Can Hotels Afford Not to Hire After a Minimum Wage Hike?

By Mark Heymann Chairman & CEO, Unifocus | April 02, 2017

As a growing number of cities and states legislate minimum wage hikes, hotel operators might be tempted to respond with a hiring freeze to avoid higher labor costs. This article explores the potential negative impacts hotels risk with a halt-on-hiring approach as well as more effective ways to offset higher wages. The not-so-simple truth is that increasing the minimum wage will require hoteliers to take a more measured look at their business in specific time periods. They'll need to understand the wage increase impact at peak and non-peak times, and determine what their true minimum staffing levels can be while still servicing customers to their expectations.

While it appears unlikely the new White House administration will continue the efforts of its predecessor to raise the federal minimum wage for the first time since 2009, movements like the Fight for $15 already have spurred seven U.S. states – Arizona, California, Colorado, Maine, New York, Oregon and Washington – as well as 18 cities and counties to legislate their own wage hikes. Many of these are already being phased in with incremental increases.

On July 1, 2016, San Francisco raised its minimum wage from $12.55 to $13 per hour; by 2018 it will hit $15. In a San Francisco Chronicle article ("SF's minimum wage hike took effect July 1, but changes little," Jessica Floum) updated three days after the initial hike took effect, David Neumark, an economics professor and director of the Economic Self-Sufficiency Research Institute at UC Irvine, cautioned that raising the minimum wage can lead to lower employment. "The adjustment is not so much through firing people but through slower hiring," he said.

A slowdown, or even a halt, in hiring might be a realistic option in the short term until a hotel can shake out the impact of higher labor costs. It also might work if an organization is aggressively turning to new technology that reduces the need for labor. But overall, a hiring freeze has significant long-term negative impacts and those potential casualties include employee engagement, customer service, and, ultimately, customer loyalty.

Impact on Engagement

Any time an organization has turnover, employee engagement may well suffer. If a hiring freeze results in under staffing, it can lead to fatigue and dissatisfaction in the remaining workers who have to shoulder the burden. A Washington Post report ("What hiring freezes do to your other workers," Jena McGregor, Jan. 25, 2017) on the potential impact of the administration's temporary hiring freeze on federal workers had this to say: "If hiring freezes lead to frustration and burnout, it's usually the top performers who leave first. And limiting the number of people who are hired, [human resources experts] say, can result in more risk aversion -- and therefore, less innovation -- while driving stressed and overwhelmed workers to take shortcuts."

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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.