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Employment
A labour intensive sector
As a highly competitive industry, the demand for the services of the hospitality sector is price sensitive.
An increase or reduction in the price of hospitality services has a huge impact on consumption even when
comparing with most other sectors.
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Hospitality businesses alone provide for 10 million jobs directly, representing 4,7% of the total employment in
the European Union and provide jobs indirectly to overall 16,6 million people. The hospitality sector, thanks to its
labour intensive nature, is a driving force for job creation. In fact, 1/3 of the costs are labour related expenses
of enterprises. One of the best example for the industry’s ability for job creation is the fact that in the last
decade the number of jobs in the hospitality sector increased by 29% compared to 7,1% in the overall economy.
Moreover, it had been one of the few sectors which during the financial and economic crisis continued creating
new jobs, while employment figures in the overall economy were decreasing.
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This outpacing growth of jobs
in the hospitality sector compared to other parts of the economy can also be observed when looking at VAT
reductions having taken place in some countries.
Examples of how low VAT boosts job creation in the hospitality sector
For example in
Sweden
, after the lowering of the VAT rate on restaurant services from 25 to 12% in 2012, it
could be observed that over the years of 2012 and 2013, employment increased by 8 and 6% respectively in the
restaurant sector, while the same figures were 1% and 3% for the control industry group.
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At the same time, expenditure on total wages also increased more
significantly in the restaurant sector namely between 4 and 7,5
percentage points higher than in the control industry group, while
they had been following a similar pattern before 2012. Thus, for
the outcomes relating to employment, and total wages, the impact
estimates are positive and significant at the 10% level.
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In
Germany
, between 2009 and 2016, i.e. 6 years after
the January 2010 VAT reduction from 19 to 7% in the
accommodation sector, an additional 46,666 jobs were
created. This corresponds to an increase of 18.5%, which is
significant compared to the 14.6% rise in the overall economy
in the same period of time.
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It should also be considered that the sector is
one, where jobs and place of production cannot
be relocated to third countries. All jobs created
directly benefit the people, the economy and the
state budgets in Europe. The reduction of VAT rates,
with increasing employment effects, can create
social welfare savings by bringing back people to
the job market. For example in
Ireland
, according
to Fáilte Ireland (Ireland’s National Tourism
Development Authority),
“Employment in tourism is
also increasing, arguably at a faster rate compared
with many other sectors - in large part due to the
Government’s decision to maintain the applicable
VAT rate at 9%”.
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After lowering VAT from
25 to 12% in 2012, Sweden
saw an increase of 8% in
employment.
In 2016, i.e. 6 years after the VAT
reduction in Germany from 19 to 7%
in the accommodation sector, an
additional 46,666 jobs were created.
HOTREC - Report on the benefits of low VAT on job creation and competitiveness in the European Union
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