Labor shortage gives retail and restaurant workers the upper hand—for now

Key Points
  • For many low-wage workers, the tighter labor market means that the tables have turned with employers.
  • Companies including McDonald's, Target and Walmart are offering more pay or new perks to try to recruit and retain employees.
  • Some union leaders and industry watchers, however, wonder if workers' bargaining power will last and say that the jobs still fall short in offering financial security to families.

In this article

Denny's Mobile Relief Diner
Source: Denny's

Restaurant chain Denny's recently mobilized its 53-foot kitchen truck. But instead of serving up pancakes and coffee to natural disaster victims, as it usually does, it had a different mission: a nationwide hiring tour.

Employers are going to new lengths to attract workers. CVS Health dropped its requirement that entry-level job candidates have a high school diploma. And Walmart is doling out bonuses to warehouse workers for staying on the job this summer and fall.

For many low-wage workers, the tighter labor market means that the tables have turned with employers. Companies' desire to quickly fill job openings has taken on more urgency, as retailers gear up for the holiday season and restaurants race to make up for months when they had to temporarily shutter or they saw sales crater. That has meant bigger paydays and perks for employees.

In recent months, Chipotle Mexican Grill has raised hourly wages and introduced referral bonuses, while McDonald's is chipping in millions of dollars to help its franchisees pay workers more and even piloting an emergency child care program. In the last week alone, Walmart, Target and CVS Health have all announced moves to try to woo new workers and retain current ones.

"We're in a situation where the bargaining power and the labor market has shifted toward job seekers, especially in recent months," said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.

Several data points paint a picture of those changing dynamics. Job openings in the U.S. hit a record of more than 10 million in June. Quit rates have grown the fastest among industries often associated with lower pay, led by the leisure and hospitality industry and followed by manufacturing and retail trade, according to Indeed's analysis of Bureau of Labor Statistics data. And for the first time, the average wage of restaurant and supermarket workers rose above $15 an hour, according to the BLS.

Unemployment rates for eating and drinking places and the retail industry are higher than the overall U.S. rate of 5.4%, at 8.4% and 6.4% respectively, as of July, according to the Bureau of Labor Statistics.

CVS Chief Executive Karen Lynch said the competitive environment forced the drugstore chain to put plans in place to boost its minimum wage from $11 an hour to $15 an hour by next summer. It is also giving a raise to higher-paid employees, such as pharmacy technicians.

"There is a very tight labor market, and we are addressing that with our overall wage increase," she said Aug. 4 on CNBC's "Closing Bell."

Likewise, McDonald's announced an average of 10% higher wages for hourly restaurant workers at company-owned locations in May and encouraged its franchisees to take similar steps. The fast-food giant operates roughly 5%, or about 650, of its U.S. restaurants.

McDonald's U.S. Chief People Officer Tiffanie Boyd said the move is already paying off. She said that in June, the last full month of data available, the burger chain had its "largest month of hires in the last couple of years."

Target is rolling out a new perk this fall: A debt-free college education for part-time and full-time workers. CEO Brian Cornell said it's one way that Target aims to be an industry leader for retail pay and benefits.

"We think it can make a big difference for our teams and just make sure Target is a preferred place to work," he said on CNBC's "Closing Bell."

So far, more than 10,000 employees have signed up to get more information about the program, which launches in the fall, company spokeswoman Shandra Tollefson said.

A Sonic restaurant displays a "Now Hiring" sign in Tampa, Florida, U.S., June 1, 2021.
Octavio Jones | Reuters

An upper hand

At meatpacking plants and supermarkets, employers' struggle to find workers has given unions an upper hand in contract negotiations, said Marc Perrone, the president of the United Food and Commercial Workers International Union. The union represents about 1.3 million people at companies including Kroger, Albertsons, Macy's, Tyson Foods and CVS.

He said the union has had better luck pushing for higher pay, workers have been able to pick up more hours and companies have maintained or sweetened their employee benefits. Some of that he chalked up to the union having a voice at the table, but he also attributed it to the broader economic landscape.

"People have come to the conclusion they're worth more money, and that has helped raised the floor with wages," he said.

Plus, he said, the risk of getting Covid-19 opened employees' eyes and caused some to opt out of the industry. Some waited on the sidelines as they received unemployment payments that were higher than their wages. Others looked for different careers that allowed them to work from home or interact with fewer strangers.

'Superficial posturing' or lasting change?

Yet for some retail workers, the higher wages and perks feel both overdue and not enough. Adam Ryan, a Target store associate and a liaison for the employee coalition Target Workers Unite, said the corporate announcements only look good because the standards of the retail industry are so low.

Watch CNBC's full interview with Target CEO Brian Cornell
Watch CNBC's full interview with Target CEO Brian Cornell

Target raised its minimum wage to $15 an hour last summer, a goal that the company had worked toward for years. Starting this fall, the retailer said, it will cover all of the costs of college tuition and textbooks for part- and full-time workers who pursue a qualifying undergraduate degree at more than 40 institutions. It will also pay up to $10,000 each year toward advanced degrees.

Ryan, who works part-time at a store in Christiansburg, Virginia, said he sees those changes as "largely superficial posturing." For instance, he said, even as retail workers get a higher starting wage, some of his coworkers have struggled to get a full-time work schedule that provides a steady income and qualifies them for health benefits.

Rising inflation also means that higher paychecks won't stretch as far. In July, consumer prices rose 5.4% compared with a year earlier, according to the Department of Labor.

"If they announce that they're going to start paying $20 or $25 an hour tomorrow with full-time status, I guarantee you that there would be a lot more applications coming in," Ryan said.

Target said in a statement that it has focused on providing employees with more hours, reliable schedules and career opportunities. It said it has "been working one-on-one with team members" on that for the past year.

Indeed's Bunker said he believes the balance of power is still on workers' side — for now. Companies may be less willing to spend more if Americans opt back into the workforce and get on the other side of a hiring spree.

Enrique Lopezlira, the director of the low-wage work program at the University of California Berkeley Labor Center, said that while some hourly workers have enjoyed the new incentives, others remain boxed out because of health concerns and other pandemic-related challenges, such as a lack of child care.

New uncertainty

Companies and workers face new uncertainty — and tough judgment calls — as the delta variant of the coronavirus leads to a wave of Covid-19 cases and hospitalizations in parts of the country with low vaccination rates, such as Florida and Texas.

"There's definitely concern that if the delta variant continues to spread and we're not able to contain it as well as we'd like, that some of the same groups that were affected the most by the pandemic — women and workers of color — who are still struggling to recover will suffer a double hit," Lopezlira said.

Many retailers and restaurants cut their Covid-related sick pay months ago. McDonald's, Target and Walmart are among the companies that have reinstated mask mandates in counties with high Covid transmission rates, but the burden is on the employees to enforce the policy among customers.

Some employers, such as Tyson Foods, have imposed vaccine mandates for their workforce. But retailers and restaurants have largely shied away from similar policies because of concerns that a mandate could spook some job candidates or lead to higher quit rates.

For instance, Walmart is requiring corporate employees to get the vaccination — but is not requiring store or warehouse workers to be vaccinated.

In New York City, restaurant workers will have to prove that they've had at least one shot of the vaccine, in addition to checking indoor diners' proof of vaccination.

Tilman Fertitta, Landry's CEO and Houston Rockets owner, said on CNBC's "Power Lunch" on Aug. 3 that the debate over such mandates has once again put restaurants in a tough spot. He said he wants everyone to get vaccinated but has held back on requiring the shots because of fear of losing workers.

"I have not mandated it yet, because I would lose probably 18% of my workforce and have to shut down," he said.

Everybody needs to get vaccinated, says Tilman Fertitta
Everybody needs to get vaccinated, says Tilman Fertitta