Tourism: Facing the challenges of the future

John Key is so passionate about tourism that he made himselfMinister of Tourism.  The reason for his passion is obvious.  It is an industrythat builds on our uniqueness.  Our magnificent landscapes, safe environmentand low population density offer a unique experience to the tourist.  But despiteits obvious positives it is not clear that tourism sits comfortably in ourvision of becoming a high-wage, high-skilled economy.

International tourists spent nearly $9 billion in New Zealand in 2007 making it our largest foreign exchange earner.  We currently importconsiderably more than we export and without tourism our balance of paymentsdeficit would be much larger.  Tourism contributes about 5% of Gross DomesticProduct making it comparable to agriculture in its direct contribution to oureconomy.  Tourism spreads income earning opportunities around the country. Unlike many industries that are necessarily located in the large, wealthycentres, tourism extends its tentacles to all corners of the country.  Andtourism raises the value of our environment; without a pristine environmentthere would be few tourists.

Tourism in New Zealand has grown strongly over the past fewdecades.  The unprecedented rise in wealth in the West and more recently Asia has resulted in a rapid increase in the number of people who indulge in internationaltravel.  At the same time the economic conditions in New Zealand have favouredthe expansion of labour intensive industries such as tourism.   Until the mid2000s there was a plentiful supply of labour following the deep recession ofthe late eighties and strong migratory inflows since the beginning of thisdecade.  A growing workforce has kept labour relatively cheap compared withcapital (such as heavy machinery), which has benefitted labour intensive industries.

That tourism is labour intensive is often touted as apositive but the flip side of high labour intensity is low labour productivity. Tourism creates a lot of relatively low skilled, low wage jobs.  New Zealand’s low labour productivity growth over the past decade is partly ascribed to thestrong growth of labour intensive industries such as tourism and construction.

While labour-intensive economic growth is particularly attractivein our current time of growing unemployment queues, further down the line itwill bump against our aspirations to become a high-skill, high-wage economy. We are heading into an era of enormous demographic change that will see a rapidgrowth in the size of the non-working population relative to the workingpopulation.  Each working person will have to produce so much more just tomaintain our current average income levels. To grow our average incomes underthese demographic conditions will require a startling growth in productivity. It is not easy to imagine how tourism with its army of wait staff, bar tendersand cleaners will feature in the required leap in productivity. 

As New Zealand pulls out of the current recession and labourforce growth dwindles the labour and skill shortages of the mid-2000s willreappear. Wages will rise and labour intensive industries will face rapidlygrowing wage bills.  In order to remain competitive and viable our tourism operatorswill either need to seek a source of reasonably priced migrant labour or find waysof offering higher value services with fewer staff.   

Facing labour shortages and rising wage costs in the future thetourism industry is likely to lobby the government for more migrant labour.  Itwill be a demand that requires a delicate balancing act from government.  Acertain level of labour shortage keeps employers on their toes.  It forces themto think carefully about better ways of utilising our domestic labour or movingto higher value activities which are less reliant on labour and raise theirproductivity.  But we need to avoid labour constraints creating crippling bottlenecksin the production chain of key industries (like leaving fruit on trees to rotbecause there is nobody available to pick them). 

Using migrant labour also raises the issue of our society’s capacityto assimilate large numbers of relatively low skilled foreigners. We cannotafford the creation of an immigrant underclass with its associated social problems,as experienced in countries such as France and Spain.

Tourism is one of our key industries, not least for itscontribution to our foreign exchange earnings.  But its hunger for low skilledlabour puts it at odds with our drive for higher productivity.  If we starve itof migrant labour in our attempt to push it up the value chain we may kill thegolden goose.  Feeding it with a plentiful supply of migrant labour willsustain it but compromise our vision of a high wage, high skill economy andwill raise the risk of social discord.  Resolving this tension will requirecareful thought and forward planning.  The current recession takes the pressureoff the industry and provides a window of opportunity to put in place a strategythat will lead the industry through the next decade and beyond.

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