Understanding Tourism's Labor Problem. One Perspective

Issue#8 (758 Words/4 Minutes)

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Understanding Tourism's Labor Problem. One Perspective

What's happened to labor in the tourism and hospitality industry? The size and scope of the challenge are significant, many employees have left the industry, and many are not coming back. By now, many analysts have weighed in on a variety of causes. They included pandemic benefits that were too generous, the same with unemployment benefits; kids were out of school, preventing parents from working, and just as important the availability of remote work. Many executives assumed that workers would come back once these benefits had finished and schools opened up for in-class learning. But that hasn't necessarily been the case.

There is a consensus that the pandemic provided employees with unique opportunities. Many hospitality workers reevaluated their employment situation to consider other career options. Many have decided to make a change to pursue higher-paying, less demanding, and more flexible jobs.

But is this solvable under the current situation? Maybe not. If we look at the issue of labor through the lens of pay and benefits in contrast with the industry's growth, the issue frames differently. Figure 1 below provides an interesting context to consider. According to the Bureau of Labor Statistics, the average hourly earnings for all employees (including supervisory and non-supervisory was $12.52 in 2011. By 2019 before the pandemic, the average had increased to $16.16.

Figure 1: Hourly Hospitality Wage Rates

Source: Bureau of Labor Statistics

It should also be noted, according to the bureau of labor statistics, that the percentage of hospitality employees with health care remained unchanged over the same period, with approximately 34% of industry workers having access to health care. See Figure 2.

Figure 2: Hospitality Employees with Health Care

Source: Bureau of Labor Statistics

It appears that during this almost ten-year time frame, employee earning increased, and the amount of health care remained the same

In contrast, things appear to be different at the corporate level. Figure 3 below shows the Dow Jones Industrial Average Hospitality index. Reflecting stock prices of public traded hospitality companies, this index zooms from 598 to 10,698 during the same time frame -- a nearly 17-fold increase.

Figure 3: Dow Jones Industrial Average Hospitality index

Source: Dow Jones

When we look at the rate of growth between hospitality workers' hourly earnings and the appreciation of the stock price of hospitality companies, it's a significant difference.

Figure 4: Percentage Change 2011-2019

Source: Bureau of Labor Statistics, Dow Jones

During the 2011–2019 time frame, hourly hospitality wage rates increased 29 percent. At the same time, the hospitality index increased 1600 percent. Quite a significant difference suggests hospitality companies did very well, but those gains did not translate to hourly workers in the same way. As a result, COVID provided a suitable time for many to reassess the situation and make changes.

Can the situation be fixed? One hopes so. Fewer available hospitality employees for primary visitor activities means reduced operations, fewer hours, and declining overall service levels. Look to see more automation, including more self-check at the grocery store. Restaurants will change their business model, including more automation for ordering and pick-up and reducing in-room dining. The lodging industry has already reacted with reduced room service, maid service, and front desk service. How long consumers will accept these lower services levels is anyone's guess.

But it is not as easy as it seems. Being a publicly traded company is complex, and Wall Street has its own rules, including the demand for CEOs to balance shareholder value and customer service. The two are often at odds as institutional investors require an increased value (earnings) regardless of how you get there, which requires increased revenue AND reduced operating costs (increasing margin). Increasing earnings by growing volume ... while reducing operating costs is a considerable challenge, and it becomes even more complicated when your labor is no longer willing to go along. It appears to be a structural problem between investors that demand a rate of return and that return has been based on a certain level of labor cost. At the same time, labor is now voting with their feet and leaving the industry while the consumer is in the middle with service level expectations they are paying for and, in many cases, not receiving.

The great resignation in the hospitality industry is a systemic problem for the current system, and it doesn't appear that it's going to get fixed any time soon. It's just one more part of a changing marketplace DMOs have to confront without the ability to impact it.

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