A recent article from the BBC reports that the city of New York is preparing its services for an anticipated influx of tourists as COVID-19 related travel restrictions are to be finally relaxed.
This comes after a period of 20 months where the city was starved of much-needed tourism as the BBC reports that 65 million UK tourists visit New York every year.
This is because these American cities hold sights and tourist attractions such as the Statue of Liberty, and Manhattan, where Brits visit to try street food and explore the bustling city centre. Yet, with Christmas just around the corner, ice rinks are opening and Times Square will be gearing up with Christmas decorations to ensure that the incoming wave of tourists has many activities to choose from. So, what are the economic gains of tourism for an economy such as the US?
First, the incoming wave of tourists is bound to include a bucket of extra spending in the form of exports for the U.S economy, as tourists come into New York, they will demand products from the said city, such as the signature street food.
This increase in exports will make businesses and stores around the Manhattan area much more wealthy as they gain extra profits from the rise in demand. Consequently, because firms have seen a rise in demand for their products, it is likely that the price of these products may rise, especially for street vendors, who, through a differentiated product, may be able to develop increased brand loyalty with their tourists to make supernormal profits, enabling them to expand outside of a tiny booth on a street corner. Therefore, as firms profit maximising firms make greater profits, they are signalled and incentivised to raise their factors of production to satisfy greater levels of demand to further raise these said profits, hence, tourism in New York can lead to large employment gains as restaurant chains and Hotels look to hire more staff to accommodate rising demand.
This increase in employment can lead to a multiplier effect. The initial rise in consumption creates jobs, then, these newly employed workers spend their newly earned disposable incomes on goods and services, further increasing aggregate demand albeit at a smaller rate as cash leaks out of the circular flow through saving.
Further, as consumers purchase goods and services, the American government sees a rise in VAT tax receipts, which, can allow the US government to increase spending on public goods such as infrastructure, which, leads to a marginal increase in aggregate demand as money leaks out of the economy as these infrastructure projects may require imports from foreign nations, such as steel from China.
Overall, this yields a rise in aggregate demand, which, in the end, helps to close the output gap of the U.S economy whilst promoting short-run economic growth. However, it may be possible that this multiplier effect, may not occur as first thought. Data from Statista shows that in August 2021, about 10.44 million job vacancies in the United States.
The significance behind this data, is that, despite an unemployment rate of 4.60%, and the fact that there are 10 million jobs available, people are simply not going to work.
This means that, if this is applied to work in hospitality-related industries, which are essential for tourism, and, which tend to be less sought after due to their unpredictable hours, then the initial employment boost that set the multiplier effect into motion may not be as large as first thought.
This combined with the fact that living costs in New York tend to be incredibly high means that for the average low skilled worker, there is no reason to work in the hospitality industry as the lower wages mean that they will be unable to sustain a suitable standard of living.
Consequently, young people are more likely to be in education busy upskilling rather than in low skilled hospitality work, and, women, who may be available for work, are unlikely to take these jobs due to their random hours which tend to not be very flexible. Hence, certain chains, such as Moxy, which do not have enough staff, are even offering guests the option to have less frequent room-cleaning every three days rather than one. At the same time, further concerns about COVID-19 mean that hospitality industries will be taking additional health and safety measures, such as distancing between staff, which will overall hinder the capacity at which they can serve customers, further reducing the benefits of this said multiplier effect.
Written by Hubert Kucharski