in the summer. In October, economic expansion slowed sharply, to just 0.1 percent from the previous month.Now, there are early indications that restaurant reservations are declining and Christmas parties are being canceled.Restaurants, cafes and shops primarily serving office workers were contending with the lost trade from hybrid working but had at least seen a notable return of workers. Some 70 percent of British workers said they had traveled to work at least some days each week in early December, according to the Office for National Statistics, up from about 50 percent earlier in the year, when the country was under a strict lockdown.Restaurants, bars and hotels helped propel growth as lockdowns were lifted earlier in the year. New measures have added to concerns for the coming months.Facundo Arrizabalaga/EPA, via ShutterstockSales at Pret A Manger, the coffee and sandwich chain whose shops tend to be clustered around office hubs and transport locations, only returned to prepandemic levels about two weeks ago. Now those sales are starting to slip again.“Christmas has been canceled for many City shops, restaurants, pubs and other businesses that rely on footfall from workers in nearby offices,” Catherine McGuinness, the policy chairwoman of the City of London Corporation, which governs the capital’s financial district, said in a statement.Her organization will encourage workers and businesses to follow the new rules but said the government needed to lay out a road map for lifting the restrictions again in the new year, Ms. McGuinness said.The new measures will also complicate the next steps for the Bank of England. Policymakers at the central bank had been preparing to raise interest rates in response to inflation, provided unemployment remained low. Some analysts believed an increase could come as soon as next week. But the potential for Omicron to further slow the economy makes it harder to justify tightening monetary policy.The extra uncertainty could dampen productivity and employment growth, according to Mr. Mortimer-Lee. It’s likely to make companies more cautious about hiring and investment, especially businesses that rely on face-to-face interactions, like restaurants. Also, high case numbers will keep children out of schools and parents away from their jobs.The City of London financial district. Starting next week, people who can work from home should. Henry Nicholls/Reuters“It’s those millions of individual decisions, rather than Boris Johnson’s decision, that’s going to affect the economy,” said Mr. Mortimer-Lee. “And none of it’s going to be good.”Even before the latest measures, hotels were seeing about a fifth of their corporate bookings canceled, according to UKHospitality, an industry lobby group, after the government required travelers into Britain to take a Covid test within two days of arriving, and isolate until receiving the results. Christmas bookings weren’t as strong as they traditionally are for hospitality businesses in a quarter that usually brings in about 40 percent of the industry’s annual revenue.And so, the industry is asking for relief from business rates (a type of tax on commercial properties), more grants, rent protection and an extension of the reductions on VAT, a sales tax. “Anything less would prove catastrophic,” Kate Nicholls, the chief executive of UKHospitality, said in a statement.The latest measures have been particularly disappointing for nightclubs, one of the last businesses allowed to reopen earlier this year. The Night Time Industries Association said Covid passes have been damaging to their industry in the parts of Britain where they were already in place.Michael Kill, the chief executive of the lobbying group, said businesses were experiencing a “honeymoon period” since reopening in the summer and were trying to rebuild cash reserves before the quieter months at the start of the year.“We’re now seeing some concern around cancellations and ticket purchases hesitancy,” Mr. Kill said. “These sorts of things that are leaving people in a vulnerable position, because many of them stocked up and purchased and staffed for a busy Christmas period.”The group accused the government of enacting the changes to draw attention away from public fury over accusations that the prime minister’s staff broke lockdown rules by holding an office party last Christmas.“It feels that nightclubs and bars have been thrown under the bus by the prime minister for him to save his own skin,” Mr. Kill said in a statement on Wednesday. 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    There Is Shadow Inflation Taking Place All Around Us

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    Some companies haven’t been raising prices. Instead, they’ve been cutting back customer services and conveniences, but how should that be measured?Inflation has surged in 2021, with various official measurements of consumer prices rising faster than they have in years. But in a crucial respect, the data may be understating things.Many types of businesses facing supply disruptions and labor shortages have dealt with those problems not by raising prices (or not by only raising prices), but by taking steps that could give their customers a lesser experience.A hotel room might cost the same as a year ago — but no longer include daily cleaning services because of a shortage of housekeepers. Some restaurants are offering limited service, with waiters stretched thin. Would-be car buyers are being advised to be flexible on the color and even make and model, lest they face a long wait to get their new wheels.Customer sentiment on restaurant cleanliness fell 4.2 percent this year, according to Black Box Intelligence, which tracks online reviews of 60,000 restaurants. Complaints have been frequent about the cleanliness of tables, floors and bathrooms. Satisfaction with customer service was also down, especially regarding beverages, with guests complaining more about receiving the wrong order or no drink at all.People trying to buy appliances and other retail goods are waiting longer. According to J.D. Power, even at the highest-rated retailers, only 57 percent of customers were able to get customer service within five minutes this year, down from 68 percent in 2018.Government statistics agencies try to take changes in product quality into account when calculating inflation. But that process, known as hedonic adjustment, most commonly applies to physical objects. It is relatively straightforward to estimate the value of, say, the quality of stitching on a shirt or the value of a backup camera on a new car. There is a whole world of inflation alarmists who argue that this process leads to the understating of true inflation.But quality changes involving customer service can be ambiguous and hard to measure. The Bureau of Labor Statistics, which generates the Consumer Price Index, does not incorporate quality adjustment on 237 out of 273 components that go into the index, including the vast majority of services.Alan Cole, a former staffer for Congress’s Joint Economic Committee who writes the newsletter Full Stack Economics, noticed these sorts of annoyances during a long drive through the Northeast this summer — fast food that took an awfully long time to come, poorly stocked condiment stations, soda machines that were out of stock. The dynamic became even more clear to him when he stayed in a hotel that had a large area designated for offering hot breakfast to guests — it was mostly empty, with a few sad mini-boxes of cereal.For years, he had argued that official inflation measures actually overstated inflation, because there were many below-the-radar product improvements not captured by the data, like software that was becoming less buggy. Now, he concluded, the reverse seemed to be happening.When there are shortages of labor or supplies, some businesses adjust mostly or entirely by raising their prices. Others find less obvious, less easily measurable ways to adapt. Consider, for example, rental cars versus hotels. Both were dealing with shortages. But they showed up in different ways.“The car company just had to charge higher prices, while the hotel could take the hit through service quality instead,” Mr. Cole said in an email exchange. “We measure them in different ways. The car company’s problem gets measured as inflation, while the hotel’s problem is mostly relayed by anecdote.”It is not unusual for businesses to deal with supply shortages through mechanisms other than price increases. Retailers don’t want to attract accusations of price gouging when goods are in short supply, especially in times of natural disaster. So they end up with empty shelves, a back-door form of rationing. In the 1970s, gasoline prices skyrocketed — but not enough to prevent long lines and rules around which cars could fill up on which days.This particular economic crisis has had far-reaching consequences that have made economic data harder to interpret than usual. “Usually when there is a disaster, if you’re a macroeconomist it’s a blip on the radar screen,” said Carol Corrado, a distinguished principal research fellow at the Conference Board who has researched inflation measurements. “But we’re talking a different kettle of fish with the Covid shock, and the economic implications and costs have become much more challenging to measure than in the past.”It would be difficult for government statistics agencies to try to measure these hidden costs and factor them into inflation measures, say people who study the data closely.Customer service preferences — particularly how much good service is worth — varies highly among individuals and is hard to quantify. How much extra would you pay for a fast-food hamburger from a restaurant that cleans its restroom more frequently than the place across the street?“What gets up to the level of a quality adjustment does become pretty subjective,” said Alan Detmeister, a senior economist at UBS who formerly tracked inflation data for the Federal Reserve. “If the Labor Department even decided they wanted to quality-adjust some of these things, they would have an extremely hard time doing it.”In some cases, one person’s quality enhancement is another’s deterioration. Is online check-in at a hotel a desirable timesaving feature, or a loss of personal touch that has real value? Reasonable people can disagree.Moreover, while there appears to be some shadow inflation in service industries, the reverse has arguably held true for many years.Suppose you believe that restaurant food has become more varied and delicious over the last few decades, as chefs have become more skilled and creative. If so, maybe the 2.7 percent average annual inflation in full-service restaurant prices from 2000 to 2019 that the Bureau of Labor reported was too high.It’s plausible to believe that’s true, and also that the 4.9 percent rise in those prices over the 12 months ended in August was too low if the effects of labor shortages had been fully accounted for.This hints at why inflation bothers people so much — and why it’s a political minefield for the Biden administration. It’s not just the prices you see and the numbers that are fed into economic models, or the news headlines and central bank inflation targets.It’s also that a given amount of spending buys experiences that are a little less satisfying, and that this adds up to an accumulation of frustrations that don’t necessarily show in the numbers. More