The effect of an increase in federal minimum wage on the U.S. hotel industry: a difference-in-differences approach

Abstract

ABSTRACT In accordance with the economic influences of an increase in minimum wage on labor markets, this study examines the effects of the federal-level minimum wage increase on U.S. hotel properties employing a difference-in-differences (DID) estimation method. We compared NYC which witnessed a federal minimum wage increase in 2009 to Washington, D.C which did not receive a wage increase in the same year. Findings showed that the newly enacted federal minimum wage law did not significantly influence U.S. hotel properties’ labor costs. This study, on the other hand, found that the federal minimum wage increase negatively affected hotel properties’ performance, measured by EBITDA and total revenue. This study adds value to the hospitality and tourism literature by rigorously revealing a causal effect of the minimum wage increase on hotel property performance. Further, this study's findings also provide meaningful guidance for hotel industry practitioners related to navigating minimum wage increases.