Does the Hospitality Industry Need to Increase the Minimum Wage?

In recent years we have been seeing a large push from working-class Americans to increase the minimum wage. The general desire from the US workforce is to raise the federal minimum wage to $15.00 an hour. However, there are debates regarding the execution of this increase in wages, as some argue the consequences of this change could outweigh the benefits. This topic of discussion is highly encouraged within the hospitality industry, as many of the workforce’s members receive minimum or subminimum wages. 

While workers are generally supportive of these changes, some Americans believe that a minimum wage increase could be detrimental to the economy. Businesses would likely need to raise operating costs and may have difficulty trying to pay these higher wages to their employees. 

A popular argument contends that raising labor costs would cause businesses to be unable to hire more help, and therefore small businesses would suffer, and unemployment rates would rise.

However, regarding the current staffing shortage, businesses increasing their minimum wage would likely help them stay competitive among prospective employees. When it comes to the hospitality industry, there are many potential positive and negative effects that could occur as a result of increasing the federal minimum wage.

A Brief Look at the History of Federal Minimum Wage Laws

To fully understand the different viewpoints regarding the minimum wage debate, one must first become familiar with the history of Federal Minimum Wage changes. Since the passing of the Fair Labor Standards Act of 1938, the federal minimum wage in America has been increased 9 times. 

The last minimum wage increase was in 2007, where it was raised to $7.25. Following a 2012 protest for higher wages in New York City, various organizations including the Service Employee International Union (SEIU) have focused their efforts on campaigning for the federal minimum wage increase to $15.00 an hour. This movement is known as the “Fight for $15” and the desired change has remained a topic of intense debate since its proposal.

The Raise the Wage Act of 2021 proposes raising the federal minimum wage to $15.00 by 2025. It would immediately lift the federal minimum wage to $9.50 an hour, incrementally increasing it to $15 over 5 years, after which it would have annual indexing to median wage growth. While supporters of the bill argue that the current minimum wage is too low to support the rising cost of living, others believe that raising the minimum wage this much could be a burden to business owners and cause an increase in unemployment rates.

While the act proposes a change in the federal minimum wage, it also includes more specific amendments to how certain demographics in the workforce are paid. Workers in the hospitality industry would benefit especially from this change since many of the individuals within the industry are tipped workers. This subminimum wage currently applies to tipped workers, at only $2.13 per hour. The passing of this bill would increase the current wages of tipped workers to $4.98 an hour immediately and provide incremental increases so that their wages would eventually become equal to the standard minimum wage. 

Ensuring that tipped workers are paid at least the federal minimum wage would mean the discontinuation of the subminimum wage for these workers and would allow them to still accept tips in addition to their regular wages. Supporters of the act believe that this would help to decrease the amount of hospitality industry workers that are living in poverty. 

What is the Fair Labor Standards Act (FLSA)?

The Fair Labor Standards Act (FLSA), implemented in 1938, is landmark legislation codifying worker protections in America. It was established to create a federal minimum wage that is guaranteed for all regions within America. In addition to this, they set certain stipulations for the employment of workers, such as overtime pay, the standardized workday, and youth employment standards. 

The FLSA also created guidelines for the payment of certain worker groups at a rate less than the statutory minimum wage. These groups include students, workers with disabilities, and tipped workers. According to the FLSA employers can pay tipped workers a subminimum wage amount that is below the federal minimum wage.

Benefits of Raising the Minimum Wage for the Hospitality Industry

Supporters of the act to increase the federal minimum wage to $15 an hour have discussed many potential benefits of the change, especially concerning individuals in the hospitality industry. Raising the minimum wage could have many positive effects within the workforce for both the employers as well as the workers.

A main supporting reason for passing the bill is that raising the minimum wage would improve living standards for minimum wage workers. It has been argued that the current federal minimum wage cannot support a full-time employee in many areas of the country with higher costs of living, and a higher minimum wage could help to amend this issue. Supporters claim that this increase in wages and improved living standards for workers would improve overall morale in the workplace. 

This increased morale may lead to increased productivity and levels of satisfaction within workforce positions, and therefore a reduction in employee turnover. With employees more content with their jobs and less likely to leave their positions, companies would be able to save on the costs that come with hiring and training new staff members. 

Businesses would also benefit from the change since an increased minimum wage is an important factor towards staying competitive among job applicants. Many potential workers are less inclined to apply for positions that do not meet a certain minimum wage, which leaves businesses less likely to attract a large pool of job candidates. This can make hospitality staffing difficult, as businesses have a harder time finding qualified workers for their minimum wage positions. According to data collected from the Adia Solutions platform, job notices for positions paying $12 per hour or less often do not receive many applicants. 

This trend in employment-interest among applicants based on job wages indicates a need to change the federal minimum wage. It is possible that a $15 minimum wage increase could cause more qualified candidates to apply for minimum wage positions, and that the discontinuation of subminimum wage for tipped jobs could lead to greater demand for these positions and have positive effects in restaurant recruiting and other hospitality staffing.

Raising the minimum wage to $15 could also help to close our country’s gender and race-based pay and wealth gaps. A report from the National Employment Law Project found that women and people of color were overrepresented in the workforce of workers that make less than $15 an hour and overrepresented within the industries and roles with some of the highest proportions of workers earning less than $15 an hour. Furthermore, a disproportionate number of minority workers are located within the 21 states that maintain a minimum wage of $7.25 an hour. 

An independent analysis by the Economic Policy Institute says that the act would increase wages for roughly a third of all Black workers and a quarter of all Latino workers and that more than half of the workers who would benefit would be women. This act would help to support women and minority minimum wage workers financially, and in doing so would help to close the gender and race-based wealth gaps.

Disadvantages of a Minimum Wage Increase for the Hospitality Industry

On the other hand, those against increasing the federal minimum wage to $15 an hour have suggested many ways in which the change could be a disadvantage for those in the hospitality industry. While the idea of raising the minimum wage costs across the country is focused on benefiting workers, opposers argue that it could result in unintended consequences for workers and employers. 

A popular argument against the minimum wage increase is that businesses would suffer. Higher wages for employees may result in increased operating costs for small businesses. With the hospitality industry just beginning to recover again after the negative effects of the worldwide Covid-19 pandemic, many opposers of the bill worry that increased financial stress from increasing the minimum wage would be too difficult a burden for the industry to withstand. 

Opponents also claim that a minimum wage increase to $15 could hurt individuals who rely on services that employ minimum wage workers, such as childcare providers. According to a report by The Heritage Foundation, a federally mandated minimum wage increase to $15 an hour would increase childcare costs by 21% across all states. Many Americans use childcare services to ensure the safety of their children while they work or pursue higher education to support their families. But with childcare costs increasing with the minimum wage, this may be financially detrimental for hospitality industry workers, especially in areas with traditionally lower wages. Making childcare services unaffordable for Americans living in areas with low-cost economies could greatly disrupt the labor market in those regions.

Of course, the change to increase the minimum wage would affect certain areas in dissimilar ways. Based on the distinct economies within different states, we would be able to expect a range of results from the bill, and how certain industries in those areas like the hospitality industry are affected. A federal, uniform minimum wage increase would disproportionately impact businesses in states with a lower cost of living as opposed to a higher one. Ties between minimum wage and inflation may create issues in lower-cost areas especially if the bill were to pass. 

Changing the minimum wage to the same amount for all the country’s economies across the board could greatly affect individuals of economies with lower living wages. Companies could suffer and unemployment rates could increase in these places, since employers may not be able to afford to pay the raised amount to their employees. The increased minimum wage could result in some areas of the country experiencing negative consequences like inflation, fewer employment opportunities, and more failed businesses.

Does the Hospitality Industry Benefit from Increasing the Minimum Wage?

The topic of raising the Federal Minimum Wage to $15 an hour remains a heated debate to this day. The bill’s proposed changes serve to benefit minimum wage workers and could create greater demand for minimum wage jobs with increased job productivity and reduced turnover, which may lower training costs for businesses, raise employment rates, and help to close gender and race-based wealth gaps. 

However, there could be unintended results of the bills passing as well, which could result in higher operating costs for small businesses, negative impacts on low-cost economies, and increased expenses for childcare services. 

While it is important to be aware of the positions on both sides of this controversy, we at Adia solutions support the goal of increasing minimum wages to bestow fair compensation to individuals working within the hospitality industry. While the bill’s passing may have unintended effects, it would be directly helpful in solving the high-poverty level of minimum wage workers and closing our country’s gender and race-based wealth gaps. We believe that this should be prioritized as these issues are negatively affecting members of our workforce and raising the minimum wage can provide relief. 

Businesses and workers of the hospitality industry alike could experience benefits from this change through positive staffing trends and employee satisfaction. We at Adia Solutions know that our industry workers are necessary to providing hospitality services for the businesses we work with. When it comes to raising the minimum wage, we see this as an opportunity to provide support to our workers, and to grow as a country. 

If you would like to learn more about Adia’s viewpoints on topics like staffing trends, employment costs, and the hospitality industry, please visit our blog. If you require assistance with staffing needs for your business, you can view the Adia website to gain helpful resources and information on how our on-demand staffing platform can help you.

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