The Impact of Wage Increases and a Tightening Labor Market on the Hotel Industry

The unemployment rate in the U.S. dipped down to 3.7% in 2018—the lowest it’s been since the 1970s. And, just last month, the US Bureau of Labor Statistics reported that the unemployment rate reached a historically low 3.5%. Further, wage growth continues to outpace inflation, with average hourly earnings rising 3.1% year-over-year in November. In addition, as many as 29 states as well as the District of Columbia boast a minimum wage higher than the federal minimum wage of $7.25, with several other states proposing to enact legislation that will allow them to follow suit.

While the environment offers opportunities aplenty for the prospective candidate or employee, many hoteliers, however, are concerned about how a tight labor market and potential wage hikes will impact their ability to pay their staffs, retain talent and compete with other employers in and out of the hospitality industry.

As Wages Increase, Labor Costs Surpass Revenues

While industrywide, U.S. hotel house profit reached a unparalleled $80 billion in 2018, labor costs grew at an even higher rate than the record-breaking revenues. In fact, the average annual wage increases in the hotel industry began to exceed 3% a year in 2014 and, in 2018, surpassed 4%, outpacing the national average wage increase of 1.9% in 2014 and 2.8% in 2018.

Many factors are contributing to an upswing in the burden on hotels to provide commensurate salaries, wages, and benefits:

  • 500,000+ unfilled hospitality jobs, combined with low unemployment and a shrinking immigrant workforce, have resulted in a decrease in both the quality and volume of available talent
  • High turnover and competition for employees with companies in other sectors
  • Different skill sets, salary expectations, motivations and learning curves resulting from a Boomer to Gen X to Millennial and Gen Z workforce shift
  • Internal dynamics, such as overscheduling, “junk” overtime and overuse of contract labor

Moreover, according to the American Hotel and Lodging Association, the majority of U.S. hotels pay a starting rate above minimum wage for at least 90% of entry-level employees, with the country’s full-service hotels reporting the following average annual salaries and wage increases per position over the past five years:

 Position WageAverage Annual Increase2013 – 2018
General Manager$150,000+2%
Assistant General Manager$72,000+1.9%
Executive Chef$69,221+2.3%
Food Server$23,100+2.2%
Front Desk Supervisor$55,000+3.4%
Front Desk Agent$27,600+3.4%
Housekeeping Supervisor$35,730+3.9%
Laundry Worker$23,400+4.1%
Chief Engineer$54,911+3%

As salaries continue to rise and the labor market continues to tighten, leaders in the hospitality industry say the answer may lie in creative tactics that allow management to both invest more in employees and develop talent from within while deftly trimming costs.

Get Ahead with a Comprehensive Labor and Wage Management System

Labor costs average approximately 50% of a hotel’s total operating expenses, and, with hotel payroll costs predicted to see increases of 4% to 4.5% across the country, bottom lines will certainly be impacted.

Fortunately, though, front-line managers can lean on solutions like PerfectWage™ from Hotel Effectiveness® to access competitive wage information that helps those managers accomplish the following key tasks:

  • Recruiting of top talent: Attract the best talent with market-based wage rates
  • Reduction of turnover: Get actual, competitive market-wage data in real time
  • Benchmarking of wage data across a hotel portfolio: Using peer data and market comparisons, compare hotels side-by-side and position-by-position

With such a comprehensive platform, hoteliers can perfect how they keep up with rising labor costs and balance every aspect of their wage offerings and employee attraction and retention.

Bettering Your Wage Management Practices

Legal, safe and secure, when combined with Hotel Effectiveness’ PerfectLabor™ system, PerfectWage™ from Hotel Effectiveness can provide hoteliers with 100% perfect labor costs.

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