To Offset the Increase in Minimum Wage, Focus on Productivity
By Mark Heymann Chairman & CEO, Unifocus | December 25, 2016
Fourteen U.S. states started 2016 with a higher minimum wage, and it seems all but certain that the federal minimum wage, which has remained at $7.25 since 2009, will soon follow. The White House has thrown its support behind the Raise the Wage Act, which would increase the federal minimum wage to $12 by 2020 - a move that also has the support of 60 percent of small businesses, according to a poll conducted for Small Business Majority by Public Policy Polling.
Meanwhile, a Hart Research poll shows that 63 percent of the public favor an even larger federal increase - to $15 - over the same time frame. This higher figure has been embraced by New York's governor, who has signed a bill implementing a 70-percent raise in his state's fast food minimum wage to $15 by 2018, and by several cities that have committed to phase in a $15 minimum wage, including Los Angeles; Portland, Ore.; San Francisco; and Seattle.
The benefits of a higher minimum wage are clear for those workers who will bring home a bigger paycheck, but what will it mean for service industry employers and their customers? While historically raising the minimum wage has had little impact on profitability, those increases were typically incremental. In 1978 for example, the federal minimum wage grew from $2.65 to $2.90 - a 25-cent increase. Today's proposed changes are in the ballpark of four or five dollars an hour, which will have a more dramatic effect on organizations. And those that fail to review their business model and adjust their operating philosophy to offset the higher labor costs could potentially experience a dollar-for-dollar negative impact on their bottom line.
The Ripple Effect
Minimum-wage workers may be only a limited percentage of a hotel's staff (this will vary by area of the country and by state), but raising their pay will likely create a ripple effect in the market. Consider that there also will be employees who are paid above the current minimum wage but below the increased minimum wage. If the hotel only raises those workers' wages to the new minimum, it puts them at the same wage level as workers who had been earning less. This could well lead to a discouraged group of employees or a less engaged team, and that could have a broader impact on the bottom line. The alternative would be to increase those employees' wages at the same differential as their minimum-wage-earning colleagues.