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From the Pockets of Strangers

Economic Impacts of Tourism in Los Angeles and Five Competing Metropolitan Destinations

January 1, 2006 / By Daniel Flaming, Patrick Burns and Brent Haydamack
Underwriters: LA INC, The Convention and Visitors Bureau


While the visitor industry is a key economic engine for LA, it’s Lodging industry shows signs of structural weakness. Compared to the size of its visitor economy, LA’s Lodging inventory is only 62 percent of the national average. Compared to other cities with which it competes for tourism spending, LA’s Lodging industry serves a relatively small number of visitors given the size our economy. Its employment and revenue are underdeveloped relative to the size of the destination.


Directly related to the underdeveloped hotel industry is the fact that LA’s Lodging industry generates only 64 percent as many jobs as does the hotel industry in the national economy. Lodging wages in LA are lower than in most regions with which LA competes. The average Lodging industry worker in LA earns roughly three quarters of a living wage.

There is a clear public policy opportunity to generate higher revenue per available room and, in so doing, drive up demand for new hotel inventory along with the workers and wages to service them.

From the Pockets of Strangers studies the economic and employment impacts of tourism in general and the Lodging industry in particular in Los Angeles County compared to five other metropolitan destinations that constitute LA’s competitive set: Las Vegas, New York, Phoenix, San Diego, and San Francisco. The purpose is to inform public policy about:

  1. LA’s standing as a destination for visitors
  2. The economic benefits of tourism for Lodging industry workers
  3. Actions that can be taken to increase economic benefits from tourism

Tourism affects every area of the economy, but its most important impact is on the Lodging industry. One of the central findings of this study is that LA fares well from the many of the less visible connections with tourism, such as film distribution, but fares comparatively poorly in the center-piece industry – Lodging.

Tourism accounted for 3.2 percent of LA’s total industry output in 2002, making it a $21 billion market and generating roughly 180,000 jobs. Between 4 and 5 percent of Los Angeles residents are employed in tourism linked jobs, putting it above the national average but below Phoenix, San Francisco and Las Vegas.

LA’s highest paid jobs in major tourist-linked industries are in Air transportation and Motion picture distribution and Performing arts. The lowest paid jobs are in Food services and drinking places. The Lodging industry as a whole also pays comparatively low wages. If we look at all of the jobs generated by tourism in each region, each with its own mix of industries and living standards, we see that LA’s non-hotel, tourism-linked jobs have the highest average pay of any region investigated in this study – $36,252 in 2002.

The industry mix of LA’s tourism-linked jobs differs from the overall US economy. Compared to other regions that compete for tourists as well as to the US economy, LA has a highly developed transportation infrastructure for moving large volumes of travelers, along with a highly developed cultural and recreational sector. However its Lodging industry is comparatively small. This presents an as yet unrealized opportunity for growth in consumer spending, new employment and higher tax yields for both City and State government.

Lodging is the cornerstone industry for tourism, accounting for a fifth of the total impacts of tourism in the national economy but only 7 percent in LA’s economy. Key indicators of the health of this industry include the size of the room inventory, room rates, occupancy rates, and average revenue per available room.

LA has roughly 97,000 hotel and motel rooms, which comes to 1.5 rooms per $10 million of economic output or 1.8 rooms per 100 workers in the regional economy. This is well below the national average of 2.4 rooms per $10 million of economic output or 3.2 rooms per 100 workers in the regional economy. From a public policy perspective, indirect business taxes (sales and room taxes) are a key benefit that local government derives from tourism. Los Angeles receives the smallest share of its total indirect business taxes from the Lodging industry of any of the six regions studied – 0.8 percent. The share of this revenue that other regions in LA’s competitive set receive from Lodging ranges from 1.2 percent in New York up to 21.5 percent is Las Vegas.

LA’s room rates are among the lowest for its competitive set, averaging $110 a night so far this year, with actual revenue per available room averaging $82 a night. When we index room rates and revenue to the cost of living in each region we see that LA receives the lowest compensation of any region in its competitive set.

An important public interest in Lodging is the number and quality of jobs that are provided. LA’s Lodging industry provides roughly 27,000 tourism-linked wage and salary jobs, and another 10,000 jobs linked to local demand. These jobs are concentrated in Food preparation and serving occupations and Building cleaning and maintenance occupations. LA’s Lodging industry creates one job for every $78,500 dollars in annual revenue, and 34 percent of industry revenue in LA is spent on employee compensation. A typical Lodging industry worker in Los Angeles adds about $67,000 a year in value to the industry.

When the earnings that Lodging industry workers reported in the 2000 Census are compared to the living wage (i.e., the amount a worker needs to earn to pay minimal housing, food, transportation, childcare, and medical costs) for one parent with one child we see that the average Lodging worker in Los Angeles earned a little over three-quarters of a living wage.

Lodging industry workers in Los Angeles reported working an average of 1,750 hours in 1999, one of the LA’s visitor industry’s best years. This was the shortest work year of any of the six regions studied. This shortfall from a full work year has the effect of reducing potential annual earnings by 16 percent. At the same wage rate, full-time work would raise earnings for the average worker up to 91 percent of the living wage. LA’s unemployment rate among Lodging industry workers in 2000 was about two-thirds higher than the overall unemployment rate for the county.

A relatively small share of hotels account for most Lodging industry employment. Ten percent of establishments have 100 or more employees, but these establishments account for 67 percent of workers employed by the industry. Lodging industry wages vary considerably based on the size of establishments. Establishments with 200 or more employees paid an average of $2,131 a month in 2002, 56 percent more than the average of $1,364 at establishments with 10 to 19 employees.

LA obtains an atypically small share of employment, taxes and economic output from Lodging. LA’s inventory of Lodging rooms is skewed toward low-cost markets, producing a far lower level of return for either the public or the private sector than in other regions in LA’s competitive set.

A key goal for strengthening LA’s Lodging industry should be to increase both the hotel room count and the average daily rate. New York provides a useful standard of comparison because, like Los Angeles, it has a very large, diverse economy and a highly heterogeneous population. Relative to its cost of living, New York’s average room rate is 33 percent higher than LA’s and its revenue per available room is 50 percent higher. By comparison, Lodging in LA is a low-revenue industry. Los Angeles is challenged to take actions that will:

  1. Increase the number of visitors, particularly to Downtown.
  2. Increase the inventory of rooms.
  3. Increase occupancy rates.
  4. Increase the amount of revenue per room.
  5. Increase earnings of the Lodging workforce.
Area of Work: Economy, People
Tags: Convention Visitors, Earnings, Economic Impacts, Economic Ripple Effects, Economy, Employment, Growth, Hotels, Industry Impacts, Industry Linkages, Jobs, Labor Market, Lodging, Los Angeles, Occupancy, Public Expenditures, Regional Comparisons, Revenue, Revenue per Available Room, Rooms, Tourism, Travel, Wages, Work