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
1
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
2
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.
3
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
4
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.
5
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.
6
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.
7
3. The direct value of tourism to the
employment of factors

1.
2.
3.
The T&T sector has a significant impact in many
economies.
sector of relatively recent development and still showing
growth Most countries now identify T&T as a discrete
productive sector.
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.
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.
8
4. The direct value of domestic tourism

1.
2.
3.
4.
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:
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?)
Do tourists ‘spread out’ their spending spatially
(regionally)?
Are the destination areas generally less well-off
than generating areas in terms of incomes and
unemployment?
Do trips induce tourists to return permanently?
9
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.
10
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.
11
4. The direct value of domestic tourism

1.
2.
3.
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:
There can be a reduction in government spending
(G) as unemployment payouts are reduced
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
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.
12
4. The direct value of domestic tourism




The forth question is frequently provides a key to longterm 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,
13
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.
14
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 )
15
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 highpriced imports increase local costs) as it
works through extra demand pressures
and the demonstration effect.
16
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
17
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
18
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.
19
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.
20
Use of factors in tourism production
Culturelust/Business
enterprise-intensive
Hong-Kong
capital-intensive
London
Cheap-wage Econ.
Dear-wage
Morocco
Land-intensive
Hawaii
Labor-facilities int.
Sunlust
21
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.
22
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.
23
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
24