Labor in the hospitality sector has reached a structural tipping point. It is squeezed between an ever-shrinking talent pool and a balance sheet that’s becoming increasingly strict. The modern workforce, on the one hand, has fundamentally reset social contracts, rejecting the rigid legacy schedules and firmly embracing sustainable work-life balance. While the economy has changed, ADR is plateauing and labor costs are climbing to 35 percent of revenues. Operators can’t rely solely on revenue growth anymore.
Staffing in response to crises or reactively is not the answer. It is also outdated to view labor as an unpredictable line item expense that can be cut. The hospitality workforce is the most critical, controllable driver of both the guest experience and long-term profitability, and this margin squeeze can be deftly navigated by adopting the approach that labor is–unequivocally–an investment.
Profitability is squeezed to the limit
Jan Freitag, director national of hospitality analytics for CoStar Group, said that margin pressure was increasing.
The top-line revenue is growing slower than expenses, making profit generation harder. GOPPAR is the only way to increase profit. [come] Consistent, disciplined control of every expense line. “Labor remains the main pressure point.”
Current projections indicate RevPAR increases of about 0.6 percent. This is due to ADR growth around 1 percent. This pace is below the inflation rate and wage increases in most markets. Operators cannot depend on higher revenue alone to cover increased labor costs.
The American Hotel & Lodging Association has provided data on the American hotel and lodging industry.
Report on the State of the Industry in 2026 Support this.
The report states that “Labor costs are expected to rise due to wage hikes mandated by the government, benefits expansions, tariffs on furniture, and compliance expenses, even though ADR growth is slowing down.” The report states that each increase in the labor burden has led to a reduction of gross operating profits, with operators having limited options for cost offsets.
Value Shift
Labor stability will now be a factor in property values as transaction volumes increase by 2026. With AHLA predicting that labor costs will reach $131 billion in this year, the stability of workers is not just a HR metric, but a valuation metric.
Freitag said that buyers traditionally have prioritized the PIP when calculating post-purchase costs. The cost of labor and insurance is now being given equal attention.
This dynamic can be seen in markets with a high union density, such as Los Angeles, Boston and New York City. The future of labor costs is uncertain in these cities, and property sales have halted while buyers await clarity regarding contract negotiations.
Recent research by CBRE shows that, as ADR grows slower, the total revenue of a property is being boosted through high-margin streams such as attribute-based pricing.
These revenue streams are low-cost and require minimal additional work. This has a significant impact on the bottom line.
Freitag stated that “based on conversations with hotel owners and operators,” the most common place to find incremental growth was outside of revenue from rooms. Owners find margin improvement through other revenue streams, such as elevated grab-and go concepts and zero proof cocktails that increase check size without requiring high costs of product or additional staff.
The capital markets are interested in operational strategies.
Amber Asher is the chairperson of Helbraun-Levey’s hotel group. She noted that F&B and strategic partnerships are key drivers for top line growth. These properties are attractive to lenders because they offer a diverse, weatherproof income profile by generating non-room revenues and consistently high local traffic.
Paul Sacco is the chief growth and developments officer of Maryland’s PM Hotel Group.
The company is celebrating 30 years in business this year. We view this as the most controllable and significant investment for both guests’ experience, employee experience, as well as owner return.
The company is striving for operational precision using it as its core engine of growth. Alignment is key to achieving operational precision.
Sacco added, “Aligning the staffing, scheduling and service delivery to real-time patterns of demand–that’s leveraging data and empowering leadership on property to make smart and localized decisions which protect service standards and brand promise as well as profitability.” The combination of a positive guest experience with team engagement and well-informed staffing decisions creates a sustainable income stream for the owner.
He added that from a perspective of growth and development, discipline is a key differentiator. Owners are now less concerned with broad promises, and instead focus on the ability to execute consistently. Precision in labor doesn’t mean doing more work with less, but rather doing the right thing with the correct people at the appropriate time.
Infinite Career Pathways
Who are the best people to hire?
Working in hospitality is it a temporary solution for some or their goal? Hospitality will be the ideal stopgap because it is the best stopgap. Students, actors, musicians and writers will always be attracted to the industry. David Sherwyn is the academic director at Cornell Center for Innovative Hospitality Labor and Employment Relations. He said that you can earn a great deal of money with a limited amount of education in a relatively short time. He added that these employees have a value inherent to the industry.
They bring a constant infusion of energy, personalities and diversity which directly improves guest experiences.
Some employees may start in hospitality as an entry level employee, but decide that it’s not the career they are interested in long term. Sherwyn said that, in the hospitality industry, “One day, you could be the General Manager, another day, you might be Corporate, and the next day, you may be Regional Manager with six hotels under your command.” “The possibilities are endless.”
While there is room for a stopgap in this industry, it would be best to focus equally on building a career.
It’s also the industry’s interest that people see hospitality as an excellent long-term, high-earning career.
Visit Us for a While
Rosanna Maietta said, “Hospitality is a career that can last a lifetime and help you achieve the American Dream.” Many hotel executives and owners started their careers in entry-level positions: making beds, washing dishes or helping check guests in. The hotel industry offers upward mobility without a college degree. It only requires perseverance and commitment to customer service.
Hotel industry is a major contributor to employment in the country. AHLA’s State of the Industry Report 2026 noted that despite rising labor costs and more stringent regulations, the hotel industry employed 2.17 millions workers in 2025. The projections for 2026 show a stronger growth with more than 30,000 additional positions. This will bring the total number of direct hotel jobs to approximately 2.2 millions (see graph on opposite page).
Maietta stated that some legislative levers were crucial for recruiting and retention.
She said that the “No Tax on Tips” Act was a vital tool to recruit hospitality workers, allowing them to keep more of their earnings. This provision is “critically” important to the growth and long-term success of the industry.
In addition, it is important to modernize the 30 year-old H-2B cap and make it a needs-based system in order to address the ongoing shortage of staff. This will also help maintain the service level that guests have come expect. She said that the H-2B cap had not been changed for more than thirty years. We have supported additional visas for workers to help the local economy, the tourism industry, small businesses, and hoteliers who run communities.
The AHLA Foundation focuses, in a similar way, on the development of talent, at every level, including entry-level and leadership training, to ensure the industry is equipped with a diverse, skilled and motivated workforce that can meet current and future market demands.
Retention is a good investment.
Operators must accept a harsh financial reality to build long-term paths: replacing an employee is often more expensive than developing one.
Freitag explains that “Historically, it has proven more cost effective to retain and train an employee than replace them.” Turnover has additional costs, which are usually underestimated. These include the extended time needed to fill vacancies as well as recruiting and onboarding replacements.
The remaining staff is stretched thin during these periods and this can affect the service quality.
Cornell Center for Hospitality Research estimates that replacing one frontline employee can cost upwards of $6,000. Society for Human Resource Management statistics show that a manager’s turnover could drain nine months worth of salary for recruitment costs and productivity losses.
Sacco shared that “we’re investing cross-training and technology to enable us, as well as clearer career paths, so our team members will be more productive and engaged and more likely stay,” he said. This framework will reduce turnover costs which can be just as important as wages.
Human Touch
Sherwyn noted that achieving the right balance between high-touch service and tech-enabled efficiency is a tricky task. It’s a subject of discussion in Cornell classes. He noted that the industry has happily handed over mundane administrative tasks and operations to technology. Guests don’t mind if robots vacuum hallways or if they can order a sandwich on an iPad as long as it is a smooth, precise transaction.
A concierge can be a valuable resource for a guest who is looking to enjoy a meal at a restaurant.
Automating basic tasks allows operators to redeploy staff in a strategic way to provide empathy, problem solving, emotional intelligence, and personalized solutions that AI can’t duplicate.
The modern business model of hospitality is based on a decision about which services can be best delivered by technology, and which require the warmth that only human interaction provides.
Those who can adapt to a world of shrinking margins, changing workforce expectations and heightened competition will be the ones to redefine the meaning of being an employer of choice for this and future generations.
