The leisure and hospitality sector, one of the hardest-hit industries during the COVID-19 pandemic, has recovered in both employment and wages, according to a report from ADP. Despite the loss of 8.2 million jobs in March and April 2020, the industry has not only regained its workforce but has also become a leader in wage growth since the start of the pandemic.
Wages for new hires in the leisure and hospitality industry have increased 38% since November 2018, second only to the retail, transportation and utilities sectors. The average hourly wage for new hires rose dramatically from $11 in February 2021 to $15 by the end of 2023, although growth has plateaued in recent months.
This uptrend reflects the sector's efforts to attract talent as consumer demand picked up following the easing of pandemic restrictions. Employers, particularly in restaurants and hotels, value competitive wages when filling positions.
The wages of job stayers exceed those of job changers
A notable trend in the leisure and hospitality industry is the reversal of traditional wage dynamics. Historically, job changers enjoy larger pay increases than those who stay with their employer. However, since December 2022, unemployed leisure and hospitality workers have experienced higher year-on-year wage growth than job changers.
This anomaly is due to employers' need to retain workers in a tight labor market. The industry recorded double-digit annual wage increases for job stayers between November 2021 and February 2023, an unprecedented performance compared to other industries.
Impact of California's Fast Food Minimum Wage Law
The implementation of a $20 hourly minimum wage for workers at major fast food chains in California in April 2024 has further highlighted the complexity of wage growth in the industry. The law, which applies to limited-service restaurants with at least 60 locations nationwide, immediately raised the average wage for fast food workers above that of other leisure and hospitality workers in the state.
Although the wage increase resulted in a significant increase in wages, it had a mixed impact on employment. Employment at limited-service restaurants has declined 5.5% since the law was promulgated in September 2023. In contrast, employment in other leisure and hospitality businesses increased by 0.5% over the same period.
The employment gap between fast food restaurants and other leisure and hospitality employers has continued to widen, highlighting the challenge of balancing wage increases with workforce retention.
Economic forces shape wage developments
The report highlights several factors influencing wage trends in the leisure and hospitality industry, including labor shortages, increased employer demand for certain skills and government-mandated wage increases. These factors have contributed to significant wage growth, but also result in higher operating costs for employers.
ADP's findings illustrate how the pandemic has changed work dynamics in the leisure and hospitality industry. While employees have benefited from higher wages, employers are grappling with the challenges of retaining talent, meeting wage targets and managing increased labor costs.
As the industry continues to adapt, the long-term impact of these changes on employment and wage stability remains uncertain.
Image: Envato