Data: Why LA hotels are minimum wage targets
22 OCTOBER 2014 5:51 AM
Politicians are using Los Angeles hotels as an example but are making an argument based on false assumptions and faulty data.
With the final approval by Los Angeles City Council on 1 October and commitment to signing by Mayor Eric Garcetti, the minimum wage will increase on 1 July 2015 to $15.37 for hotels with more than 300 rooms within the city limits. Beginning on 1 July 2016, all hotels with more than 150 rooms will be required to pay the new minimum wage.
The national debate over dramatically increasing the minimum wage in the United States has brought the hotel industry front and center. Hoteliers, unlike other U.S. businesses, cannot move their operations from a city, state or even the U.S. to avoid the consequences of actions taken by elected officials. This makes them easy pickings for becoming the test case for increasing the minimum wage.
Recently, WageWatch conducted a survey for the American Hotel and Lodging Association “National survey of hotel wages & benefits.” We surveyed more than 12,000 hotels, representing more than 23% of the hotels in the U.S.
The results revealed in the report (at least to union organizers and their political allies) are that few hotel employees are paid the minimum wage and the hotel industry, in general, offers fair and reasonable wages and benefits to hourly and full-time employees. The hotel sector is not the minimum wage poster child that unions and politicians would have you believe.
Overall, 81% of the respondents had five or fewer positions that had a starting rate at the minimum wage. More than 57% had no positions that started at the minimum wage. The few employees who start at the minimum wage are typically entry-level employees with no experience or college students working part time. Those receiving the minimum wage as a starting rate are promoted or receive merit pay raises in less than a year on the job.
Jobs such as food server and housekeeper typically come to mind as minimum wage positions, but they are not. While not a tipped position, housekeepers receive tips that can equal 10% or more of their base pay. Less than 20% of front-desk agents start at the minimum wage, but they also receive tips that increase their wages to well over the minimum.
Union operatives and social justice advocates for minimum wage increases conveniently leave these facts out of their arguments for increasing the minimum wage for hotel workers.
Looking at LA
These findings are not a surprise. Unfortunately for the general public, unions and some politicians try to promote the idea that the hotel industry pays most employees only a minimum wage. In order to better understand the real situation for hotel workers in Los Angeles, we ran compensation reports from our current year database for hotels with 150 rooms or more (WageWatch annually surveys the wages and pay practices of more than 7,000 hotels). We have current year real wage data for 32 of the estimated 67 hotels that have more than 150 rooms within Los Angeles. Seven are union and 25 are non-union hotels. There is a fair and reasonable representation of limited- and full-service hotels located in Los Angeles.
Our database yielded insightful results, which differ significantly when compared to “Repaying hospitality,” the 2013 study prepared for the Economic Roundtable by Patrick Burns and Daniel Flaming and referred to extensively in the debate over minimum wages for Los Angeles hotel employees by labor unions and politicians. Their estimates of wages paid in 2013 were based on a number of prior surveys adjusted by the Consumer Price Index to approximate wages in the 2013 time period (Data Appendix, page 45). None of the surveys used in their study had current data collected from the hotels of interest.
Based on the data collected from non-union hotels for housekeepers in Los Angeles, the weighted average hourly base pay is $13, and the median is $12.43, before tips are added to their pay. Based on our data, with tips, the average pay is about $14.30 an hour. The minimum starting rate on average is $10.90, but with tips added in will average around $12 an hour. The lowest-paid housekeeper was $9, the minimum wage in California as of 1 July 2014. The estimated average base pay from the Burns and Flaming report was $9.03. If the union hotels were added into the WageWatch data sample for housekeepers, their findings are even further afield, as union housekeepers on average earn $15.43 an hour and with an average starting rate of $14.44 an hour.
For front-desk agents, the story is much the same. The weighted average base pay is $13.99 with a median of $13.32. The average minimum starting rate is $12.18. Adding in average tips, front-desk agents average about $14.80 an hour. The average wages reported in the Burns and Flaming report is $11.17. For dishwashers, WageWatch data shows an average of $11.90 an hour as compared to, well, nothing. Burns and Flaming do not have data for that position, although for Los Angeles County, they reported $9.47 an hour (their report shows all jobs, other than cooks, receive a higher average wage at the county level).
Excluding the union hotels, whose members have the option of waiving the new minimum wage, it is estimated that hoteliers employing about 8,000 employees will be impacted by the new $15.37 minimum wage. Based on our data, we estimate about 30% will receive pay raises. When put into the context of the broader Los Angeles/Long Beach/Santa Ana labor market as reported by the Bureau of Labor Statistics, there are 70,000 employed at hotels and an overall labor force of 5 million. The impact will be insignificant and should result in no changes to the local labor markets or economy and little if any change to room rates in Los Angeles.
So if the 90%-plus of hotel workers in Los Angeles are making more than the current California minimum wage of $9 and if 70% are making more than the new minimum wage of $15.37, what is the real reason for the singling out the hotel industry?
The real reason
In my opinion, it is for the simple reason that the politicians and union organizers already know the impact will be insignificant and will serve as an example of how increasing the minimum wage to $15.37 for hotel employees had little impact on unemployment, the labor market and negligible impact on hotel room rates.
This argument is even more compelling when you rely on estimates of average wages that are well below the actual wages paid in the market. So it follows, why not increase the minimum wage for all hourly employees to what the Mayor of Los Angeles really wants: an across-the-board increase to $13.25 by 2017. After all, it is much less than what the hotels will be paying, or why not even more: a living wage.
As we look ahead, the hotel industry is one of the few sectors in the U.S. that is performing well. As record profit reports and employment levels continue to be announced, unions, politicians and social justice advocates will try to use this “success story” as an argument for extreme minimum wage increases or a living wage for all.
They will point to examples such as Los Angeles where the minimum wage is well above the national average for hotel workers. Economists will study it and no doubt determine that the minimum wage increase did not statistically increase unemployment or impact the hotel industry or the local economy. This will lead to the conclusion by many that extreme wage increases do not significantly impact unemployment or the economy.
Unfortunately for all of us, they will be making an argument based on false assumptions and faulty data.
Randall Pullen is President and CEO of WageWatch, Inc., which he founded in 1999 to design and implement Web-based wage and benefit surveys. Mr. Pullen‘s work experience includes over 30 years of software development and consulting to the hotel industry. Mr. Pullen is a certified public accountant and a member of the AICPA. He earned a Bachelor’s Degree in mathematics and an MBA from Arizona State University. He serves on the boards of a number of companies and associations, and is currently the Treasurer of the Arizona Housing Finance Authority.
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