Thursday, June 16, 2011

The Economics of a Free Lunch

I recently began a job where -- as a perk -- there is a "free" lunch available every day. Not only do we not have to pay for it (at the margin, at least), but the lunch is high-quality food. It usually includes a salad, soup, your choice among multiple main course offerings, a fruit dish and dessert.

On its face, this seems like a contradiction to the oft-repeated economics maxim, "There Ain't No Such Thing as a Free Lunch." It's not. After all, the company has to pay for the food and the catering services (setting the food out and cleaning up afterwards). There is also a special room where they set out the food. That room has an alternative purpose, which creates some opportunity cost to using it as the place where we pick up our free lunch. All of this is to say that my "free" lunch isn't a "free lunch."

But, this lack of free-ness raises an interesting related question. Why would the company provide the lunch in the first place? It is too easy/fuzzy to say that providing the free lunch builds employee morale. Even if it does, does employee morale necessarily benefit the company? Though plausible, I don't believe it. I also don't believe that the company is doing it to boost employee health through paternalistic food provision. There's plenty of good-for-you food, but also some bad-for-you food (and no prices to keep you away from taking two cookies instead of one).

I think a better explanation is that the free lunch makes lunchtime more efficient. Because everyone partakes in the provided lunch, there's no rush to a crowded elevator to go find a big restaurant/ cafeteria nearby. Employees don't waste time going to and from some eating establishment in the middle of the workday. To the extent that the company values the employee's time around lunch, it makes sense to help employees economize on time by making lunch available just down the hall. And, just to be sure that this is everyone's best option, the company throws the food in for free.

In the end, the company benefits because workers get back to work sooner than otherwise and employees get a wonderfully-prepared lunch that is delicious and as nutritious as they choose without having to search for it. That's not a bad deal all around.

2 comments:

  1. They are also getting around at least one tax, possibly more. Paying part of the employee's wage in benefits like free food circumvents income tax. It's also possible they're avoiding sales tax.

    Given that food is a significant portion of people's expenditures, the savings could add up to a lot!

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  2. Excellent point, Xan! It is almost a month later and I am sure they've paid me a hefty sum in food. Not only do they provide lunch, but they have dinner as well (an incentive to stay late?).

    (I have been meaning to comment on this excellent point sooner, but I guess I haven't gotten around to it until today).

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