
Kevin Rezvani grew up in the kitchen: he spent summers at his grandfather’s bakery in Japan, worked and studied in his university cafeteria, and worked for years as a cook in mid-level restaurants, plus a few stints in fast food.
When he was in his twenties, the most important thing Rezvani took away from his experience of “working on all kinds of food-related things” was the industry’s widespread inability to reconcile the art of a kitchen and the science of a restaurant with mathematics. of a business.
Too many companies, he says, are not profitable enough to justify all the work hours required by managers and employees to stay afloat, much less grow. In other words, they fall short of productivity.
“There’s a fine line between doing well and doing well in this business,” said Rezvani, now 36. “And if you do well, it’s not worth your time.”
He and two partners opened a casual restaurant near Rutgers University a few years after graduation. But in early 2020, they parted ways with him due to personal and business disagreements, and he was left alone.
To pay the bills, he worked for a moving company and made deliveries for Amazon, which was booming during the lockdowns as people idle at home spent their disposable income on purchasing goods.
Those types of companies, Rezvani noted, are no-frills, simple, and strict about how many machines or hours of work are needed per order. Looking for a second chance to open a restaurant, he made maximizing production his north star: “I thought, ‘I have to make all of this more efficient.’ “It’s a business at the end of the day.”
In early 2021, he spotted a restaurant space for lease on East Seventh Street in Manhattan’s East Village neighborhood. The landlord, desperate to find tenants after pandemic closures, gave him and his new partner a discount. They had to find money to make the security deposit, but they believed in their bet.
“My credit card was maxed out,” Rezvani said. “And he struck.”
With a minimalist menu, hole-in-the-wall square footage, and a limited set of ingredients and products, 7th Street Burger opened in May and quickly took off. From 40 employees 16 months ago, it has grown to a chain with 330 employees in 13 locations and national expansion plans.
Some fancier, full-service restaurants in town, with long lists of overhead costs, a fluctuating workforce and a set of rarely chosen menu options, are “making $200 an hour” in sales, Rezvani maintains. But on a good day, he can make $2,000 an hour “with three people on the grill, with three dishes on my menu, nine ingredients in my restaurant.”
“We are an ATM,” Rezvani said.
In search of mutual benefit
7th Street is the kind of success story that exemplifies the nascent burst of productivity the U.S. economy has experienced over the past year, after a slump in 2021 and 2022.
Economists typically measure productivity as a simple ratio: the total amount of output an economy produces per hour worked by its workforce. In that sense, productivity increased 2.7 percent in 2023, according to the Bureau of Labor Statistics, and in the last two quarters has been growing at more than double the rate from 2005 to 2019.
On a less technical level, productivity can generally be explained by the old axiom of “doing more with less” or the folksy virtue of “getting the most bang for your buck.”
Economists tend to breathe a sigh of relief whenever they see an increase in productivity, because it offers a potential win-win for workers, customers, and business owners: If companies can make as much or more money in fewer hours of work, then, by standard economic standards. Logic: They can earn more per hour, reinvest in operations, and pay workers a little more without sacrificing profitability (or relying on price increases to increase profits).
As Joseph Brusuelas and Tuan Nguyen, economists at the consulting firm RSM, put it in a note at the end of January: “The increase in US productivity over the past year, if sustained, is a potential game-changer for the economy that represents that mythical increase.” tide that raises everyone’s standard of living.”
In recent history, the give and take between productivity increases and worker wage increases has been uneven. Many economic models suggest that if workers begin to double their daily or hourly output, they will likely be paid about twice as much as before. However, from 1979 to 2022, Productivity grew more than four times. inflation-adjusted 14.8 percent growth in the compensation of average nonsupervisory workers in the private sector, who are about eight in 10 people in the workforce.
Still, so far this cycle, productivity has acted as a secret sauce, allowing the other ingredients of what analysts have been calling a “soft landing” to coexist: slower inflation, solid economic growth, strong increases wages and unemployment near historic lows.
“Pandemic-related labor shortages caused many companies to think about how they could use labor more efficiently,” said Dean Baker, an economist at the Center for Economic and Policy Research, a think tank focused on the I work in Washington. “So I’m going to be optimistic about productivity for the first time in my life.”
A growing list of companies in the financial and manufacturing sectors. and transport logistics are offering digital tools that, even without cutting-edge AI features, appear to offer the much-hyped promise of working “smarter, not harder” and reducing drudgery.
Ycharts, a company founded in 2009, sells a platform where users visualize complex financial market data and then create elegant, customizable portfolios and charts. After recent updates, the company reported that its financial advisory firm clients had been saving more than a dozen hours on average per week on the hard work of data analysis.
There has also been a rapid overall shift toward corporate belt-tightening since 2021, in reaction to higher borrowing costs caused by higher interest rates or an expected slowdown in sales. And that has affected a series of investors and businessmen who were part of the increase in business creation that began in 2020.
“There is more pressure than ever on companies to reach profitability as quickly as possible,” said Katie Tyson, 37, founder of Hive Brands, a new web retailer that selects, vets and sells sustainably branded foods and wellness products. .
Although he calls Hive “a child of the pandemic,” having launched in 2020 when loans were still very cheap, “we’ve been very cost-conscious, I think in a way that startups from the 2010s haven’t.” “They were,” Mrs. said,” Tyson added. “It’s no longer about growth at all costs.”
Companies also appear to be responding more quickly to changes in consumer habits. Greater emphasis on delivery and takeout orders, for example, have increased profit margins at many food companies. Retail analysts report that better targeted advertising and the growth of e-commerce have helped businesses large and small. And advocates of hybrid and remote work options argue that those models reduce wasted travel hours and Help executives employ the best of a talent pool regardless of location.
Fruits of a tight labor market
Productivity data can be misleading. Its core calculation (output per hour) worked better when the United States was an industrial and agricultural society, producing primarily bushels of wheat or nuts and bolts for manufactured goods, compared to the more difficult to quantify service-oriented consumption, which It makes up the majority of today’s economy. .
Data can be especially misleading when measured over short periods.
For example: Is the entire US economy really be 20 percent more productive in the second quarter of 2020 annually, how would a nominal reading of the data suggest? Or was it simply that millions of workers were laid off in a couple of months while the economy contracted only slightly, making the simplistic ratio of output per worker look better? spuriously?
Apparent leaps in efficiency may also go unnoticed in official data or lag behind for years. In 1987, Nobel Prize-winning economist Robert Solow observed that “you can see the computer age everywhere but in productivity statistics.” (There was a brief increase in the numbers in the late 1990s and early 2000s before going out of print).
In 2016, Google chief economist Hal Varian told Bloomberg: “We’re certainly not measuring productivity correctly, but we also didn’t measure it correctly before. So are we measuring productivity worse than before? “I think there are some arguments to suggest that we are.”
Looking ahead, a number of market analysts argue that a crucial variable in the overall productivity improvement so far has been an unemployment rate near historic lows.
Peter Williams, economist and CEO of 22V Research, an investment strategy and quantitative analysis firm, wrote in a recent note that “companies have been forced to innovate and adapt in an environment of tight labor markets.” He added that for many businesses, relying on “low-cost labor and capital is no longer an option.”
When a company needs all hands on deck to keep up with sales, using layoffs to improve results can have the opposite effect. Instead, improving efficiency rather than reducing the number of employees often becomes the best driver of growth or competitive advantage.
Maintaining productivity growth near current rates may require efficiency gains thanks to artificial intelligence technology and continued monitoring of inflation, although several Wall Street analysts are confident that both can happen.
For some labor economists, who have seen shareholders and business owners recover most of the productivity increase in recent decades while wage gains plummeted — The main question in the near future is whether workers will be able to get a bigger piece of the pie this time.
Kathryn Anne Edwards, an economic policy consultant and deputy at the RAND Corporation, worries that future productivity gains may be largely attributed to technological innovations rather than the input or capabilities of workers, weighing on growth. of average salaries, which has recently managed to increase.
“Wages are determined by power or productivity,” Edwards said. “The low wages that so many workers earn are based on the notion that people are paid for the value they contribute. And is that value measured exactly?