The minimum wage is increasing to $7.25 by July 2009.  AH&LA opposes further increases in the federal minimum wage that would dramatically reduce the number of job opportunities for entry-level workers.  Minimum-wage increases have a negative impact on job creation in the hospitality industry and in other businesses.

SUMMARY

In a free market economy, prices allocate land, information, capital goods, and labor to their highest use. Markets are truly free only if prices are free. For example, a business that needs more workers signals its need to the labor market by offering a higher wage. Wages are good indicators that direct people to employment and show businesses how to expand. Freely floating prices allocate resources efficiently to places where they will take root and boost economic productivity.

Many types of labor regulations infringe on this market mechanism by disturbing price signals and, therefore, restraining the economic freedom of business owners and workers. One of the most prominent is the minimum wage. By setting a government-specified floor for workers' wages, minimum wage laws tend to disrupt labor supply and demand.

The labor market is not excused from the basic economic principle that artificially high prices cause lower demand. In particular, less skilled workers will suffer. The mismatch between labor supply and labor demand is likely to harm the very people the minimum wage is intended to help.

In many lodging industry job categories, hoteliers pay much higher than minimum-wage rates for their lower-level positions.  According to the U.S. Bureau of Labor Statistics “Current Employment Statistics” April 2008 national survey, hotels and motels pay their production workers on an average of $12.86 an hour (NAICS Code 72111).

Supporters of increasing the minimum wage argue that they do so in order to help poor and less skilled workers. But government intrusion into the labor market through raising minimum wage generates the same problems that similar interventions produce in other markets. The minimum wage disrupts the natural interaction of supply and demand and leads to inefficient allocations of labor and, eventually, increased unemployment. Congress should reconsider increasing the minimum wage and look for ways to help American workers by increasing their competitiveness.

Many states have already established minimum wage levels higher than the new federal level.  But because federal law covers most employees, employers can ensure compliance with both sets of laws by following the rule that is most beneficial to the employee.  (State minimum wage rates can be found on this government Webpage, www.dol.gov/esa/minwage/america.htm.)

Every employer who has employees covered by the minimum wage provisions must post in each of its establishments a notice explaining the act. These notices must be posted in conspicuous places so as to permit employees to readily read them. Updated posters and other compliance assistance materials concerning the minimum wage increase are available free of charge from the U.S. Dept. of Labor and may also be obtained from the agency's Website at www.wagehour.dol.gov.

The federal minimum wage was first mandated on October 21, 1938, at a rate of 25 cents an hour for certain jobs.  Since 1938, it has been expanded to cover more employees and businesses.  On average, it is raised about every 2.6 years, for a total of 27 times in the last 70 years.

STATUS

In early 2007, Congress amended the Fair Labor Standards Act and increased the minimum wage for all employees covered by the law.  This change applies to all businesses with annual sales of $500,000 or more, as well as all employees who engage in interstate commerce regardless of the employer size.  President Bush signed the original minimum wage legislation (H.R. 2) as part of a larger bill (H.R. 2206) into law on May 25, 2007.  This was the first raise in the federal minimum wage rate since 1997.

The first raise in the federal minimum wage mandated by the 2007 law occurred on July 24, 2007, increasing from $5.15 to $5.85.  On July 24, 2008, the rate increased to $6.55 per hour and will increase again to $7.25 per hour on July 24, 2009.

The increase did not include any indexing for inflation.

CALL FOR ACTION

There is no call for action at this time.  AH&LA opposes further increases in the federal minimum wage that would dramatically reduce the number of job opportunities for entry-level workers.

(Updated August 2008)