Tourism Economics - The multiplier effect - An opinion

Submitted by Malcolm Noden

May 13, 2015, 2:04 p.m.

In the aftermath of this year’s wonderful Shrimp Festival we have an opportune moment to examine that frequently asked question about such community-wide celebrations; “What’s in it for us?”

In a nutshell, the answer is revenues, jobs and taxes. When our out of town visitors spend their money here, in hotels, restaurants, tours and sightseeing, buying original art works, visiting state and local parks, and other places of public entertainment, the resulting revenues have two measureable impacts on our local economy. The first is known as the “direct effect” and is simply the summary total of all the money spent here by tourists. These monies are widely distributed among many local businesses, and non-profit organizations, such as churches, social agencies, and our Island Art Association.

The second is known as the “indirect, (or “multiplier”) effect” and it is simply what happens to all that money as it leads to a chain of expenditure-income-expenditure reactions which echo throughout our local economy. For example, a visiting couple decide to have dinner at one of our local restaurants. They spend $50.00, plus a nice tip for the waitperson. Their waitperson gets the tip to add to their weekly wage. The restaurant owner uses part of the money to pay the food vendor for his supplies, & to pay his various expenses, e.g. utilities, payroll, insurance, taxes etc. In turn the food vendor pays his suppliers and employees and so on. The city, the county, and the state also get their portion of the expenditures in the form of sales and occupancy taxes, which in turn are used for various established budgetary purposes, including promoting tourism.

The measure of the ratio between direct and indirect effects is reliant on many different factors. Economists create statistical models to examine, measure and explain how the ratio works at the county level for employment and income. In the case of employment it is not unusual for communities such as ours to have an employment multiplier that ranges from a low of 1.13 to a high of 2.63. Thus, in the case of the smallest multiplier, it would provide employment for 0.13 persons for each person directly employed in servicing the tourist. In the case of the highest multiplier each job in the tourist industry would produce 1.63 other jobs in the county.

The income multiplier is somewhat more complicated, and includes various elements including the community propensities for spending and saving along with other measures. The formula however has shown that in Florida we often have an income multiplier that demonstrates that each $1,000.00 dollars of tourist expenditure produces $2,000.00 of overall income. Even allowing for economic variations from county to county, those overall results are very important to us here in Nassau County.

Of course there are many other non-economic issues associated with our incoming tourists and the impact that they have upon us. And, we know from our vibrant real estate market, a significant number of former tourists have later become homeowners in our community.

To paraphrase the English poet Elizabeth Barrett Browning, (1806-1861). “Tourists-how do we love thee? Let us count the ways.”

Editor's Note: Malcolm A. Noden, who is the (Retired) Senior Lecturer in Management, Economics, Marketing and Tourism at the School of Hotel Administration, at Cornell University, is a well known expert in the applied economics of hospitality and tourism policy, promotion and development.

During his thirty-two year tenure at the Hotel School at Cornell, Mr. Noden was the Chair of the Academic Integrity Hearing Board, and served as an advisor to several successive Deans on various international education outreach programs. He taught several courses including, Resort & Condominium Management, Airline Management, Franchising, and two Tourism policy and development seminars. Noden's publications include a series of articles detailing the Federal tax and partnership consequences of the Tax Reform Act of 1986, in the Cornell Hotel & Restaurant Quarterly, in which new forms of ownership and asset based management, were explored.

Previous to his Cornell experience he served for many years in the operational aspects of the travel industry having been both an owner, and a manager of wholesale and retail travel agencies in the United States. He has had managerial experience in large international agencies as Thomas Cook & Sons, Ltd. and American Express Company, Inc.

Noden is also a consultant to several major companies in the private sector

Including, Banco Nacional de Mexico, and several resort hotels, both in the Caribbean and the United States.