Short-Run Output and Employment Effects Arising from Assistance to Tourism SMEs: Evidence from Israel

Abstract

To a great extent, tourism small firms share much in common the general small business population. Barriers to entry are low, activities generally center on niche markets, the entrepreneur is the center of the small firm universe and personal equity capital is likely to form the initial resources of the business. Furthermore, tourism SME’s like other small firms invariably have a distinct local orientation. They are likely to be locally owned, consume local inputs and generate larger local multipliers than larger enterprises. More than anything else however, interest in tourism SME’s has been centered on their perceived employment benefits (Hudson & Townsend 1992; Wanhill 2000). Public support for small tourism enterprises is often couched in terms of creating job opportunities to deal with cyclical unemployment, diversifying economic opportunities and generating supplementary income. Small tourism enterprises ranging from family lodgings, through low-investment recreation operators (jeep rides, cycling trails) to traditional food and transportation activities (country restaurants, guided tours, etc.) are often viewed as having under-utilized capacity. When demand picks up they can easily assimilate under-used resources, accommodating extra labor without the need for extra investment. In this way, assistance for small tourism business should yield positive employment effects. But do small tourism firms really warrant a plethora of dedicated assistance programs aside from the regular arsenal available to small firms? Is their response to public support schemes any more pronounced than that of the general small firm population? This chapter endeavors to answer these questions by comparing the short-run effects of an assistance program on small tourism firms and a sample of other similar (non-tourism) small firms. The attention given in the literature to the employment effects of small firms (for a review and critique see Davis et al. 1996), often means a neglect of other indicators of SME performance such as output growth and productivity. In the context of assistance programs, the effects on different performance measures, such as employment and output