The Impact of the Minimum Wage on the Hotel Industry

By Christian Hardigree Founding Director, Michael A. Leven School of Culinary Sustainability, KSU | December 10, 2017

In yesteryears, one could easily navigate the legal requirements by simply consulting the federal rules to determine payment guidelines. Today, the landscape requires more savvy negotiation in order to avoid the legal pitfalls of municipal, state, and federal regulations, many of which vary from jurisdiction to jurisdiction. As stated above, one area that will see significant changes over the next five years relates to state minimum wage laws in the United States and is worth careful consideration.

Long-Standing Debate

Minimum wage laws have been debated since conceived, and the context of when to increase the minimum wage – and associated factors – the subject of debate and fodder ranging from traditional media to academic research articles and studies. In 1994, two economists, David Card and Alan Krueger, published a case study of the fast-food industry comparing the effect in Pennsylvania to New Jersey at a time when New Jersey was increasing their minimum wage from $4.25 (the then-current federal requirement) to $5.05 per hour. Their study analyzed the longstanding conventional economic theory rooted in the work of George Stigler in 1946, and supported by later studies in the 1970’s, that increasing minimum wage would result in a decrease in employment.

Both Card and Krueger had analyzed the correlation of employment and increased hourly wages in other studies, but the unique factors of the New Jersey study – particularly that the wage increase occurred during a recession and New Jersey was experiencing a higher-than-normal unemployment rate – ultimately led to an argument of enhanced reliability of their conclusion that there was no correlation to support a drop in employment rate with the wage increase. That study did not quell the debate, nor come to a widely accepted narrative, but it provided researchers a continued platform to utilize more sophisticated statistical methodologies and better data to analyze the issue.

The Cautionary Tale Continues in Today’s Debate

The cautionary tale continues each time dialogue about increasing minimum wage emerges at the federal level and among the states. The federal minimum wage of $7.25 has been in effect since July 24, 2009, with eligible tipped employees paid at $2.13 per hour. When adjusted for inflation, the federal wage has lost about 9.6% of its purchasing power, which has led to advocacy for the wage to increase to $12-to-$15 per hour. To some degree, efforts to increase the federal minimum wage have waned as state and local governments have plowed forward in evaluating their own laws, many phasing in a benchmark of $15 an hour with target dates of 2020. In the most recent years, the thirty-one states to increase their minimum wage include Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Washington, Washington, D.C., and West Virginia.

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Coming up in March 2018...

Human Resources: Value Creation

Businesses must evolve to stay competitive and this is also true of employment positions within those organizations. In the hotel industry, for example, the role that HR professionals perform continues to broaden and expand. Today, they are generally responsible for five key areas - government compliance; payroll and benefits; employee acquisition and retention; training and development; and organizational structure and culture. In this enlarged capacity, HR professionals are no longer seen as part of an administrative cost center, but rather as a member of the leadership team that creates strategic value within their organization. HR professionals help to define company policies and plans; enact and enforce systems of accountability; and utilize definable metrics to measure and justify outcomes. Of course, there are always new issues for HR professionals to address. Though seemingly safe for the moment, will the Affordable Care Act ultimately be repealed and replaced and, if so, what will the ramifications be? There are issues pertaining to Millennials in the workforce and women in leadership roles, as well as determining the appropriate use of social media within the organization. There are new onboarding processes and e-learning training platforms to evaluate, in addition to keeping abreast of political issues like the minimum wage hike movement, or the re-evaluation of overtime rules. Finally, there are genuine immigration and deportation issues that affect HR professionals, especially if they are located in Dreamer Cities, or employ a workforce that could be adversely impacted by federal government policies. The March Hotel Business Review will take a look at some of the issues, strategies and techniques that HR professionals are employing to create and sustain value in their organization.