Productivity boom?

Riffing on the theme of service shrinkflation, or why hotels are different than manufacturing

• turn down service optional (and the shocking rise of labor costs in hospitality)

• the “short-staffing” productivity lever, or why certain industries did not get more productive

• a general purpose technology to the rescue

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Productivity boom?

Let’s say you had some doubts about whether we’re really getting more productive, or just harder to measure.

Let’s also say that you had a theory that at least some chunk of our “productivity” gains are really short-staffing, or service-shrinkflation in disguise. It’s not just that your Continental Breakfast has been reduced to a box of cheerios, but also your turn-down service is now every other day (with no discount to price, of course).

Let’s say that you’d be inclined to say those things . . . how would you cherry pick some charts to further illustrate those points?

Well, I’m so glad that I asked.

Consider the following.

Turn-down service, optional

Hotels must be one of the most innovative industries on the planet.

For hotels, labor costs have been growing more quickly than everything else:

STR - Costar

Labor costs have been running steadily 6-8% hotter yoy.

Labor costs are growing faster than revenue, and certainly more than profits, which are growing, albeit barely.

Now, I know very little about hotel operating margins (or hotel operating anything), but I do know they’re pretty labor-intensive, and I have a pretty good sense that hotels have not kept headcount stable, in-line with demand.

Atlanta Fed

Total payrolls for leisure and hospitality are well-below trend.

So, fewer workers, but still growing revenues. Let’s stipulate then, that hotels are doing more with less (to counteract the effects of higher wages). How have they done it?¹

Obviously, hotels have gotten more “productive,” using some combination of actual process and tech improvements. Sure. But, I mean, these are hotels. They do some self-check-in, and . . . what else can they really do?

Presumably, the real source of the hotel productivity magic is a healthy dose of short-staffing. Again, less turn-down, fewer towel-changes, self-serve breakfast in a box, etc. etc.

I mean, with that kind of wage growth, how could they not?

And most importantly, it’s consistent with my broader view that services (especially high-touch services) are just a bit worse now, in the sense of ‘bang-for-the-buck’ (which is the point I’m hand-wavingly attempting to demonstrate).

Using the “short-staffing” productivity lever

Another point in favor of “it’s actually just less bang-for-the-buck,” as opposed to real productivity gains (for the most part), is which industries are generating the supposed gains.

If you look more broadly at where “productivity” gains have come from, it’s tech mostly, and then retail and hospitality: