CityEconomist 

Exchange with Michael Phillips

Phillips: Dec 23, 2005 Lose tourism

I mentioned in an earlier blog that New Orleans wouldn’t be rebuilt because tourism is a losing business. So many people have demanded proof that I dug up the data. The pure case is Maui, an island. Maui is more than a pure case, it is a “best case” because the average tourist stays a whole week, rents a car and has no relatives in Maui. This compares with Disneyland or Disney World where people only stay for one day. There is virtually no other business in Maui, the farms produce sugar and pineapple worth less than 10% of the island’s total revenue. Here are the facts: Here are the facts: 2.3 million tourists spend $2.5 billion dollars which supports 115,000 people permanently living on the island of Maui. Of the 115,000 residents, 55,000 work. The rest don’t work; 27,000 are under 18 years old, 12,000 are over 65 years old. Of the $2.5 billion that the tourists spend, $1.0 billion is spent on hotel and condo lodging, which directly supports 10,000 workers. Local transportation expenditures are half a billion dollars and support 5,000 transit drivers and other related workers. Another three-quarters of a billion dollars is spent on food, one third in restaurants, creating jobs for 3-4,000 cooks, waiters and other food service staff. When thinking about tourism in New Orleans, it is better to modify data to more closely resemble San Francisco where four times as many out-of-the-area visitors spend half as much money as visitors to Maui do. San Francisco and New Orleans have roughly the same number of tourists who spend the same amount of money. That means that tourism could support a population in New Orleans and the surrounding area of less than 230,000 people. That is less than half of the pre-Katrina New Orleans City population of 480,000 and, considering the low wages in tourism, less than 100,000 could be expected to live in the City. So the City would shrink to less than one quarter of its size living on tourism. I’ll make the statement more emphatic: tourism, the only viable business, could barely support New Orleans at one quarter of its pre-Katrina population. Posted by Michael Phillips on Dec 23, 2005 at 05:10 PM | Permalink TrackBack TrackBack URL for this entry: http://www.typepad.com/t/trackback/3910348 

John Tepper Marlin, December 24, 2005:

Michael - I went to www.bls.gov and looked up the "Leisure and hospitality" supersector, which comprises (1) the arts, entertainment, and recreation sector, i.e., NAICS sector 71, and (2) the accommodation and food services sector, i.e., NAICS sector 72. NAICS is the North American Industrial Classification System, which a few years ago replaced the old Standard Industrial Classification (SIC code) system. BLS appropriately links sectors 71 and 72 because one is the bait (culture or sites or nice beaches) and the other is the hook, line and sinker that bring in the tourist fish. BAIT: The arts, entertainment, and recreation sector includes employers producing live performances, events, or exhibits intended for public viewing; employers preserving and exhibiting objects and sites of historical, cultural, or educational interest; and employers operating facilities or provide services that enable patrons to participate in recreational activities or pursue amusement, hobby, and leisure-time interests. HOOK, LINE AND SINKER: The "hospitality" sector includes employers providing lodging and preparing meals, snacks, and beverages for immediate consumption. So what do we find for the United States as a whole - a first, aggregate indication of the relationship between the tourist industry and the general economy? The Quarterly Census of Employment and Wages shows that: BAIT= 1.4% of all workers. The arts, entertainment and recreation sector represents about 1.4 percent of all employment and also 1.4 percent of all employers ("establishments," i.e., reporting entities for purposes of unemployment insurance). HOOK, LINE AND SINKER = 8.2% of workers. Accommodation and food services account for about 8.2 percent of all employment and 6.7 percent of all employers. What this suggests is that the hard core of tourism employs about 10% of the U.S. workforce. In most places this is probably less than 10% of the local gross product because the tourist industry doesn't pay as well as, say, financial services. We need to add to this 10% such things as the important ancillary business of retail sales to tourists. Also, the tourist industry buys a lot (e.g., food) from other sectors. Government officials like tourism because it brings in money from outside. It is an export industry. Every city must export something to pay for the food its residents eat. Developers come to government officials with ideas for buildings that will lure tourists. They then get the backing of the hotel and restaurant industry. Over the last few decades, stadiums and convention centers have been popular forms of bait, in part because they are tangible products for politicians to point to and they create a sugar-rush of construction jobs. The problem with monument-building in the name of tourist development is that the monuments are named after politicans or business sponsors but the bait is largely or totally paid for by taxpayers. The final irony is that the buildings often don't attract tourists and become white elephants. The 8.2% of employment in the hospitality sector depends on having effective bait being put out by the 1.4% of employment meant to lure the tourist fish. That's the crux of development and redevelopment planning. Frankly, I am insufficiently informed about specific plans in New Orleans to make more than a general comment. However, if I were a consultant advising government planners on what to do about this city, I would see tourism as an attractive option, both in the short term and the long term. After 9/11, out of solidarity with the City of New York, many organizations scheduled events here. That was very helpful to the City, and New Orleans could benefit by trying to get something under way. But unlike New York City, New Orleans is not yet ready to receive guests. In the long term, New Orleans has a terrific history, not just as a center for the growth of certain kinds of very popular music. Which brings me back to your main question: Will New Orleans recover back to its former size? I tend to agree with you that recovery will be slow. My reason for agreeing with you has less to do with an inherent characteristics of the tourist industry (the ratio of tourist employment to total employment varies widely) than with characteristics of (1) New Orleans and (2) any disaster area: 1. The area around New Orleans is largely below sea level. Developers are rightly cautious about investing money in building on such a base when global warming is creating uncertainties about where sea level is actually going to be in 50 years. 2. In New York City, Ground Zero is still being disputed more than four years after 9/11. What has worked is a specific functional project (a transit station) and new residential space converted from office space. The grand ideas are still just ideas. Cleaning up after 9/11 was a miracle of round-the-clock efforts. Rebuilding is going to take a little longer. Hope this is useful. John Posted by: John Tepper Marlin | Dec 24, 2005 at 04:17 AM