Abstract
This study examines the effect of cost of living (COL) on employee wages in the hotel industry. Although prior research
clearly indicates that COL and wages are positively related, there is a lack of research explicitly considering the specific
nature of the relationship between COL and wages, and potential moderators to the relationship. Using a dataset
containing information on 97 jobs over 67 cities, our study shows that while there is a positive effect of COL on wages,
the adjustment is not equal in magnitude to the difference that the COL levels would indicate. Furthermore, the effect of
COL decreases as the average wage for the given job increases. We also show differences in COL’s effects for full-service
versus limited-service hotels. We illustrate the implications of our findings by showing predicted wage rates for four jobs
in five different cities, at both full-service and limit-service hotels. The study has implications for research, particularly for
future work on COL and compensation. The findings also have important implications for practice, and may be particularly
useful when managers need to set pay levels when local market data are unavailable.