Analysing labour productivity and its economic consequences in the two Spanish tourist archipelagos

Abstract

The analysis of productivity in tourism has mainly focused at sectoral level. However, the strong dependence on services and its impact at macroeconomic level in tourism-led economies should require a deeper analysis of productivity, especially when faced with increased cheaper competition. This article estimates a stochastic production frontier and compares the differences in labour productivity between industrial-led and tourism-led provinces in Spain. This analysis provides novel results in terms of technological changes by differentiating industrial-led province from tourism-led province. Finally, these labour productivities are introduced in a dynamic computable general equilibrium model of the two Spanish archipelagos to analyse their respective macroeconomic impact. The results show that the increase in permanent jobs in both economies leads to a convergence in labour productivity with those that are industry led. Furthermore, labour productivity gains improve competitivity against foreign destinations and enhance sectoral diversificación. However, tourism may crowd out domestic demand and investment.