Hotel industry grapples with minimum-wage hikes

The federal minimum wage in the U.S. is $7.25 an hour, but that doesn't mean everyone adheres to that amount. In fact, 29 states and the District of Columbia pay a minimum wage that is higher than the federal one. Because these plans already are set in stone, and other states are at the bargaining table to follow suit, hoteliers are wondering how these increases will impact the overall industry and their ability to pay their employees—or even keep their doors open.

The Illinois Hotel & Lodging Association voiced its opposition to one such minimum-wage increase in February. Illinois passed an initiative to increase the state’s minimum wage to $15 an hour by 2025, which is in line with the targets set by a number of states. IH&LA President/CEO Michael Jacobson said that such an increase may be necessary in large cities such as Chicago, but he expressed concern that many hotels throughout rural Illinois will be burdened by the increase and may face financial hardship going forward.

“There is a common misconception that hotels are cash cows and are generating huge profits. If you look property by property, the profit individual hotels generate is razor thin,” Jacobson said. “If you decrease that profit margin ... many may have to consider cutting back or even closing their doors.”

Jacobson is in favor of raising minimum wage based on economic factors related to geography and an area’s median cost of living. Liz Washko, shareholder in the Nashville office of labor and employment law firm Ogletree Deakins, said employers already are grappling with rising materials costs in all aspects of business, from construction to restaurant purchasing, as well as increasing healthcare costs. A rising minimum wage, she said, will have an adverse impact on the entire hotel business.

“Some hoteliers will be positioned to adapt to this, but you will see some businesses close,” Washko said.

Following a workers strike organized by Unite Here in 2018, the Westin San Diego agreed to raise its employees' minimum wage to $24 an hour by 2022. Photo credit: Marriott International

Monster Under the Bed

Dave Morrison, principal at Chicago law firm Goldberg Kohn, is skeptical of just how much potential minimum-wage increases will impact hospitality. He pointed out that the American Hotel & Lodging Association already claims that the hotel industry consistently employs workers above the minimum wage, so he doesn’t think other increases will have a dramatic result on the industry’s operations.

Morrison also chose to dispel rumors that a higher minimum wage would discourage future hotel development, pointing specifically to Seattle. There, the minimum wage was increased to $11 an hour in 2015 for companies with more than 500 workers, and has reached $16 per hour as of January 2019. According to data from Lodging Econometrics, Seattle had 15 hotel projects under development in Q4 2014—that number reached 27 projects in Q42016 and 23 projects by Q4 2018. While this is just one area of the country, and a large city to boot, Seattle has seen an overall increase in its development pipeline.

Minimum-wages increases also may increase competition for workers from neighboring states, Morrison said. As Illinois’ minimum wage increases, neighboring states such as Iowa, which retains an average minimum wage of $7.25 an hour, may see difficulty attracting workers. This problem is further complicated in areas with a high cost of living.

“One interesting phenomenon we have is that in high-cost, touristy areas hotel companies are having a harder time finding people to work in their hotels because the cost of living is so high,” Morrison said. “There is no one-size-fits-all solution, and I appreciate the concerns that are expressed by more rural locations regarding these increases.”

Seattle has been at the forefront of the effort to increase minimum wages. Photo credit: Getty Images/SEASTOCK

Never Enough

On the other hand, some consider a $15 minimum wage to be too little. Unite Here, a labor union in the U.S. and Canada with more than 265,000 active members, successfully organized a series of strikes against multiple Marriott International hotels in 2018, and at the Westin San Diego the union negotiated a $24-an-hour wage that will go into effect by 2022.

“The idea that the minimum wage is a living wage is a falsehood. There should be no rush to the bottom, and we can do better,” said Unite Here press secretary Rachel Gumpert. “Even $15 an hour doesn’t cut it in most major cities, especially in North America. In San Francisco, $15 an hour can leave people on the brink of homelessness. The floor should not be set so low.”

Despite scheduled increases in minimum wages already approved throughout the U.S., Washko said she anticipates tensions between employers and employees seeking greater pay and benefits to persist. However, Gumpert is adamant that the hospitality business is capable of offering workers what they demand.

"We negotiated with Marriott first because they are the biggest in this space, and if Marriott wouldn’t agree to our standards than no smaller organization would follow suit,” Gumpert said. “The challenge for employers is that if they aren’t solvent enough to pay employees a living wage, they can’t afford to run their business. Workers take pay cuts and pay freezes after every economic downturn. Now we are in a positive period, and they haven’t seen any benefit.”