The Taco Bell Economy

Taco Bell owner Yum Brands now offers $100,000 salary for restaurant managers. Who’s next?

A sign is posted in front of a Taco Bell restaurant in Novato, Calif., on Feb. 22, 2018. Justin Sullivan/Getty Images

Commentary

Who would’ve have thought that managing a fast food restaurant could pay $100,000 a year?

Well, that’s the compensation that Taco Bell will be offering for management positions in specific stores in the Midwest and Northeast regions of the United States. That’s a significant increase from the $50,000–$80,000 they pay managers right now.

The company says that the six-figure pay offering is a trial run. Will it pay off? Is managing a fast food joint really worth the salary that approaches that of a bank assistant vice president or a marketing director?

Apparently, Yum Brands Inc. thinks so.

In 2018, the average revenue for a Taco Bell store was $1.6 million, up from $1.5 million in 2017. But, like many other industries, the fast-food business is competitive. Again, like other businesses, finding and keeping talented, hardworking managers is a top priority.

Taco Bell leadership realizes that even though fast-food jobs are often temporary gigs for teenagers, low-skilled workers, and immigrants, human capital—otherwise known as people—can make a big difference in the profitability of a store. With margins in the fast-food industry narrowing, why should it be so surprising to pay managers well for helping to maintain and grow revenues?

Paying managers significantly more when margins are narrowing may seem counter-intuitive, but it makes good business sense. To compete, you’ve got to have good people. Just as poor management can kill profit margins due to waste and poor service, good management can certainly expand them.

The Taco Bell Effect?

With the U.S. economy booming, the unemployment rate is down to about 3.5 percent—the lowest level since 1969. Consequently, skilled labor is in short supply. That typically results in rising wages, which is exactly what’s happening, finally. It’s well overdue.

Still, the rate of wage increases is lower than economists thought it would be, even with the understanding that wages usually lag behind economic growth. Unfortunately, that trend has been going on for a decade or more. There are different reasons for this, depending upon how you look at it.

Compensation Often Means Benefits

For one, compensation now often includes health care benefits for workers that weren’t offered before. That has been a significant factor in low hourly wages. Adjusted for inflation, wages and salaries have grown just 5.3 percent from their 2001 levels, while the cost to companies to provide benefits has risen 22.5 percent.

Health care benefits is a positive form of compensation that’s not always understood or even beneficial. Given that many fast-food workers are young and relatively healthy, those benefits are often an unrealized form of payment. That is, they’re often underutilized and so have less value and impact than a higher hourly wage would.

Costly Free Trade Deals Undercut Wages

The exportation of manufacturing jobs, beginning in the mid-1990s, is a huge factor as well. U.S. firms closed factories and relocated first to Mexico with the passage of the North American Free Trade Agreement (NAFTA). Then, in 2001, the exodus of U.S. jobs accelerated when China was given most-favored-nation status. Millions of American jobs disappeared,  killing good-paying blue collar jobs, leaving a surplus of labor that resulted in falling or stagnant wages over the following two decades.

Too Much Cheap Labor

Concurrent with the free-trade policies of NAFTA and China, the United States allowed virtually unchecked mass immigration of unskilled people into the country. Tens of millions of people from poor countries have been competing with Americans for low-skilled jobs.

This excess labor supply is another factor in why wages have remained stagnant for so long, particularly in service jobs such as the fast-food industry.

Tectonic Shifts in the Economy Underway

At least two of these three factors contributing to stagnant wages are changing. The U.S. trading relationship with China is undergoing a tectonic shift. The trade war, which includes high tariffs on Chinese manufactured goods, is making Chinese goods less attractive.

That’s already helping some U.S. manufacturers bring their factories back to the United States. It also means hiring Americans, leading to a tightening supply of labor.

On the immigration front, the labor supply is contracting as well. President Donald Trump’s immigration policies, though not perfect, have slowed the influx of immigrant labor. In fact, as The New York Times reports, immigration is at its lowest level since 2008.

Other people who are still in the labor force, but aren’t captured by the headline unemployment figure have given up because of automation, immigration, and factory offshore relocation. These discouraged workers don’t want to work or their skillset is now so obsolete they can’t work anymore.

At the same time, the U.S. economy is enjoying the most business-friendly environment in decades. Cutting corporate tax rates and regulation has led to an explosion of business activity and economic growth.

All of these factors, as well as others, have led to a highly competitive labor market. As noted above, wages lag behind economic growth, but sometimes, however, they catch up later on, often with a surprising bounce.

The big question, of course, is whether or not Taco Bell’s $100,000 experiment proves to be a profitable one. Is Taco Bell’s $100,000 offer an indication that wages are bouncing up?

If it pays off, then it may have a widespread impact on the service economy as a whole.

Swapping College Debt for Income

In the short run, we could expect to see talented and apparently underpaid fast-food managers jumping ship from competitors to go to work for Taco Bell. But in the longer term, we could see compensation in other service industry jobs—particularly highly lucrative ones—rise much higher than it has in the past.

Of course, price rises would also likely occur. Much may well depend upon the labor supply going forward. But with the possibility of earning $100,000 per year, Taco Bell management spots may become the next career trend for millions of Americans.

Who needs the six-figure debt of a college education when you can earn six-figures at Taco Bell without a college degree, just working your way up the good old-fashioned way?

James Gorrie is a writer and speaker based in Southern California. He is the author of “The China Crisis.”

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.