Study of extreme increases in compensation warns of job cuts

New York – The American Hotel & Lodging Association (AH&LA) and the Asian American Hotel Owners Association (AAHOA) revealed the results of a recent national study investigating the impacts of extreme local wage initiatives at the NYU International Hospitality Industry Investment Conference.

The study, “Extreme Wage Initiatives and the Hotel Industry: Impact on Local Communities and the Nation,” was conducted by John W. O’Neill, Ph.D., director of the School of Hospitality Management at Pennsylvania State University. It looked into the impact of potential wage increases being pushed for in local communities. The report focused its energies on one national market, Los Angeles, and one local market, Biloxi, Miss.

Looking at Los Angeles, where a proposal is in place to increase wages to $15.37 per hour, the results of the survey found that 1,394 hotel staff positions could be lost with this rise in compensation. “Los Angeles is a vulnerable city,” O’Neill said. “Unemployment is already at 10 percent in that city.”

Katherine Lugar, AH&LA president and CEO, highlighted local, union-based hotels as the primary sources of the wage increases. “The very folks these unions want to help could have their jobs at risk,” Lugar said. “No industry embodies the American dream like the lodging industry. Employees in this industry can work their way up from any position, and they have been able to enjoy this success because of the flexibility their employers have in setting wages and benefits.”

According to O’Neill, Biloxi was chosen as one of the markets to investigate because it operates as a cheap alternative to New Orleans. According to O’Neill, the increase in wages that hotel unions are campaigning for will result in higher rates at Biloxi properties without an increase in demand to offset them. This would result in Biloxi losing its competitive advantage over New Orleans—lower prices—without adding anything to the product.

The key word in the report is “extreme,” characterized by hotel unions’ collective push for wages in excess of $15 per hour. However, the report also investigated increases to $10.10 per hour as compared to $15 per hour, a number similar to one proposed by Senator Tom Harkin (D-IA) that was blocked in the Senate.

The report found that an increase of $10.10 per hour nationally could cost the lodging industry $2.5 billion, 12,195 hotel staff positions, $612.3 million in annual guestroom revenue, $70.4 million in lost hotel occupancy taxes, $146.2 million in lower corporate taxes and a loss of $1.02 billion in hotel values nationally.

O’Neill recognized the benefits of raising wages on the worker’s behalf, but said that the hotel industry would not benefit from the increases.

“If wage increases like this were to be implemented nationally, there will be more informal work to fill in the gaps left by unemployment,” O’Neill said. “More work under the table, and that means less earnings, no worker’s comp and no unemployment benefits.”

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