Introduction
Minimum wages refer to the minimum amount of money an employer legally requires to pay employees for their work. In the hospitality industry, the government or a relevant industry body sets the minimum wage. The minimum wage rate is determined based on various factors, such as the local cost of living, inflation, and the average wage in the region. In some countries, the minimum wage is set at a national level, while in others, it can vary by state or province. In the hospitality industry, minimum wages often vary based on the type of job and the skill level required. For example, minimum wages for entry-level positions, such as dishwashers or waitstaff, may be lower than those for more skilled positions, such as chefs or hotel managers. The purpose of a minimum wage is to ensure that workers are paid a fair and livable wage and to reduce poverty and income inequality. The hospitality industry, being one of the largest employers of low-wage workers, is significantly impacted by minimum wage laws. Employers in the hospitality industry must adhere to the minimum wage requirements set by the government or relevant industry body, and failure to do so can result in legal penalties and reputational damage.
Increased labor cost is one of the primary ways that minimum wages can affect the hospitality industry. When the minimum wage is raised, the cost of labor for hospitality businesses increases, affecting their bottom line. Hospitality businesses typically have a large portion of their operating costs tied to labor, and an increase in the minimum wage can significantly increase these costs (Kim & Jang, 2019). For example, a hotel may need to pay higher wages to its front desk staff, housekeeping staff, and maintenance staff, among others. To offset the increased labor costs, some hospitality businesses may choose to reduce staff hours, lay off workers, or reduce benefits. These actions can negatively impact worker morale and productivity, potentially leading to lower quality of service for customers. Increased labor costs can also lead to lower profit margins for hospitality businesses, making it more difficult for them to invest in new technology or expand their operations. In turn, this can negatively impact the overall competitiveness of the hospitality industry.
An increase in minimum wages can lead to a rise in prices in the hospitality industry as a result of increased labor costs. The cost of labor is a considerable expense for hotels and restaurants, and any increase in the minimum wage would have a negative impact on their bottom line. Increasing the minimum wage would have a negative impact on their bottom line. In order to maintain profitability, some businesses may choose to pass on the increased labor costs to customers in the form of higher prices (Che Ahmat et al., 2023). This can result in a number of effects on the hospitality industry, including reduced demand for services, lower profit margins, and increased competition. For example, customers may choose to dine at cheaper restaurants, stay at cheaper hotels, or choose other more affordable entertainment forms.
Automation is one of the ways that the hospitality industry may respond to an increase in minimum wages. As the cost of labor increases due to higher minimum wages, some hospitality businesses may choose to automate certain jobs that were previously performed by low-wage workers (Dube & Lindner, 2021). This can help businesses reduce their labor costs and maintain profitability. Examples of jobs in the hospitality industry that may be automated include tasks such as food preparation, cleaning, and customer service. For example, a hotel may choose to install automated check-in and check-out systems to reduce the need for front desk staff, or a restaurant may use automated ordering systems to reduce the need for waitstaff. However, the adoption of automation in the hospitality industry can also have negative consequences, such as job losses for low-wage workers. Automation may also result in reduced quality of service for customers, as machines may not be able to provide the personal touch that is often valued in the hospitality industry.
Improved worker morale is one of the potential positive effects of minimum wages on the hospitality industry. When workers are paid a fair and livable wage, they are more likely to feel valued and motivated, leading to improved morale and job satisfaction. In the hospitality industry, where low-wage workers are often the norm, an increase in the minimum wage can help improve the overall well-being of these workers (Dube & Lindner, 2021). With more disposable income, workers may feel more financially secure and able to afford basic necessities, such as food, housing, and healthcare. Improved worker morale can also lead to increased productivity and reduced turnover, as workers are more likely to feel satisfied with their jobs and less likely to seek employment elsewhere. Higher worker morale can also result in cost savings for hospitality organizations since these businesses will have a reduced need to spend as much money recruiting and training new staff, which will free up some of their resources. Additionally, workers with higher morale are more likely to provide better customer service, leading to improved customer satisfaction and a positive reputation for the business. The size and scope of this effect will depend on various factors, including the size of the wage increase, the local economic environment, and the specific needs of each business.
Increased demand for services is a potential effect of minimum wages on the hospitality industry. Workers who earn better earnings have more money available for spending, which can result in an increase in demand for a variety of goods and services, including those provided by the hospitality sector. For example, workers who earn higher wages may be more likely to dine out at restaurants, stay at hotels, or take advantage of other hospitality services. This increased demand can lead to higher sales and revenue for hospitality businesses. Additionally, workers who earn higher wages may be more likely to travel, both domestically and internationally, which can result in increased demand for travel and tourism services, including those offered by the hospitality industry (Wang et al., 2019). Moreover, higher minimum wages can also positively impact the local economy, as workers with higher wages are more likely to spend money at local businesses, boosting economic growth and creating new job opportunities. However, it is important to note that the effect of increased demand for services as a result of minimum wages may vary depending on the local economic conditions and the size of the wage increase.
Last but not least, a raise in the minimum wage in the hospitality industry will have the effect of greater employee retention because it will lead to increased job satisfaction, increased motivation, and reduced turnover among workers earning low wages. When employees are paid a fair wage, they are more likely to be satisfied with their job, feel valued by their employers, and have a greater sense of security in their work. This, in turn, can lead to increased commitment and loyalty to the company, reducing the costs associated with high employee turnover, such as recruitment and training expenses (Dube, 2019). Additionally, with a lower turnover rate, the hospitality industry can benefit from a more stable and consistent workforce, improving overall business operations and customer service.
Conclusion
The hotel business may have both beneficial and detrimental effects as a result of an increase in the minimum wage. It can lead to increased labor costs, which can result in price increases and decreased demand for services. Besides, an increase in minimum wage can result in automation, where some hotels may decide to replace low-skilled personnel with machines to complete routine tasks. Moreover, improving employee retention by increasing job satisfaction and motivation and reducing turnover is also part of the effect of minimum wages in the hospitality sector. Furthermore, minimum wages lead to improved employee morale, where they feel satisfied with their job. Additionally, it can increase competition for jobs, leading to higher quality employees, and help to reduce income inequality and poverty, contributing to a stronger economy. Overall, the effects of minimum wage on the hospitality industry are complex and can vary depending on a variety of factors, including the size of the increase, the local economy, and the competitiveness of the labor market.
References
Che Ahmat, N. H., Kim, J., & Arendt, S. W. (2023). Examining the impact of minimum wage policy on hospitality financial performance using event study method. International Journal of Hospitality & Tourism Administration, 24(1).
Dube, A. (2019). Impacts of minimum wages: Review of the international evidence. Independent Report. UK Government Publication. Web.
Dube, A., & Lindner, A. (2021). City limits: What do local-area minimum wages do? Journal of Economic Perspectives, 35(1).
Kim, H. S., & Jang, S. S. (2019). Minimum wage increase and firm productivity: Evidence from the restaurant industry. Tourism Management, 71.
Wang, W., Phillips, P. C., & Su, L. (2019). The heterogeneous effects of the minimum wage on employment across states. Economics Letters, 174.