The effects of the minimum wage on the operating performance of hotels in the U.S.

Abstract

The economic effects of the minimum wage have been the focus of ongoing contradictory debates among policymakers and researchers. This study finds a positive effect of the minimum wage on the operating profitability of hotels in the U.S. However, the pricing practices of full-service hotels are dissimilar to those of limited-service hotels. Although the burden of the minimum wage is substantial, full-service hotels can spread the weight onto other departments, while limited-service hotels mainly rely on rooms revenue. Thus, the effects of the minimum wage on room price (average daily rate; ADR) are more substantial at limited-service hotels than at full-service hotels even though operating profitability (gross operating profit per available room; GOPPAR) is not substantially different between them. Eventually, increased minimum wage can play a beneficial role not only for the hotel industry but also for local society, since minimum wage employees take home a larger salary.