The World Cup Hiring Boom That Wasn’t
The World Cup hasn't sparked the U.S. hospitality hiring boom analysts expected — and economic research says it never would. The first piece in a multi-part series on the event.
Photo credit: Fauzan Saari
With the tournament in its final week, you might be wondering: Does the World Cup create additional jobs in the U.S.?
According to media reports, the spending boom associated with the event should be significant. With hundreds of thousands of tourists gathering, analysts expected the World Cup to increase hiring in hospitality. However, when looking at the data, we do not find any evidence of this. At the national level, hospitality employment has been stagnant in the run-up to the event and even fell in June, and hiring in the sector has been subdued. While this does not rule out more localized effects in the host cities, it is consistent with prior economic research. We’ll also provide an explanation of why that is.
The benefits of mega-events: Economic reality clashes with preconception
Mega-events like the World Cup always gather lots of attention, and rightfully so. Most people get excited about their national team doing well. Host cities receive an inflow of well-off tourists flocking to the venues, spending large sums of money on accommodation, food services, and local retailers. Mayors often showcase the virtues of their own city and local amenities.
Nevertheless, economic research is clear. Mega-events rarely deliver the large windfall gains that were promised, providing little to no discernible boost to the local economy and job market. In many cases, they are even money-losing propositions, with the cities in question spending a fortune on infrastructure and amenities that are not being used subsequently — the World Cups in South Africa and Brazil are good examples of such waste. While this problem is less severe in advanced economies where the local infrastructure already exists, research finds that the multipliers from such spending are small. There is some evidence that mega-events can boost consumer sentiment, especially when the national team performs well (France in 1998 and Germany in 2006 come to mind), but typically those effects fade quickly.
Setting the scene: Hospitality employment fell
As the World Cup is held between June 11 and July 19, analysts expected that the event would boost leisure and hospitality employment. Alas, the June jobs report disappointed. Contrary to expectations, the sector recorded job losses exceeding 61,000.
If you were thinking that this might simply be a monthly data fluke in the official statistics, I’ll have to disappoint you. Private-sector sources like ADP and Revelio both confirm the weak figures. Revelio’s seasonally adjusted employment figure shows job losses in May and stagnation in June, while ADP’s private-sector payroll data shows positive but very weak job growth for those two months (keep in mind that leisure and hospitality is a very cyclical sector, so the non-seasonal data looks different).
Hiring remains weak
Moreover, worker turnover in the hospitality sector is also slightly weaker than last year. Again, this is backed up by both public and private data sources. The Bureau of Labor Statistics' (BLS) monthly hiring and quits rates run through May, while Revelio's hiring and attrition rates already have June data.
While the two series are not strictly comparable — the BLS measures are monthly while Revelio’s rates are annualized — comparing the trend is still valid. And neither of them is showing a World Cup effect: quite the opposite. According to both data sources, worker churn in hospitality is currently subdued compared with last year, with fewer employers hiring and therefore fewer workers leaving one job for another.
Why the World Cup effect is so small
There are several reasons why mega-events like the current World Cup only have a limited impact on the economy.
1. Substitution: Consumers do not have infinite pockets. When fans decide to spend more on accommodation, eating and drinking out, or fan merchandise, they will cut back on other expenditures. This is precisely why these spending booms — if they even happen — tend to be short-lived. Consumers become thriftier again once the show is over.
2. Crowding out: As much as we love the World Cup, not everybody in the community will be pleased by thousands of visiting soccer fans descending on the local pub and restaurant scene — you have my sympathies! While such mega-events attract many tourists, they might crowd out locals at the same time.
3. Extensive vs. intensive employment margin: These two terms describe job growth vs. changes in working hours. Instead of hiring additional people (extensive margin), it is more plausible that many local businesses simply adjust the shifts of their current staff to manage a spike in demand (intensive margin). The latter is often significantly cheaper than increasing headcount temporarily, which is more of a last resort.
4. The size of the economy: Most of us tend to underestimate how large the U.S. economy actually is: $32 trillion, expanding by $1.6 trillion this year (assuming 5% nominal growth). According to estimates, the event might attract some 700,000 net tourists from abroad. If the typical visitor spends some $5,000, then this only represents $3.5 billion in additional spending. While this is not a small figure, it’s not big enough to have any meaningful impact on the U.S. economy: it’s about 2 in 1,000 of this year’s GDP growth. And the same logic applies at the MSA level. New York’s and Los Angeles’ economies are about $2.4 and $1.4 trillion, respectively.
5. Monetary offset: This is simply economists’ lingo for the Federal Reserve killing the boom. If an economy-wide spending spree were to occur, policymakers would have to hike interest rates, since inflation is still above target. Growth and job creation from higher consumer spending would be offset by contraction in other sectors more sensitive to the interest-rate hikes.
What does this mean for recruiters?
The aggregate job numbers do not show any meaningful effect of the World Cup. Hospitality employment fell in June and hiring remained sluggish relative to last year. While this may be surprising, the result is in line with economic research. Big sports events tend to have little impact on economic production and job creation. For recruiters, this means less competition for talent in the sector than widely anticipated.
While the national hiring boom didn’t materialize, it is, of course, entirely possible that the World Cup’s economic effects are concentrated in the U.S. host cities. In our follow-up piece, we will therefore examine closely whether any employment effects show up at the metropolitan level in the cities where the games are played. Stay tuned!