Modelling the employment, income and price elasticities of outbound tourism demand in OECD countries

Abstract

This study examines how employment affects demand for tourism in the short and long run, controlling for the effects of income and relative prices within a panel of 32 Organisation for Economic Co-operation and Development (OECD) countries throughout the 1995-2016 period. To this end, we employ second-generation panel unit root tests, panel cointegration tests and panel data estimation techniques. Panel cointegration tests uncovered a long-run relationship between international tourism expenditure per adult, gross domestic product per adult, effective exchange rates adjusted relative prices and employment to adult population ratio. A particular implication of the result would be that the quality of employment by way of remuneration which is sufficient enough to sustain outbound tourism expenditure does not move in synchrony with workforce expansion. The failure of employment to be a significant determinant of long-run outbound tourism demand may have to do with economic and demographic factors in OECD countries as well as employment business cycles. Diminishing returns to employment, a general decline in the labour income share, a rising inequality of wage distribution among the working population due to relative adjustments in factor intensities as well as an aging population may have played contributory roles to this phenomenon. Therefore, tourism stakeholders should take note of median wage changes of possible departure countries in relation to destination costs when developing marketing frameworks for tourist locations. Moreover, reduction in unemployment rates is only indicative of short-run changes, implying that a significant impact on average tourism demand should not be expected unless average income also rises.