NC NEWSLINE - Pay hikes over the past four years have lifted the wages of people who work in hospitality — the nation’s lowest-paid industry — nearly 30% on average, reversing much of the wage inequality that has been growing for decades in the United States.
In 40 states, even those that haven’t raised their minimum wage beyond the $7.25 federal floor, the recent pay jumps outpaced those of earners in each state’s highest-paying industry, usually energy, technology or the federal government.
The lowest-wage industry in every state is leisure and hospitality, a category that includes restaurants, bars and hotels. Those lowest-earning workers got bigger percentage raises than the highest earners, averaging a 29% boost between mid-2019 and mid-2023, a Stateline analysis of U.S. Bureau of Labor Statistics quarterly data shows.
“We’re experiencing a historic moment of worker power, where workers just aren’t willing to accept these wages anymore,” said Saru Jayaraman, who has advocated for higher wages for tipped hospitality workers in several states as president of One Fair Wage in Massachusetts.
The 29% average raise for hospitality workers compares with an average increase of 20% for the highest-earning category in each state. Inflation was 19% in the period between the second quarters of 2019 and 2023.
Nationally, wages for the bottom 10% of earners have grown more than for the top 10% since 2019, a change that has undone about 40% of the inequality that had built up since 1980, according to a working paper by the National Bureau of Economic Research updated in November. The shift is giving more power to young workers without college degrees, who have capitalized on the tight labor supply to find better-paying jobs.
The inequality turnaround was already happening before 2019 in states that raised their minimum wage, but starting in 2021, it spread to states that didn’t raise minimums, according to a social media post by one of the working paper’s authors, economist Arindrajit Dube at the University of Massachusetts Amherst.
“Regulation doing its thing” turned into “market tightness doing its thing,” Dube wrote in the post. “Tightness drives out low-wage jobs by creating better-paying ones,” he wrote, adding that policymakers can “make the market work better for workers or fix it with regulation. Or both.”
On Jan. 1, 22 states raised their minimum wage, while 38 cities and counties raised theirs beyond the state standard, according to the Economic Policy Institute, a think tank that examines how policies affect low- and middle-income workers.
It’s still hard to tell whether the wage boost for lower-paid workers will translate into less economic inequality over the long term. It may depend partly on whether tax policy favors them or the wealthy. A U.S. Census Bureau report in September said income inequality improved for the bottom 10% of earners versus the top 10% between 2021 and 2022, for the first time since 2007.
But the advantage disappeared after taxes, the report found, partly because of the expiration of child tax credits expanded during the pandemic.
We’re experiencing a historic moment of worker power, where workers just aren’t willing to accept these wages anymore.
– Saru Jayaraman, president of One Fair Wage
The highest wage increases for hospitality workers were in Maine (up 41% over four years), New Jersey (35%), Florida (34%) and Virginia (33%). All are states with a higher minimum wage than the federal floor.
But increases were nearly as high, about 33%, in states without minimum wage boosts, including Idaho, Kentucky, New Hampshire, North Carolina and South Carolina.
“Mostly what you’re seeing is the effect of a tighter labor market,” said Elise Gould, a senior economist at the Economic Policy Institute. “More competition, more scarcity of workers, means employers have to pay more regardless of what state you live in.”
Many states with slower wage growth for hospitality workers already had high wages compared with other states: Nevada (up 20%), California and Hawaii (both up 23%) were among the slowest growing. But they still were in the top five for hospitality wages, ranging from an average weekly $826 in Hawaii to $784 in Nevada and $720 in California.
Higher wages for hospitality workers such as resort housekeepers in Nevada are helping to boost more Hispanic families into the middle class, according to a previous Stateline analysis.
For some conservatives, the movement is a sign that a hands-off approach works to raise wages without government intervention when labor demand outstrips supply. Some red states such as Texas have resisted minimum wage legislation and forbid localities from setting them, while Florida set a minimum only after a successful ballot referendum in 2020.
“My position is very much that wages are ultimately set by economic conditions, not politicians,” said Paul Gessing, president of the Rio Grande Foundation in Albuquerque, New Mexico, which has opposed legislation to raise minimum wages in the state.
New Mexico won’t see a minimum wage increase this year but had four straight increases from 2019 to 2023, and some cities have continued to raise minimums. The state’s hospitality wages increased 30% in that time, compared with 20% for the highest earners in federal government jobs.
Gould, of the Economic Policy Institute, said minimum wage legislation and other worker protections need to continue because low-wage workers cannot count on positive market conditions to boost pay indefinitely.
“History has told us they will need it at some point,” Gould said.
The governments in California and the city of Chicago are among those that have recently gone even further to raise pay for hospitality workers after negotiations with industry representatives.
California approved legislation to raise pay to $20 an hour for fast-food workers while a council of worker and business representatives helps decide on future wages and working conditions. The agreement came after negotiations with the fast-food industry, which had spent $50 million in an opposition campaign but agreed to drop a planned ballot measure to block formation of the council. The state agreed in return to drop plans to hold fast-food corporations liable for franchisee labor violations.
In Chicago, the city council in October passed a plan to gradually abolish the difference in the minimum wage for workers who receive tips. The Illinois Restaurant Association, which had opposed the change as “extra burdens to our neighborhood family-run restaurants,” agreed after the phaseout period was extended from two years to five, with tipped employees getting the full minimum wage, on top of any tips, in 2028.
California already requires the full minimum wage for tipped workers; District of Columbia voters approved a measure to phase out the lower minimum wage for tipped workers in 2022, while voters in Portland, Maine, voted against a similar measure in 2022.
The industry has been more willing to negotiate in the new economic climate, said Jayaraman, of One Fair Wage, who helped negotiate the Chicago compromise and hopes for similar change at the state level in Illinois, one of the 43 states where employees can be paid less than minimum wage if tips make up the difference.
“They want a level playing field. They want workers to come back, knowing they’ll be paid fairly,” Jayaraman said.
The fact that lower-income workers ended up doing better on average than high earners was a surprise result of pandemic conditions, said Vincent Fusaro, who studies low-income households at Boston College’s School of Social Work.
“Going back to what was expected in spring of 2020, that’s astonishing,” Fusaro said in an email. “It was perfectly reasonable to assume the pandemic period would be a disaster for folks at the bottom of the economic distribution.” Still, he added, “low-wage workers, who had been among the hardest-hit in the Great Recession, instead saw gains.”
This report was first published by Stateline.