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Let's run the numbers - inflation isn't caused by labor [1]
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Date: 2023-11-01
The headline on the Wall Street Urinal (WSJ- I didn’t get paywalled but it might be there) here is now:
Chipotle’s Labor Costs Are Rising. Customers Will See It in Pricing. The fast-food chain plans to offset higher labor costs in California with price increases
Let’s run the numbers (from Google)
Chipotle Mexican Grill annual operating expenses for 2022 were $7.474B, a 10.86% increase from 2021. Chipotle Mexican Grill annual operating expenses for 2021 were $6.742B, a 18.4% increase from 2020. Chipotle Mexican Grill annual operating expenses for 2020 were $5.694B, a 10.74% increase from 2019. From Macrotrends.net
Ok, so total expenses went up just under $1.5 Billion in 2 years — that must mean that employee wages must have gone up ¾ of a billion dollars to be a major contributor, right?
Well, also from Google, the numbers don’t support that. Seems labor is just a drop in the bucket. The report is:
The Newport Beach, Calif.-based company spent $616.3 million on labor globally for the quarter ended Sept. 30, up around 10.5% from the prior-year period and a more than 50% increase from the same period in 2020 From Wall Street Journal
So, expenses went up $1.5 billion since 2020 and labor costs are up a ‘massive’ $320 million — making a guess from the round numbers above.
That is 21% of the total increase — if we add a 100% margin on labor costs (really?) that is still less than 50% of the increased expenses. Please, that means that over 50% of the inflation push is non-labor.
BTW, executive compensation for Chipotle’s top 6 executives, including equity compensation was almost 9% of the $616 total labor cost. Or the CEO’s compensation in Salary.com was shown this way:
CEO Pay Ratio For its 2022 fiscal year, CHIPOTLE MEXICAN GRILL INC, listed the following CEO pay ratio data on its annual proxy statement to the SEC. CEO NAME CEO PAY MEDIAN EMPLOYEE PAY CEO PAY RATIO BRIAN NICCOL $17,190,000 $16,010 1074:1
Yup, it’s those $16,000 dollar a year greedy bastards causing the problem.
To close, I would like point people to an interesting academic paper by Kuochih Huang, and Chyi-Horng Lu — www.umass.edu/… — that says:
Analyzing a sample that matches firm, manager, andworker information in the U.S. economy over the period 1992-2016, we showthat higher equity-based pay is associated with lower average wages acrossvarious measures of pays and model settings. Using a novel instrumentalvariable strategy based on a tax policy change, we provide evidence thatan increase in the CEO’s equity-to-salary ratio by one unit, say, from 1:1to 2:1, leads to a 4% decline in the average wage
So, how do we push back on this gaslighting?
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