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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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Presentation on theme: "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."— Presentation transcript:

1 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  4. The direct value of domestic tourism  5. The direct value of international tourism  6. The direct value of T&T in generating areas  7. The distribution of tourism-generated income

2 2 1. National Income  In a basic closed economy (or one in which the government plays a neutral role, and there is a zero external trade balance) the level of national income is determined by the total value of consumption (C) and investment ( I ) in any one time period.  Income distributed may be spent on further consumption (C) or saved ( S ). The total C+I or C+S may or may not yield full employment.  Assume that people at some point wish to consume more - that is, the propensity to consume increases. The effect may be > an increase in general prices if producers do not wish to produce more or the economy already at full employment, or > producers may expand output to meet the increased demand, and so GDP and national income increase

3 3 1. National Income  If businesses for some reason wish to increase their investment in fixed productive capacity (perhaps because they anticipate good future demand, or to take advantage of new technology) > the economy will, cet par, expand to provide the new investment products, or > later expand again through output of all products from the new investment. This once again may expand national income.

4 4 1. National Income  In an economy where > government plays an active budget role through taxation (T) and government expenditure (G), and > export and import levels (X and M) do not balance, net inflows or injections to the economy (G – T > 0 or X – M > 0) are likely to have the same effect.  A net export surplus allows foreign investment to build up or the acquisition of later imports without cost.  However, net positive government expenditure, like increased consumption, may be financed through credit - which may not only be inflationary, but may drive up interest rates and affect business investment

5 5 1. National Income  Net outflows or leakages from an economy (G – T < 0 or X – M < 0) can reduce the value of national income as money flows out to government or to foreign suppliers-the latter becoming creditors to the economy.  Investment decisions, which will then induce further expansion in national income, are influenced by > the need to replace worn-out productive assets, > interest rates and expectations.  A government’s monetary policy can control both of these, as it can go some way towards controlling the general level of consumption through consumer credit and the supply of money.

6 6 2. The distribution of national income  The size of NI– per capita measures-, its composition and its allocation all important to an economy.  A large and diversified economy > will have many productive sectors and little sectoral concentration. > will be less vulnerable to cycles and specific slumps than a small economy based on few sectors.  This has a particular importance for the value obtained from developing tourism.

7 7 2. The distribution of national income  The way in which national income is then split up also helps determine the size of the economy.  In countries, where income is unevenly distributed, - country’s production is in the hands of few individuals or businesses, and that is highly automated, requiring plenty of capital but little labor- *** economic growth probably depends on export markets or reallocative government fiscal policies; propensities to save amongst the majority of the population are probably zero, and imbalance-based political instability makes prediction of country’s future national income very risky. *Policies for development, including tourism development, may then promote not just income generation, but normative goals of income distribution.

8 8 3. The direct value of tourism to the employment of factors  The T&T sector has a significant impact in many economies. 1. sector of relatively recent development and still showing growth Most countries now identify T&T as a discrete productive sector. 2. because T&T can assume many different forms, an economy may need only minor structural changes of resource reallocation into tourism. This attracts governments looking for development opportunities. 3. tourism can often be developed specifically in locations and with resources, which have little alternative economic use (that is, low opportunity costs), such as picturesque landscape locations with no mineral resources and little agricultural value. This allows the direct employment of land as a factor at little marginal cost.

9 9 4. The direct value of domestic tourism  Domestic tourism expenditure normally counts as part of C + I, and therefore is principally a reallocation of consumers’ or producers’ spending from something else. The reallocative effects will depend on answers to the following questions: 1.What was the opportunity use of the cash spent on tourism? (That is, what would tourists have done with their money if they did not make tourist trips?) 2.Do tourists ‘spread out’ their spending spatially (regionally)? 3.Are the destination areas generally less well-off than generating areas in terms of incomes and unemployment? 4. Do trips induce tourists to return permanently?

10 10 4. The direct value of domestic tourism  The first question provides a key to the value of domestic tourism in a couple of important ways. > Firstly, if the alternative to domestic tourism were foreign tourism expenditure, then by spending domestically there would be a form of import substitution reducing the leakage of M and actually increasing C + I. This directly benefits national income. The same is true if the alternative to a domestic trip were spending on imported goods. > Secondly, if rather than buying tourism people bought goods and services at home (such as home improvements or entertainment) income and wealth would tend to be concentrated in the areas which would otherwise be generators.

11 11 4. The direct value of domestic tourism  The answers to the second and third questions carry this a little further.  If domestic tourists spread their activity spatially, there is a redistributive effect on income and employment.  Concentration on ‘localization’ of tourists can be measured, and highly localized domestic tourism tends to create local excess demand, price rises and may actually reduce real incomes in destination areas.

12 12 4. The direct value of domestic tourism  If destination areas start with underemployment and comparatively low incomes, tourism will create employment and may raise incomes, depending on the structure of the tourism labor market. This means: 1.There can be a reduction in government spending (G) as unemployment payouts are reduced 2.There may be an increase in taxation revenue ( T ) from newly earned incomes, although this depends on threshold tax rates and the opportunity use of tourist’s expenditure 3. Marginal propensities to save may fall slightly, as tourists’ spending transfers income to less well-off recipients who would tend, cet.-par., to have a higher propensity to consume.

13 13 4. The direct value of domestic tourism  The forth question is frequently provides a key to long- term development of tourism destinations and hence to the spatial redistribution of economic activity.  Tourists have visited coastal destinations in many countries, liked them, and retired there - providing a permanent demand base.  Others who are entrepreneurs in ‘footloose’ industries may decide to relocate their businesses to pleasant areas they have visited as tourists;  Such moves in the United Kingdom, backed by government policy, have decentralized economic activity from London and other major cities,

14 14 5. The direct value of international tourism  The main direct benefit to national income of inbound international tourism is the injection of money and demand from an external source. This is equivalent to an increase in exports ( X ).  The major difference between tourism revenue and goods-export revenue is that > the latter often generates an overseas credit, similar to an increase in ( I ), > whereas in most cases tourism expenditure physically takes place inside the receiving country on goods and services which are normally regarded as a consumption items.

15 15 5. The direct value of international tourism  Other than international balance of payments effects two other major impacts may result from inbound tourism: 1. Demonstration effects 2. Pressure on price levels  Demonstration effects: particularly in less developed countries, residents observe and learn lifestyles and consumption patterns of inbound tourists, and may seek to emulate(doing better) them.  In economic terms this may result changes in consumption patterns, and result in say, a higher propensity to import those consumer items which tourists are seen to have. Therefore ( M ) rises and partially offsets the value of increased ( X )

16 16 5. The direct value of international tourism  Where tourists come from a country with generally-higher incomes and price levels than their destination, they may bring price pressures with them.  This is a form of imported inflation, but differs from the usual concept, (that high- priced imports increase local costs) as it works through extra demand pressures and the demonstration effect.

17 17 5. The direct value of international tourism  One result of ‘rich tourists’ arrivals may be the development dual markets with separate prices for tourists and locals. Sometimes these are officially sanctioned, as with property rentals in many states; elsewhere dual markets may develop informally > through product differentiation (souvenir hawkers congregating only at tourist attractions and selling at relatively high prices despite bargaining), or > through ‘spot the tourist’ methods of price discrimination. In this way, incomes and employment are generated without exposure to inflated prices

18 18 6. The direct value of T&T in generating areas  Very few researchers have attempted to analyze the value, if any, of tourism to generating economies. Certainly most tourism activity means a reduction in national income in these economies, as travel away represents a leakage ( M ).  However, mass tourism generation, at least, is likely to produce: 1. Employment in travel agencies, tour operators, transport undertakings and enterprises engaged in marketing destinations 2.Investment by carriers and tour operators, and the possibility of developing multinational tourism enterprises

19 19 6. The direct value of T&T in generating areas  A possible fall in seasonal price levels whilst tourists are away  Increases in short-term saving ( S ) as people ‘put by’ for trips, or businesses hod prepayments on money markets  A source of taxation revenue ( T ) on those items purchased before or on departure.

20 20 7. The distribution of tourism-generated income  The direct and indirect impacts of tourism expenditure depend on the ways in which the receipts are allocated > which in turn depend on the ownership and resource utilization of the tourism supplying sector.  Intensity of use of factors of production depends on a factor productivity and also on the type of tourism provided.

21 21 Use of factors in tourism production Culturelust/Business enterprise-intensivecapital-intensive Hong-KongLondon Cheap-wage Econ.Dear-wage MoroccoHawaii Land-intensiveLabor-facilities int. Sunlust

22 22 7. The distribution of tourism-generated income  Destinations tend, cet. par., to possess a tourism sector whose income is distributed in relation to the intensity of factor use.  Thus for $ 1 spent on a trip to Morocco, more employment is likely to be generated than with a trip to London, where the dollar is likely to be ‘used’ more in returns to capital such as financing hotel property costs or paying for phone calls.

23 23 7. The distribution of tourism-generated income  The distribution of returns to factors of production in tourism therefore depends > not only on the marginal productivity or efficiency of each factor, > but also on the type of tourism.  In ‘sunlust’-based less-developed countries tourism usually provides increased employment, though not always with high wages, which increases ( C ) directly.  In higher-wage economies, tourism development might mean a call on fixed investment, for sophisticated transport systems, resort development. This ties up revenue in financing ( I ), and the effects of tourism on the economy then depend on who supplied the capital and what the supplier does with the interest income.

24 24 7. The distribution of tourism-generated income  In tourism generally, as with other industries, capital-labor ratios are changing to reflect the use of increased technology and, as demand grow, the increasing costs of land and land facilities that are in relatively fixed supply.  However, the process of labor replacement in T&T is slower than in many other industries, because of emphasis paced both by producers and consumers on the characteristic of personal service.  Thus even in a high-wage economy there will still remain labor-intensive tourism enterprises. If consuming tourists want this service characteristic they are usually prepared to pay for it, and direct employment and the allocation of income to wages remain high


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