Whatever the results of the current minimum wage debates will be, it is clear that the hospitality industry can no longer get away with underpaying its workers, says Marius Zürcher
A few days ago, I’ve read that 150.000 employees have left the Dutch hospitality sector since March 2020. Many of them – having found jobs in other industries, such as healthcare – are not planning to come back. Similar developments are happening in other countries. As I have said before: if you think employee shortages were bad before the pandemic, then buckle up, because it’s going to get a lot worse.
In my previous article, I highlighted a number of ways in which restaurants and hotels can tackle this problem. There are long-term solutions, like optimization, automation and improving the workplace climate, and short-terms steps, like offering jobs that are less precarious and pay more. The latter is something that some restaurants are already doing with great success. Many more restaurants and hotels however refuse to do so, at best out of fear and at worst out of greed. Those restaurants and hotels (alongside many other businesses, especially in the hospitality industry’s cousin the retail industry) are the one of the reasons why calls to either set or raise minimum wages have become louder and louder in the last few years.
The case for a wages hike
Many people, both employers and employees, believe that a (higher) minimum wage will lead to job losses, as businesses will have to somehow compensate the costs associated with paying their employees higher wages. Although this is a popular argument against raising (for example, from $7.25 to $15 in the United States) or setting a minimum wage, the consensus among analysts increasingly is that although some jobs will be lost, the number will not be statistically significant and not nearly high enough to outweigh the increases in consumer spending.
A similar argument people bring forward against the minimum wage is that businesses would have to divert the costs to consumers, for example by raising the price of a hamburger from $7 to $20. This argument too is flawed. Although experts agree that a higher minimum wage might leads to an increase in prices of goods and services, these increases will be spread out among so many consumers that they will hardly be felt. Furthermore, here too, the losses will not be nearly high enough to outweigh the increases in consumer spending power. This is not even to mention that plenty of restaurants are already charging $20 for a burger (either because they can, or because they have to keep up with inflation – a luxury not afforded to minimum wage rates in many countries), while not paying most of their employees a living wage.
There is one argument against simply raising the minimum wage in a country across the board: different standards of living. Especially in larger countries such as Germany and the United States, some regions might have drastically lower costs of living than others, meaning raising the minimum wage in those regions to the same level as in more expensive regions could indeed be a shock to the system that does more harm than good. A regional approach could therefore be prudent.
Reducing income inequality
What setting or increasing a minimum wage undoubtedly would do is lift large numbers (in large markets, millions) of people out of poverty and reduce income inequality, and through that drastically increase consumer spending power. And – as has been seen time after time – what do people with (sometimes newly gained) disposable incomes do? They frequent hospitality establishments. Not only that, but they become increasingly willing and able to pay actually reasonable prices for products and services. Who would say no to more customers like that?
As I have hinted at in the introduction, higher minimum wages can also be part of the toolset against staff shortages. Higher wages mean more applicants. Simple as that.
To add a cherry on top: well-paid employees have shown to be happier employees, and happier employees tend to be more productive employees. This in turn will undoubtedly have a positive financial impact, as it will lead to higher levels of service quality, happier guests and, ironically, lower labor costs, as one productive employee often does the work of two employees that have undergone a ‘hidden resignation’ process.
Whatever the results of the current minimum wage debates will be, it is clear that the hospitality industry can no longer get away with underpaying its workers. I would prefer that a large enough part of the industry finally acknowledges this fact and then regulates itself, but if that doesn’t happen soon, the choice might end up not being theirs anymore.