Sorry, Mr. Puzder: no correlation between exchange premiums and restaurant employment

December 9th, 2016 at 10:04 pm

My colleague Ben Spielberg made this neat scatterplot today in reference to a claim by Labor Secretary designee Andrew Puzder. Puzder claimed that a “government mandated restaurant recession” was caused by rising premiums in the Obamacare exchanges. The idea is that consumers, after paying for health coverage, didn’t have enough left to go out to eat.

If so, we should see restaurant employment falling – or, at least, growing more slowly – in states where Obamacare premiums rose. But, as the scatterplot reveals, there’s little correlation at all between these two variables (and what there is goes the wrong way for Puzder’s case).

There are lots of reasons for that non-correlation, not least of which is that the vast majority of Americans do not get coverage through the exchanges–only 7% obtain coverage through the non-group market. See this Scheiber/Strom piece in the NYT for more details.

As I said therein: “We see different goals between a business owner trying to hold down costs and a national policy maker who ought to be focused on making sure that the benefits of growth are fairly and broadly shared. For a guy like Puzder, suppressing labor costs is a good day at work. For the labor secretary, that’s not the goal.”

Sources: HHS, BLS

Sources: HHS, BLS


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6 comments in reply to "Sorry, Mr. Puzder: no correlation between exchange premiums and restaurant employment"

  1. Robert Salzberg says:

    Most people signing up on the exchanges also get subsidies which, on average, are designed to completely offset the premium increases so the rising premiums had zero effect on their net premium costs.

  2. dwb says:

    “If so, we should see restaurant employment falling”

    Not really. Local places around here have started putting tablets (and other technology) at tables so that they can cut labor costs. In other words, productivity. Plus, employment growth will not only be a function of productivity, but expected future sales growth. Business will not add permanent staff or expand unless they think sales growth is permanent.

    I generally agree that Puzder’s claims are likely exaggerated, and I am not even sure there is a “restaurant recession” – but his claim would show up in restaurant revenue, not employment.

    There is in fact a minor economic indicator (Restaurant Performance Index, see here:

    To be completely fair and balanced to Puzder, and intellectually honest, restaurant performance does track disposable income and consumer confidence. Healthcare premiums might be one factor, but there would be a lot of other factors as well – wage growth, housing/rent costs, etc. And premiums themselves might not tell the story if people are choosing to pay the penalty.

    So I would probably give Puzder’s claim 2 Pinocchio, but definitely not based on your graph.

  3. SPENCER says:

    The BEA publishes monthly data on nominal and real restaurant sales. It is part of the data used to compile the real GDP data and is reported in the BEA estimate of nominal and real retail sales.

    The BLS publishes monthly data on restaurant employment and the restaurant average workweek. One can use this data to compile an index of restaurant sales per restaurant employee. It is not exactly productivity because the sales data is gross rather than net. But it is close enough to be a good first approximation for productivity. I’ve calculated this series back to 1992 and set it equal to 100 in Jan. 1992. The current value is 97.4 and it has almost never been value.above its 1992 The only times restaurant employment growth has turned negative has been in recessions when total employment was also negative. Typically, restaurant employment significantly outpaces total employment growth.

    Not only is restaurant labor cost rising but up to the last few months meat prices have been rising faster than restaurant prices. Finally, real restaurant sale growth has slowed from a peak of over 6% in 2015 to only 2.3% in October, 2016. Both real average hourly earnings and real income growth has slowed to almost half the rate they experienced last year. But this is due primarily to weak employment and weak real average hourly earnings growth.

    These factors are probably why the S&P 500 index of restaurants stock has significantly under-performed the stock market this year. Interestingly, the relative performance of restaurant stocks has a positive correlation with real average hourly earnings. This implies that the demand impact of high wages has a greater positive impact on restaurants than the negative impact on restaurant costs.

  4. Procopius says:

    Puzder’s restaurants have been losing money in the last three years. He refuses to admit this is because he runs lousy restaurants because he underpays and overworks his employees. He thinks all restaurants are suffering. They are not.

  5. Smith says:

    If you spend the next four years disputing the ridiculous arguments of Trump and his minions, you will lose the next election (midterm, presidential, take your pick). This is how you just lost the last one.
    What will be needed is evidence and data to support a progressive agenda.
    a) How will the natural experiment in New York and California where the minimum of $15/hour is being phased in, play out?
    b) How would a new tax plan that eliminates the deduction for state taxes impact the progressive states of New York and California?
    c) Republicans plan to repeal Obamacare by keeping Obamacare, postponing the day of reckoning. A campaign that repeats this over and over again needs to begin. A twitter war or something, making fun of Republicans of getting rid of Obamacare by keeping it.
    d) The Republicans need to be threatened with a body count. Deaths caused by withdrawal of Obamacare. Deaths caused by the next category 5 hurricane or typhoon. Deaths caused by Soviet incursion into Baltic states.

    Probably the most important part of the new tax regime is how it will raise taxes on the middle class and balloon the deficit. At this point the Democrats should be calling for a balanced budget. There should be a Trump debt watch.

    Trump is raising your taxes.
    He’s giving your money away to big corporations.
    He is exploding the deficit.
    He is keeping Obamacare.

    Try that.