Economic Roundtable

Repaying Hospitality

Economic Impacts of Raising Hotel Workers Wages and Benefits in the City of Los Angeles

December 1, 2013 / By Patrick Burns and Daniel Flaming
Underwriter: Los Angeles Alliance for a New Economy Download

Executive Summary

A new, citywide minimum wage for all hotels with 100 or more rooms is being considered. This new minimum wage would impact approximately 64 of the city’s 87 large hotels and over five thousand low-wage hotel workers in the City of Los Angeles. Based upon a review of recent, local data including impacts to date of the 2008 Airport Hospitality Enhancement Zone ordinance, the twenty year trend for citywide hotel openings and closures, and the current growth of Los Angeles hotels’ occupancy and revenue compared to other major, domestic tourist destinations, our study concludes that a new minimum wage will not result in significant relocation or cessation of current hotel business. Average wages paid by hotels in the City of Los Angeles are well below the proposed minimum wage of $15.37 per hour, with maids and housekeepers earning $9.03, desk clerks earning $11.17, and bellhops earning $12.03 per hour. Compared with the rest of the nation, the state and five other urban areas that compete with Los Angeles for tourists, the city ranks near the bottom of the wage ladder for hotel workers and is competing with Phoenix for the lowest hourly wages offered. Employees at city’s unionized hotels earn 141 percent of the wages earned by their counterparts at non-unionized hotels, more than the 118 percent nationwide differential between union and non-union private sector workers. Hotel workers employed in the City of Los Angeles currently earn $499 million in total annual wages, and their household spending already supports the equivalent of 3,296 local, yearlong jobs and $469 million in local sales. If enacted, the ordinance would bring a combined $33.7 million pay raise to hotel workers in its first year, with multiplier effects that would support an additional 283 jobs and $39.6 million sales at local businesses. The cost of this pay raise to $15.37 per hour could be paid for by hotels in at least two different ways:

Hotels could keep their prices and revenue the same, and reduce the portions of revenue going to hotel ownership from 17.9 percent to 12.4 percent, enabling the share of revenue going toward employee compensation to rise from 30.9 percent to 36.4 percent, or
Hotels could increase their revenue from room rates and other services by an average of $3,351.23 per occupied room per year, or $9.18 per occupied room per day. The 64 hotels affected by the proposed ordinance have a total of 16,295 hotel rooms. The second method – passing costs on to customers – is the likely means by which hotels would generate the funds needed to pay the new minimum wage, but these methods could be blended.

Tourism accounts for an estimated 74 percent hotel business in the City of Los Angeles, directly supporting over 12,000 jobs in all hotels citywide. Another 4,311 indirect and induced jobs are supported by the tourism share of hotel business through local multiplier effects. In addition, tourists directly support over 64,000 jobs in other City of Los Angeles industries. Out-of-town visitors would pay three-quarters of the cost for the proposed minimum wage ordinance.