1 EMPLOYMENT and INCOME CREATION 1. National Income 2. The distribution of national income 3. The direct value of tourism to the employment of factors.

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EMPLOYMENT and INCOME EMPLOYMENT and INCOME CREATIONCREATION

1. National Income1. National Income 2. The distribution of national income2. The distribution of national income 3. The direct value of tourism to the employment 3. The direct value of tourism to the employment

of factorsof factors 4. The direct value of domestic tourism4. The direct value of domestic tourism 5. The direct value of international tourism5. The direct value of international tourism 6. The direct value of T&T in generating areas6. The direct value of T&T in generating areas 7. The distribution of tourism-generated income7. The distribution of tourism-generated income

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1. National Income1. National Income In a basic In a basic closedclosed economy ( economy (or one in which the government or one in which the government

plays a neutral role, and there is a zero external trade plays a neutral role, and there is a zero external trade balancebalance) the level of national income is determined by the total ) the level of national income is determined by the total value of consumption value of consumption (C)(C) and investment and investment ( I )( I ) in any one time in any one time period. period.

Income distributed may be spent on further consumptionIncome distributed may be spent on further consumption (C) (C) or saved ( or saved ( SS ). The total ). The total C+IC+I or or C+SC+S may or may not yield may or may not yield full full employmentemployment. .

Assume that people at some point wish to consume more -that Assume that people at some point wish to consume more -that is, the is, the propensity to consumepropensity to consume increases. The effect may be increases. The effect may be > > an increase in general prices if producers do not wish to an increase in general prices if producers do not wish to produce more or the economy already at full employment, or produce more or the economy already at full employment, or > > producers mproducers maay expand output to meet the increased y expand output to meet the increased demand, and so demand, and so GDPGDP and and national incomenational income increase increase

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1. National Income1. National Income

If businesses for some reason wish to increase If businesses for some reason wish to increase their investment in fixed productive capacity their investment in fixed productive capacity ((perhaps because they anticipate good future perhaps because they anticipate good future demand, or to take advantage of new demand, or to take advantage of new technologytechnology) ) > > the economy will, the economy will, cet parcet par, , expandexpand to provide to provide the new investment products, or the new investment products, or > > later expand again through later expand again through outputoutput of all of all products from the products from the new investmentnew investment. . This once again may expand national income.This once again may expand national income.

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1. National Income1. National Income In an economy where In an economy where

> > government plays an active budget role through government plays an active budget role through taxation taxation (T)(T) and government expenditure and government expenditure (G),(G), and and > > export and import levels export and import levels (X (X andand M) M) do not balance, do not balance, net net inflows or injectionsinflows or injections to the economy to the economy (G – T (G – T >> 0 or X – 0 or X – M M >> 0) 0) are likely to have the same effect. are likely to have the same effect.

A A net export surplusnet export surplus allows foreign investment to build allows foreign investment to build up or the acquisition of later imports without cost. up or the acquisition of later imports without cost.

However, However, net positive government expenditurenet positive government expenditure, like , like increased consumption, may be financed through credit -increased consumption, may be financed through credit -which may not only be inflationary, but may drive up which may not only be inflationary, but may drive up interest rates and affect business investmentinterest rates and affect business investment

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1. National Income1. National Income

Net Net outflowsoutflows or or leakagesleakages from an economy ( from an economy (G – T G – T << 0 or X 0 or X – M – M << 0 0) can reduce the value of national income as money ) can reduce the value of national income as money flows out to government or to foreign suppliers-the latter flows out to government or to foreign suppliers-the latter becoming creditors to the economy.becoming creditors to the economy.

Investment decisionsInvestment decisions, which will then induce further , which will then induce further expansion in national income, are influenced by expansion in national income, are influenced by > > the need to replace the need to replace worn-outworn-out productive assets, productive assets, > > interest rates and expectations. interest rates and expectations.

A government’s monetary policy can control both of these, A government’s monetary policy can control both of these, as it can go some way towards controlling the general level as it can go some way towards controlling the general level of consumption through consumer credit and the supply of of consumption through consumer credit and the supply of money. money.

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2. The distribution of national income2. The distribution of national income

TThe size of he size of NI– per NI– per capita measurescapita measures-,-, its its composition and its allocationcomposition and its allocation all important to an all important to an economy. economy.

A large and diversified economy A large and diversified economy > > will have many productive sectors and little will have many productive sectors and little sectoral sectoral concentration. concentration. > > will be less vulnerable to cycles and specific will be less vulnerable to cycles and specific slumps than a small economy based on few slumps than a small economy based on few sectors. sectors.

TThis has a particular importance for the value his has a particular importance for the value obtained from developing tourism. obtained from developing tourism.

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2. The distribution of national income2. The distribution of national income The way in which national income is then split up also helps The way in which national income is then split up also helps

determine the size of the economy.determine the size of the economy. In countries, where income is unevenly distributed, In countries, where income is unevenly distributed,

- country’s production - country’s production is in the hands of few individuals or is in the hands of few individuals or businesses, and that is highly automated, requiring plenty of businesses, and that is highly automated, requiring plenty of capital but little laborcapital but little labor- -

*** economic *** economic growth probably depends on growth probably depends on export marketsexport markets or or reallocativereallocative government fiscal policiesgovernment fiscal policies; propensities to ; propensities to save amongst the majority of the population are probably save amongst the majority of the population are probably zero, and imbalance-based political instability makes zero, and imbalance-based political instability makes prediction of prediction of country’s country’s future national income very future national income very riskyrisky..

** Policies for development, including tourism development, Policies for development, including tourism development, may then promote not just income generation, but normative may then promote not just income generation, but normative goals of income distribution.goals of income distribution.

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3. The direct value of tourism to the 3. The direct value of tourism to the employment of factorsemployment of factors

The T&TThe T&T sector has a sector has a significantsignificant impactimpact in many in many economies.economies.

1.1. sector of relatively recent development sector of relatively recent development and and still showing still showing growth Most countries now identify growth Most countries now identify T&T T&T as a discrete as a discrete productive sectorproductive sector..

2.2. because because T&T T&T can assume many different forms, an can assume many different forms, an economy may need only economy may need only minor structuralminor structural changeschanges of of resource reallocation into tourism. This attracts resource reallocation into tourism. This attracts governments looking for development opportunities. governments looking for development opportunities.

3.3. tourism can often be developed specifically in locations tourism can often be developed specifically in locations and with resources, which have little and with resources, which have little alternative economic alternative economic useuse ( (that is, low opportunity coststhat is, low opportunity costs), such as picturesque ), such as picturesque landscapelandscape locations with no mineral resources and little locations with no mineral resources and little agricultural value. This allows the direct employment of agricultural value. This allows the direct employment of land as a factor at little marginal cost. land as a factor at little marginal cost.

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4. The direct value of domestic tourism4. The direct value of domestic tourism Domestic Domestic tourism expenditure normally counts as tourism expenditure normally counts as

part of part of C + IC + I, and therefore is principally a , and therefore is principally a reallocationreallocation of consumers’ or producers’ spending of consumers’ or producers’ spending from something else. The reallocative effects will from something else. The reallocative effects will depend on answers to the following questions:depend on answers to the following questions:

1.1. What was the What was the opportunityopportunity useuse of the cash spent of the cash spent on tourism? (on tourism? (That is, what would tourists have done That is, what would tourists have done with their money if they did not make tourist tripswith their money if they did not make tourist trips?)?)

2.2. Do tourists ‘Do tourists ‘spread out’spread out’ their spending their spending spatiallyspatially ((regionallyregionally)?)?

3.3. Are the destination areas generally Are the destination areas generally less well-offless well-off than generating areas in terms of than generating areas in terms of incomesincomes and and unemployment?unemployment?

4. 4. Do trips Do trips induceinduce tourists to return permanently? tourists to return permanently?

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4. The direct value of domestic tourism4. The direct value of domestic tourism The first questionThe first question provides a key to the value of provides a key to the value of

domestic tourism in a couple of important ways. domestic tourism in a couple of important ways. > > FirstlyFirstly, if the , if the alternativealternative to domestic tourism were to domestic tourism were foreign tourism expenditure, then by spending foreign tourism expenditure, then by spending domestically there would be a form of domestically there would be a form of import import substitutionsubstitution reducing the leakage of reducing the leakage of MM and actually and actually increasing increasing C + I.C + I. This directly benefits national This directly benefits national income. The same is true if the alternative to a income. The same is true if the alternative to a domestic trip were spending on domestic trip were spending on importedimported goods. goods. > > SecondlySecondly, if rather than buying tourism people , if rather than buying tourism people bought goods and services at home (bought goods and services at home (such as home such as home improvements or entertainmentimprovements or entertainment) income and wealth ) income and wealth would tend to be concentrated in the areas which would tend to be concentrated in the areas which would otherwise be would otherwise be generatorsgenerators..

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4. The direct value of domestic tourism4. The direct value of domestic tourism

The answers to the The answers to the secondsecond and and thirdthird questionsquestions carry this a little further. carry this a little further.

If domestic tourists spread their activity spatially, If domestic tourists spread their activity spatially, there is a there is a redistributiveredistributive effect on income and effect on income and employment. employment.

Concentration on ‘Concentration on ‘localization’localization’ of tourists can of tourists can be measured, and highly localized domestic be measured, and highly localized domestic tourism tends to create local tourism tends to create local excessexcess demand, demand, price rises and may actually reduce price rises and may actually reduce realreal incomes in destination areas. incomes in destination areas.

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4. The direct value of domestic tourism4. The direct value of domestic tourism If destination areas start with underemployment and If destination areas start with underemployment and

comparatively comparatively lowlow incomes, tourism will create incomes, tourism will create employment and may employment and may raiseraise incomes, depending on incomes, depending on the structure of the tourism the structure of the tourism laborlabor market. This market. This means:means:

1.1. There can be a There can be a reductionreduction in government spending in government spending (G)(G) as unemployment payouts are reduced as unemployment payouts are reduced

2.2. There may be an increase in taxation revenue There may be an increase in taxation revenue ( T )( T ) from newly earned incomes, although this depends from newly earned incomes, although this depends on threshold on threshold taxtax ratesrates and the opportunity use of and the opportunity use of tourist’s expendituretourist’s expenditure

3. 3. Marginal propensities to save may Marginal propensities to save may fallfall slightly, as slightly, as tourists’ spending transfers income to less well-off tourists’ spending transfers income to less well-off recipients who would tend, cet.-par., to have a higher recipients who would tend, cet.-par., to have a higher propensity to consume. propensity to consume.

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4. The direct value of domestic tourism4. The direct value of domestic tourism

The forth questionThe forth question is frequently provides a key to long- is frequently provides a key to long-term development of tourism destinations and hence to term development of tourism destinations and hence to the spatial redistribution of economic activity. the spatial redistribution of economic activity.

Tourists have visited coastal destinations in many Tourists have visited coastal destinations in many countries, liked them, and retired there - providing a countries, liked them, and retired there - providing a permanent demand base. permanent demand base.

Others who are entrepreneurs in ‘footloose’ industries Others who are entrepreneurs in ‘footloose’ industries may decide to may decide to relocaterelocate their businesses to pleasant their businesses to pleasant areas they have visited as tourists; areas they have visited as tourists;

Such moves in the United Kingdom, backed by Such moves in the United Kingdom, backed by government policy, have decentralized economic activity government policy, have decentralized economic activity from London and other major cities,from London and other major cities,

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5. The direct value of international tourism5. The direct value of international tourism

The main direct benefit to national income of The main direct benefit to national income of inbound international tourism is the inbound international tourism is the injectioninjection of of moneymoney and demand from an and demand from an externalexternal source. source. This is equivalent to an increase in exports This is equivalent to an increase in exports ( X )( X )..

The major difference between The major difference between tourismtourism revenuerevenue and and goods-export revenuegoods-export revenue is that is that > > the latter often generates an overseas credit, the latter often generates an overseas credit, similar to an increase in similar to an increase in ( I ),( I ), > > whereas in most cases tourism expenditure whereas in most cases tourism expenditure physically takes place inside the receiving physically takes place inside the receiving country on goods and services which are country on goods and services which are normally regarded as a consumption items.normally regarded as a consumption items.

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5. The direct value of international tourism5. The direct value of international tourism

Other than international balance of payments effects Other than international balance of payments effects two other major impacts may result from inbound two other major impacts may result from inbound tourism:tourism:1. 1. DemonstrationDemonstration effects effects2. 2. PressurePressure on on priceprice levels levels

Demonstration effectsDemonstration effects: : particularly in less developedparticularly in less developed countriescountries, residents observe and learn lifestyles and , residents observe and learn lifestyles and consumption patterns of inbound tourists, and may consumption patterns of inbound tourists, and may seek to seek to emulate(emulate(doing betterdoing better)) them. them.

In economic terms this may result changes in In economic terms this may result changes in consumptionconsumption patternspatterns, and result in say, a higher , and result in say, a higher propensity to propensity to importimport those consumer items which those consumer items which tourists are seen to have. Therefore ( tourists are seen to have. Therefore ( M )M ) rises and rises and partially partially offsetsoffsets the value of increased ( the value of increased ( XX ))

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5. The direct value of international tourism5. The direct value of international tourism

Where tourists come from a country with Where tourists come from a country with generally-highergenerally-higher incomesincomes and price and price levels than their destination, they may levels than their destination, they may bring bring price pressuresprice pressures with them. with them.

This is a form of This is a form of importedimported inflationinflation, but , but differs from the usual concept, (that high-differs from the usual concept, (that high-priced imports increase local costs) as it priced imports increase local costs) as it works through extra demand works through extra demand pressurespressures and the demonstration effect. and the demonstration effect.

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5. The direct value of international tourism5. The direct value of international tourism

One result of ‘One result of ‘rich tourists’rich tourists’ arrivals may be the arrivals may be the development development dual marketsdual markets with with separateseparate prices prices for tourists and locals. Sometimes these are for tourists and locals. Sometimes these are officially officially sanctionedsanctioned, as with property rentals in , as with property rentals in many states; elsewhere dual markets may develop many states; elsewhere dual markets may develop informally informally > > through through product product differentiationdifferentiation (souvenir (souvenir hawkers congregating only at tourist attractions and hawkers congregating only at tourist attractions and selling at relatively high prices despite bargaining), selling at relatively high prices despite bargaining), or or > > through ‘through ‘spot the tourist’spot the tourist’ methods of price methods of price discrimination. In this way, incomes and discrimination. In this way, incomes and employment are generated without exposure to employment are generated without exposure to inflated pricesinflated prices

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6. The direct value of T&T in generating areas6. The direct value of T&T in generating areas

Very few researchers have attempted to analyze Very few researchers have attempted to analyze the value, if any, of tourism to generating the value, if any, of tourism to generating economies. Certainly most tourism activity means a economies. Certainly most tourism activity means a reductionreduction in national income in these economies, in national income in these economies, as travel away represents a leakage as travel away represents a leakage ( M ( M ).).

However, However, mass tourism generationmass tourism generation, , at least, is at least, is likely to produce:likely to produce:

1. 1. EmploymentEmployment in travel agencies, tour operators, in travel agencies, tour operators, transport undertakings and enterprises engaged in transport undertakings and enterprises engaged in marketing destinationsmarketing destinations

2.2. InvestmentInvestment by carriers and tour operators, and the by carriers and tour operators, and the possibility of developing multinational tourism possibility of developing multinational tourism enterprisesenterprises

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6. The direct value of T&T in generating 6. The direct value of T&T in generating areasareas

A possible A possible fallfall in seasonal price levels in seasonal price levels whilst tourists are away whilst tourists are away

IncreasesIncreases in short-term in short-term savingsaving ( S )( S ) as as people ‘put by’ for trips, or businesses people ‘put by’ for trips, or businesses hod prepayments on money marketshod prepayments on money markets

A A sourcesource of of taxationtaxation revenue revenue ( T )( T ) on on those items purchased before or on those items purchased before or on departure.departure.

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7. The distribution of tourism-generated 7. The distribution of tourism-generated incomeincome

The direct and indirect impacts of tourism The direct and indirect impacts of tourism expenditure depend on the ways in which expenditure depend on the ways in which the receipts are allocatedthe receipts are allocated> which in turn depend on the > which in turn depend on the ownershipownership and and resource utilizationresource utilization of the tourism of the tourism supplying sector. supplying sector.

Intensity of use of factors of production Intensity of use of factors of production depends on a factor depends on a factor productivityproductivity and also and also on the on the type of tourismtype of tourism provided. provided.

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Use of factors in tourism productionUse of factors in tourism production

Culturelust/BusinessCulturelust/Business

enterprise-intensiveenterprise-intensive capital-intensivecapital-intensive

Hong-KongHong-Kong LondonLondon

Cheap-wage Econ.Cheap-wage Econ. Dear-wage Dear-wage

MoroccoMorocco HawaiiHawaii

Land-intensiveLand-intensive Labor-facilities int.Labor-facilities int.

SunlustSunlust

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7. The distribution of tourism-generated income7. The distribution of tourism-generated income

Destinations Destinations tend,tend, cet. par.,cet. par., to possess a to possess a tourism sector whose income is distributed tourism sector whose income is distributed in relation to the intensity of factor use. in relation to the intensity of factor use.

Thus for Thus for $ 1 $ 1 spent on a trip to Morocco, spent on a trip to Morocco, more employmentmore employment is likely to be is likely to be generated than with a trip to London, generated than with a trip to London, where the dollar is likely to be ‘where the dollar is likely to be ‘used’used’ more more in returns to capital such as financing hotel in returns to capital such as financing hotel property costs or paying for phone calls.property costs or paying for phone calls.

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7. The distribution of tourism-generated income7. The distribution of tourism-generated income

The distribution of returns to factors of production in tourism The distribution of returns to factors of production in tourism therefore therefore dependsdepends > not only > not only on the on the marginal productivity or efficiencymarginal productivity or efficiency of of each factor,each factor,> > but also on the type of tourism. but also on the type of tourism.

In ‘In ‘sunlust’sunlust’-based -based less-developedless-developed countries tourism countries tourism usually provides increased usually provides increased employmentemployment, though not always , though not always with high wages, which increases ( with high wages, which increases ( C ) C ) directly. directly.

In In higher-wagehigher-wage economies, tourism development might economies, tourism development might mean a call on fixed investment, for sophisticated transport mean a call on fixed investment, for sophisticated transport systems, resort development. This ties up revenue in systems, resort development. This ties up revenue in financingfinancing ( I )( I ), and the effects of tourism on the economy , and the effects of tourism on the economy then depend on who supplied the capital and what the then depend on who supplied the capital and what the supplier does with the supplier does with the interestinterest income. income.

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7. The distribution of tourism-generated income7. The distribution of tourism-generated income

In tourism generally, as with other industries, In tourism generally, as with other industries, capital-labor capital-labor ratiosratios are changing to reflect the use of increased are changing to reflect the use of increased technologytechnology and, as demand grow, the increasing costs of and, as demand grow, the increasing costs of land and land facilities that are in relatively land and land facilities that are in relatively fixed supplyfixed supply. .

However, the process of labor replacement in However, the process of labor replacement in T&T isT&T is slower slower than in many other industries, because of emphasis paced than in many other industries, because of emphasis paced both by producers and consumers on the characteristic of both by producers and consumers on the characteristic of personal servicepersonal service. .

Thus even in a high-wage economy there will still remain Thus even in a high-wage economy there will still remain laborlabor--intensiveintensive tourism enterprises tourism enterprises. . If consuming tourists If consuming tourists want this service characteristic they are usually prepared to want this service characteristic they are usually prepared to pay for it, and direct employment and the allocation of pay for it, and direct employment and the allocation of income to wages remain highincome to wages remain high