With inflation, price fluctuations and shipping obstacles all contributing to ongoing supply chain challenges, the moribund labor participation rate is adding insult to injury. Flush with cash from the federal stimulus and improved savings, many Americans who would be back on the job are deciding to stay on the sidelines, and in other cases, pursue an entirely different line of work.

Perhaps no industry is feeling the fallout more acutely than hospitality, as servers, cooks, chefs and other core food establishment staff members are leaving their posts in droves.

Workers in hospitality quit at two times the national rate
In the month of August, employees in the hospitality sector — which includes tourism, entertainment, recreation, accommodations as well as food and beverage — called it quits from their jobs at more than double than national rate, averaging close to 7% compared to approximately 3% among all industries, according to the most recent statistics available from the Bureau of Labor Statistics. That equates to 892,000 in August alone, up from 735,000 workers who quit in July and 706,000 in June. The number has risen with each passing month since spring.

While the hospitality sector is bigger than the restaurant industry alone, restaurateurs have encountered major turnover, both in the front of the house and behind the scenes. For example, compared to 2019, full-service restaurants have 6.2 fewer employees in the kitchen and nearly 3 fewer in the front, such as hosts and hostesses, servers and bartenders, according to Black Box Intelligence data cited by Restaurant Dive.

Restaurants are understaffed at both ends of their establishments.Restaurants are understaffed at both ends of their establishments.

None of this comes as a surprise to leading trade groups. According to an impact survey conducted by the National Restaurant Association, over 70% of restaurants say they are understaffed overall, many severely so. That rate jumps to more than 80% among full-service restaurants.

At the moment, staff shortages haven't compromised restaurant chains' ability to turn a profit. During the first quarter, for example, McDonald's saw its sales grow 7.5% compared to the same three-month period in 2019, Reuters reported.

Chris Kempcizinksi, the fast food chain's CEO, told Reuters the improved earnings were likely due to greater spending power customers gained from the stimulus program.

Companies are raising wages
The situation is more complex for non-franchise restaurants, which don't have the same level of resources or footprint. Even though most restaurants maintain razor-thin profit margins, economists say business owners will likely need to increase their salaries to persuade more people to apply.

"Should the current labor shortage persist and the incident of quarantines due to the Delta variant become more frequent, restaurants will be forced to increase wages to attract the staff they need," said William Fahy, vice president and senior credit officer at Moody's Investors Service.

Food establishments have done just that, whether by paying a higher hourly wage, through sign-on bonuses or by implementing employee referral programs.

Time will tell if these employment strategies wind up working for prospective workers. In the meantime, restaurateurs are adjusting by reducing their hours of operation and cutting back on menu items, according to the National Restaurant Association.

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