Factories Are Still Giving Way to Restaurants

(Bloomberg View) -- July was another fine month for jobs, with the unemployment rate falling to 4.3 percent, labor-force participation rising, and nonfarm payroll employment up by 209,000. The biggest story of Friday's employment report, as noted by the Hamilton Project (a Brookings Institution offshoot focused on economic growth), may have been that it marked the closing of the "jobs gap" that began to open up in November 2007. The gap was "the number of jobs that the U.S. economy needed to create in order to return to pre-recession employment levels while also absorbing the people who entered the potential labor force each month." Now, almost 10 years later, it's finally gone.

I have a habit of digging into the monthly employment numbers from the Bureau of Labor Statistics in search of smaller stories than that. This month the story that leaped out at me from the page on nonfarm payrolls had to do with eating and imbibing. And it's actually not all that small a story, at least in terms of the number of jobs involved.

Employment in food services and drinking places was up by a seasonally adjusted 53,100 from June, far more than any other industry subsector (administrative and support services was second, at 30,200, and ambulatory health-care services third at 30,000). That's right -- more than one-quarter of June's job gains were at restaurants, bars and the like. Restaurants, mainly: Full-service restaurants account for about 47 percent of the subsector's jobs, limited-service restaurants (fast food) 37 percent, bars only 3 percent, and an assortment of cafeterias, snack bars, caterers and "grill buffets" the rest.

Manufacturing had quite the solid July, too, with employment up by 16,000. But at the rate things are going, employment in food services and drinking places is going to surpass manufacturing employment in less than three years.

This is one of those developments that cause people to wring their hands and lament the decline of good jobs and the hollowing out of the U.S. economy. With good reason: People who work at restaurants get paid a lot less than people who work in factories.

Hourly pay in food services and drinking places has gained some ground since 1990; it was 52.3 percent of average private-sector pay and 49.8 percent of manufacturing pay then, and the ratios are 56.7 percent and 60 percent now. Also, this is pay as reported by employers, so some restaurant tip income is probably missing. And it's worth noting that overall private-sector wages are now higher than manufacturing wages: Somebody is making more money, and apparently spending it at restaurants.

For better or for worse, then, food services is one of the nation's major growth industries. This is one key reason the Democratic Party and labor movement have put so much effort lately into minimum-wage legislation (as opposed to organizing factory workers). Restaurants, where lots of people get paid the minimum wage, are where the job gains are.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

1. Subsectors are the three-digit categories in the North American Industry Classification System.

2. That is, if you assume that employment in the two sectors continues growing at the same pace that it has over the past months, food services and drinking establishments will pass manufacturing in February

3. The BLS says that employers are supposed to report bonuses, stock options, severance pay, profit distributions, cash value of meals and lodging, tips and other gratuities." But hey, if the boss doesn't know ... ...

To contact the author of this story: Justin Fox at justinfox@bloomberg.net.

To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net.

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