Kevin Rezvani grew up in kitchens: spending summers at his grandfather’s bakery in Japan, doing work-study in his college cafeteria, and working for years as a cook in mid-range restaurants, along with some stints in fast food.
In his late 20s, Mr. Rezvani’s biggest takeaway from his experience “working on all kinds of things in food” was the industry’s widespread inability to reconcile the art of the kitchen and the science of a restaurant with math. of a business.
Too many ventures, he says, aren’t profitable enough to justify all the hours of work required of managers and employees to stay afloat, let alone grow. In other words, they lag behind in productivity.
“There’s a very fine line between doing well and doing well in this business,” said Mr. 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 graduating. But in early 2020, they broke up with him due to personal and professional differences and he was on his own.
To pay the bills, he worked at a moving company and made deliveries for Amazon, which was booming during the lockdown as people staying at home spent their disposable income on goods.
These kinds of businesses, Mr. Rezvani noted, are unadorned, lean and strict about how many machines or man-hours are needed per order. Looking for a second shot at opening a restaurant, he maximized the performance of his North Star: “I was like, ‘I’ve got to make this all 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 for tenants after the pandemic, discounted him and his new partner. They had to climb to make the bail, but they believed in their bet.
“I maxed out my credit card,” Mr. Rezvani said. “And it struck.”
7th Street Burger opened in May and quickly took off, with a minimalist menu, square footage and a limited set of ingredients and products. From 40 employees 16 months ago, it has grown to a chain with 330 employees in 13 locations and plans a national expansion.
Some of the city’s fancier full-service restaurants with long overhead lists, a fluctuating workforce and a set of rarely-chosen menu options are “making $200 an hour” in sales, Mr. Rezvani argues. But on a good day, he can make $2,000 an hour “with three guys on the grill, with three items on my menu, nine ingredients in my restaurant.”
“We are a cash machine,” Mr. Rezvani said.
Looking for a Win-Win
7th Street is the kind of success story that exemplifies the nascent productivity boom the US economy has experienced over the past year or so, after a dip in 2021 and 2022.
Economists usually measure productivity as a simple ratio: the total amount of output an economy produces per hour worked by its workforce. On that score, productivity grew 2.7 percent in 2023, according to the Bureau of Labor Statistics, and in the last two quarters it has grown at more than double the rate from 2005 to 2019.
On a less technical level, productivity can generally be explained by the old maxim about “doing more with less” or the folk virtue of “getting the most bang for your buck.”
Economists tend to heave a sigh of relief whenever they see a gain in productivity because it offers a potential win-win for workers, customers and business owners: If businesses can make as much money or more in fewer hours of work, then — according to standard economic logic — they can earn more per hour, reinvest in operations, and pay workers a bit more without sacrificing profitability (or rely on price increases to boost profits).
As Joseph Brusuelas and Tuan Nguyen, economists at consulting firm RSM, put it in a note in late January: “The rise in US productivity over the past year, if sustained, is a potential game-changer for the economy that represents this fabled upturn tide that raises everyone’s standard of living’.
In recent history, the trade-off between productivity growth and increases in workers’ pay has been uneven. Many economic models suggest that if workers begin to double their daily or hourly output, they are likely to be paid roughly twice as much as before. From 1979 to 2022, however, productivity increased by more than four times the inflation-adjusted 14.8 percent increase in earnings for average nonsupervisory workers in the private sector, who are about eight in 10 people in the labor force. potential.
But so far in this cycle, productivity has acted like a secret sauce, allowing the other ingredients of what analysts call a “soft landing” to co-exist: slowing inflation, robust economic growth, strong wage gains and near-low unemployment record levels.
“Pandemic-related labor shortages have caused many businesses to think about how they can use labor more efficiently,” said Dean Baker, an economist at the Center for Economic and Policy Research, a labor-focused think tank in Washington. “So I’ll be optimistic about productivity for the first time in my life.”
A growing number of companies in finance, manufacturing and logistics are offering digital tools that—even without cutting-edge AI capabilities—seem to offer the incredible promise of working “smarter, not harder” and reducing drudgery.
Ycharts, a company founded in 2009, sells a platform on which users visualize complex financial market data and then create elegant, customizable charts and portfolios. After recent updates, the company reported that its financial advisory clients saved more than twelve hours on average per week from the busy work of data analysis.
There has also been a rapid overall shift to business belt-tightening from 2021, in response to either higher borrowing costs driven by higher interest rates or an expected slowdown in sales. And this has affected a number of investors as well as entrepreneurs who have participated in the surge in business creation that started in 2020.
“There’s more pressure on businesses than ever to get to profitability as quickly as possible,” said Katie Tyson, 37, founder of Hive Brands, a new online retailer that curates, vets and sells sustainable food and wellness brands.
Although she calls Hive “a child of the pandemic,” having started in 2020 when borrowing was still extremely cheap, “we were very cost-conscious, I think in a way that the start-ups of the 2010s weren’t,” Ms. . Tyson added. “It’s no longer growth at all costs.”
Businesses also appear to be responding more quickly to shifting consumer habits. A greater emphasis on delivery and takeout orders, for example, has increased profit margins for many food businesses. Retail analysts report that better targeted advertising and growth in e-commerce have helped businesses large and small. And champions of hybrid and remote work options argue that these models reduce wasted commuting hours and help executives tap into the best of a talent pool regardless of location.
The fruits of a tight labor market
Productivity data can be misleading. His basic calculation—output per hour—worked best when America was an industrial and agricultural society, producing mostly bushels of wheat or nuts and bolts for manufactured goods, versus the more difficult-to-quantify service-oriented consumption that makes up most of today’s economy. economy.
Data can be particularly misleading when measured over short periods.
For example: Did the entire US economy really become 20 percent more productive in the second quarter of 2020 year-over-year, as a nominal reading of the data would suggest? Or was it just that millions of workers were laid off in a few months while the economy shrank slightly, making the simplistic ratio of output per worker look falsely better?
Apparent leaps in efficiency may also be missing from official data or lagged for years. In 1987, Nobel Prize-winning economist Robert Solow observed that “you can see the computer age everywhere except in productivity statistics.” (A brief spike in numbers occurred in the late 1990s and early 2000s before disappearing.)
In 2016, Google’s chief economist Hal Varian told Bloomberg: “We’re definitely not measuring productivity right — but then, we didn’t measure it right before. So are we doing a worse job of measuring productivity than we used to be? I think there are some arguments to suggest that we are.”
Looking ahead, a number of market analysts argue that a critical variable for the broad improvement in productivity so far has been the unemployment rate near record lows.
Peter Williams, economist and managing director of 22V Research, an investment strategy and quantitative analysis firm, wrote in a recent note that “businesses have been forced to innovate and adapt in an environment of tight labor markets.” He added that for many companies, relying on “low-cost labor and low-cost 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 backfire. Instead, improving performance rather than reducing head count often becomes the best growth engine or competitive advantage.
Keeping productivity growth close to current rates may require efficiency gains from AI and a continued smoothing of inflation, though a number of Wall Street analysts are confident that both can happen.
For some labor economists — who have seen shareholders and business owners recapture the lion’s share of productivity gains in recent decades while wage gains have shrunk — the overriding question in the near term is whether workers will be able to get a bigger slice of the pie. this time.
Kathryn Anne Edwards, an economic policy adviser and fellow at the RAND Corporation, worries that future productivity gains may be attributed largely to technological innovations rather than worker inputs or skills, weighing on average wage growth, which has recently managed to jump out.
“Wages are determined either by power or by productivity,” Ms Edwards said. “The low wages that so many workers make are based on this notion that people are paid what they’re worth. And how exactly is that value measured?”
