Economy impact on the hotel industry

George Mason University Alumni - Leading Patriots: Hospitality, Tourism,  and the GIG EconomyGeorge Mason University Alumni - Leading Patriots: Hospitality, Tourism,  and the GIG Economy

The economic impact of the hotel industry Hotels are considered an important economic component of any community. In some cases, cities and municipalities will provide incentives to stimulate the development of hotels. These incentives can take the form of tax breaks, preferential land leases or financing assistance. Before formulating hotel development incentives, cities or municipalities must conduct economic impact studies to estimate the economic benefits of development. The assessment should assess the short-term and long-term economic benefits of the initial investment. The economic impact of hotel development on local and regional economies is generally divided into four categories: direct, financial, indirect and induced.

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Direct impact :– 

The direct impact includes all projected revenues that the new hotel consumers will generate. This will include all room, food and beverage income from restaurants and banquets, as well as other potential sources of income, such as spas or parking spaces. The direct impact also includes the total wages paid to the employees employed by the hotel, as well as all wages paid to the temporary construction workers who build the hotel.  And the operation of new hotels. Taxes include all sales taxes related to the income generated by the hotel, as well as all salary-related taxes collected from full-time hotel employees and temporary construction workers. The local government will also levy a new property tax from the operation of the hotel. Many local governments also collect income through accommodation tax.

Indirect impacts :–

In addition to local governments and hotel owners/employees, contractors and suppliers of newly developed hotels will also benefit. The indirect impact includes all jobs and income created by companies that provide goods and services to the hotel. Companies that indirectly benefit from hotel development include room-related commodity suppliers (cleaning supplies, room service, etc.), telecommunications suppliers (Internet, cable TV, etc.), utility companies, food and beverage suppliers, etc. Hotel-related suppliers. Induced impact Induced impact refers to the economic impact of employees (full-time and temporary) and suppliers reusing wages to purchase from local consumers. For example, an employee might buy gasoline for his car on the way home from work. 

Calculation of impact : —

Impact Pinnacle Consulting Group’s calculations have conducted a number of economic impact studies on the development of the hotel. In most cases, the direct and financial impact can be calculated with relative confidence and accuracy. The pro forma hotel will calculate the directly affected income, and the full-time and temporary salary forecasts can be calculated by preparing employee timetables and combining local salary knowledge. On the other hand, indirect and induced effects involve a certain degree of subjectivity. Although it is possible to estimate the cost of goods and services, it is difficult to accurately estimate how much these costs will be incurred by local contractors and suppliers. The induced effects of reinvestment of wages in local consumer goods are also difficult to estimate. Various economists have created several complex models that recommend multipliers that can be applied to total direct hits to the dollar. Generally speaking, depending on various factors, including the size of the regional economy and economic diversity, the multiplier is usually between 1.1 and 2 of the total direct impact. The impact of hotels on local communities is often more than just job creation and additional taxes. When considering all economic factors, calculating the total direct, financial, indirect and induced impacts can give the public a more general understanding of the impact of hotel development.

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