The Lodging Industry Investment Council‘s recent annual survey found that 67% of LIIC members said that the major threat to hotel investments was low unemployment (availability of labor), a jump from 49% in 2018. In light of their concerns we thought it worthwhile to review the growth in labor productivity, output and hours worked for hotels and motels since 1987. See the footnote for definitions of these terms. Since 1987 the number of employees in hotel and motels, excluding casino hotels, grew at a CAGR of 0.9% from 1.26 million to 1.65 million in 2018.
Figure 1 illustrates the relationship between labor productivity, output, and hours worked for hotel and motel employees over the thirty-year period, 1987-2017. Since 1987 labor productivity has grown by 54% compared with 93% for output and 25% for hours worked. Over the period, labor productivity has grown at a CAGR of 1.4% compared to 2.3% for the period since the Great Recession in 2008.
The growth rate in labor productivity for the period since 2008 was surpassed in an earlier period, 1958-1974, when it grew at the average annual rate of 2.5%.
Figure 1. Index of Labor Productivity, Output and Hours Worked for Hotels & Motels 1987-2017
Figure 2 compares the growth in labor productivity for employees in hotels and motels, full-service restaurants, limited-service eating places, drinking places and air transportation. Labor productivity for the air transportation sector has grown by a whopping 142.2% since 1987, compared to 54% for hotels and motels, 16.5% for full-service restaurants and 11.2 for limited-service eating places.
Labor productivity in air transportation grew most notably from 2002 to 2007, a period during which it recorded an average annual rate of change of 9.8%, largely through output contributions from the lower cost carriers and labor cuts from the legacy carries. (2)
Drinking places for alcoholic beverages have experienced a decline in labor productivity of 7.7%.
Figure 2. Index of Labor Productivity for Hotels & Motels, Limited-Service Eating Places, Full-Service Restaurants, Drinking Places and Air Transportation 1987-2017
(1) Labor Productivity measures the relationship between output and the labor time involved in its production, i.e., output per hour of labor
Output refers to the amount of goods and services produced.
Hours worked refers to the total number of hours worked by wage and salary workers, unincorporated self-employed workers, and unpaid family workers to produce output. (Also known as labor hours, hours, hours of all persons, or number of hours.)
(2) The legacy group comprises American Airlines, US Airways, America West, Trans World Airlines (TWA), Delta, Continental, United, Northwest, and Hawaiian (some of which are no longer operating). The low-cost group includes AirTran, Southwest Airlines, Alaska, JetBlue, Spirit, Allegiant, and Frontier.