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Impact on Lodging Industry Of Federal Minimum Wage Increase To $10.10

Increasing the minimum wage to $10.10 could significantly impact the lodging industry across the United States particularly in states where the minimum wage is currently at the federal level of $7.25 per hour.  In order to better understand the potential impact of raising the federal minimum wage by $2.85, nearly a 40% increase, WageWatch analyzed wage data in states with current minimum wage rates below $8.00 per hour for which it has current and statistically valid data in its PeerMark™ Compensation Survey.

In all markets analyzed, with few exceptions, the proposed minimum wage increase of $2.85 raised the average and median pay for entry level positions in the lodging industry and would lead to what is referred to as wage expansion. This condition typically occurs when employers raise the  wages of  current line employees, supervisors and managers to compensate for the effects of wage compression caused by the higher-than-normal wages of new employees.

The issue of wage expansion and the negative effect it would have on the lodging industry is best illustrated by examining how it would affect the lodging market in a few states.  Below is WageWatch lodging industry data presented from two states for purposes of explaining the negative impact of wage expansion: Ohio, and Texas. We analyzed the front desk department in the select service market segment. The following table depicts the wages and average increase percentages to $10.10 per hour for line staff and the same increase percentage applied to supervisors and managers in order to maintain the current percent differential between supervisor and subordinates pay levels.

pay compress2 

Increasing the minimum wage to $10.10 would result in all line staff positions receiving a raise.   This would mean the starting rate for new employees would be the same as that paid to current employees with more seniority, experience, and/or high performance levels unless additional pay increases were given to compensate for the base increase. In order to maintain reasonable differentials in the pay scales for job duties, performance and experience, additional pay increases would be required.

This scenario would be repeated throughout the United States and would continue on up the pay scale as more technical positions such as maintenance techs and their supervisors, who are currently paid above the proposed minimum wage, would need to receive pay raises in order to have wages reflect their knowledge, experience and job responsibilities.

In conclusion, the unintended consequences of increasing the minimum wage to $10.10 on the lodging industry would have far reaching ramifications that could result in potential supervisor and management employee dissatisfaction due to increasing pay compression, therefore possibly leading to increased turnover, disruption in operations and ultimately to room rate increases for travelers.

WageWatch, Inc. is the leading compensation survey provider for the lodging and gaming industries with 6,000 properties participating in its PeerMark™ Wage Survey. WageWatch also conducts compensation surveys for other business and industry segments including healthcare and non-profits. The PeerMark™ Wage Survey is the only Web-based custom survey tool that allows individual survey participants to select their competitive set for comparison purposes.

This entry was posted on Thursday, March 20th, 2014 at 6:12 AM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.