Cities like Los Angeles and San Diego are considering massive increases in the minimum wage and they are targeting hotel workers in particular. In Los Angeles, it is 48% — in San Diego it is 45%. Additionally, Lancaster, Pennsylvania, is urging the state legislature to allow local governments to set their own minimum wage, which could impact hotel workers.
These moves to increase wages would force our hands as operators and will quickly spread to cities and unions alike that see an opportunity to raise wages at a time when RevPAR increases are forecast to be 1% to 2% this year. Yes, today’s robots, voice bots and chatbots can do more than in the past. They can make reservations, provide information, vacuum floors, deliver products and prepare food.
Small business affordability
Small businesses cannot afford this increase, whereas the real estate investment trusts that own large convention hotels might manage to pay their shareholders a reduced dividend. The average size of U.S. hotels is under 100 rooms, making it even more challenging for them to absorb such costs. These smaller hotels are typically family-owned and managed and will end up having to cut hours and benefits to make ends meet.
High school students, seniors on fixed-income and tipped employees
High school students, seniors on social security and tipped employees should be exempt from this proposal in the first place. Training a high school student and paying them $25 per hour is not feasible. Seniors may have wage maximums and are more interested in contributing to society than generating maximum dollars of income. Tipped employees often make $50 per hour, and this wage increase would disrupt the existing balance.
Economic impact
Following the example of Los Angeles (looking at a $30 per hour minimum wage) could lead to lost jobs, reduced hotel revenues and decreased tax revenues. Proponents of this proposal present false narratives of the negative impact of this 48% wage increase. Economic analysis of similar wage increases has resulted in job losses and/or reduced hours, which ultimately lead to the loss of health benefits.
A recent study by Oxford Economics found that the San Diego proposal would lead to the loss of 4,400 jobs a year and $66 million in transient occupancy tax in just the first 10 years alone. Why? Fewer visitors mean fewer dollars spent, fewer jobs created and less investment in our city’s future.
These impacts are not theoretical. The impacts were felt immediately when California enacted the $20 per hour fast food minimum wage. The state lost more than 10,000 jobs in the first year. According to a Berkeley Research Group report, 89% of fast-food employers reduced employee hours, 35% cut supplemental benefits and food prices jumped by nearly 15%.
Post-pandemic recovery
The tourism industry is still recovering from the pandemic, which forced hotels to close for months or even years. While some hotels received Paycheck Protection Program loans in 2020 and 2021, many small businesses had to pay their mortgages to avoid foreclosure. PPP loans did not cover those mortgages. The notion that hotels can survive with a 1% to 2% increase in average rates when payroll costs rise by close to 50% is beyond unreasonable. Payroll is the single largest cost area at well over 30% of revenues.
Conclusion
Significantly increasing the minimum wage for hotel workers poses significant challenges for the industry, especially for small businesses. First, it is essential to consider exemptions for high school students, seniors living on fixed income and tipped employees (some restaurant servers make over $50 per hour) to mitigate the economic impact. The unintended consequences of this wage increase would be job loss, lost hours and increased use of robots for housekeeping, food production and service to guests. Yes, today’s robots can do more than in the past. They can make reservations, provide information, vacuum floors, deliver products and prepare food.
As an example, we have used robots in our hotels for both room service, deliveries of supplies and vacuuming carpet corridors and rooms. Restaurants are already using robots for food production, and apps and kiosks for food ordering. In an industry that provides significant benefits to the region, including both tax revenue and jobs, this would be the exact opposite result from what must be the intention of those promoting this false narrative.
According to the American Hotel & Lodging Association (AHLA), the hotel industry employs 1.8 million workers in the United States. The AHLA Foundation projects job growth of 12% in the hotel industry over the next five years, compared to 8% for the nation overall.
Robert Rauch, CHA, has been an owner-operator of hotels for several decades and is founding chairman of Brick Hospitality, owner of R. A. Rauch & Associates, Inc.
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