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We All Pay for the Hospitality Industry’s Low Wages

June 09, 2014 By Lucas Franco, Graduate Research Fellow

Low wages in the hospitality industry have forced many of its workers to rely on public subsidies to get by. Compared to workers in other occupations that do not require more than a high school degree, the average earnings of a hotel worker in the Twin Cities is at the bottom of the wage scale.

Based on estimates for a family of three, the low median wages in the industry of $27,708 means that most meet the $32,232 threshold to qualify for the Supplemental Nutrition Assistance Program (SNAP). A single-earner family of three would also meet the $36,131 income threshold to qualify for the Minnesota School Breakfast and Lunch program. This pay level is well below an essential family budget for the region. This standard developed by the Economic Policy Institute (EPI) represents the minimum amount of annual income needed to make ends meet without public assistance and with no capacity for saving. Based on the EPI calculation a family of three (two parents and a child) requires an income of $65,435 to meet a self-sufficiency standard in the region.

Many accommodations sector workers must also rely on emergency room care for health insurance in the region. Based on data from the U.S. Census Bureau’s American Community Survey for 2011, 22% of hotel workers in the Twin Cities region were uninsured, compared to a 92% coverage rate across all occupations.

Many workers cannot afford the often high cost insurance plans offered by their employers, which are common nationwide in the industry. Even when plans are semi-affordable, premiums can have high copay costs.

The costs of having no health insurance can be drastic. Research has demonstrated that a lack of medical care discourages preventative care and can put families at greater risk for serious medical emergencies. Further research has shown that workers are more than twice as likely to forgo or delay needed care relative to those with health insurance. With delays in necessary care, the possibility of a worse medical emergency and more costly medical care increases. Furthermore, delays in medical care, reliance on government sponsored health insurance, and lack of insurance coverage are all factors increasing morbidity and mortality, including adverse cardiac events.

Minnesotans all pay the cost of uninsured workers in the industry. The 22% of workers who do not have health insurance must rely on emergency room care, which contributes to the growth of Minnesota’s public health care spending. According to a report by the Minnesota Department of Health reports, “Between 2004 and 2008 uncompensated care grew at an average annual rate of 15 percent.” This means that Minnesotans are paying more and more to cover the costs of the uninsured. This is part of a troubling trend of private sector companies offering unaffordable insurance, which has contributed to the substantial increase in state spending on health care over the last decade.

When this profit growth depends on industry practices that shift operational costs to workers and consequently the public through public programs such as SNAP and the Minnesota school breakfast and lunch program, we must take a critical look at the impacts of the industry. This and the previous two articles have shown the hidden costs to workers, our communities and taxpayers of low jobs in the industry.

The good news is that there are “high road” policies and practices that seek to increase productivity by maximizing investment in workers. Along with strategies suggested in previous articles (Hotel Profitability Coming at Workers’ Expense and Housekeepers More Injury Prone Than Coal Miners), this article puts forth three further recommendations. First, public officials should look to find ways to increase the earnings of hotel employees. This can happen both through the scrutiny of worker treatment in the industry and through public policy like minimum wage legislation. Second, elected officials in the region should seek to attract high road employers and develop strong labor standards, particularly when public investment is involved in new hotel projects, to make sure new hospitality jobs are not poverty wage jobs. Workers should be earning wages sufficient to provide a decent living in the Twin Cities metro region. Third, hotel employers need to provide high quality health insurance for families at an affordable price. Providing good, affordable health insurance would improve the living standards of metro area workers and help reduce the current burden on taxpayers. This high road approaches will reduce the public cost of the industry and vastly improve the working conditions for hospitality workers.

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