Testing the relationship between employment and tourism: a fresh evidence from the ARDL bounds test with sharp and smooth breaks

Abstract

Purpose: This study aims to investigate the effect of the tourism sector on employment in 13 Mediterranean countries. In addition, the impact of economic growth and inflation rate, which are included in the analysis as control variables, on the employment rate are investigated. Design/methodology/approach: For this study, data from 1995 to 2018 and the ratio of the employed population, the number of international tourist arrivals, the annual growth rate of real gross domestic product (GDP) and the annual percentage change in the Consumer Price Index (CPI) were used. First, the authors investigated the relationship between variables using the Autoregressive Distributed Lag (ARDL) Bounds Test with Sharp and Smooth Breaks. Then, after determining the significant cointegration relationship, the long-term and short-term coefficients were also estimated. Findings: The results show a cointegration relationship for Cyprus, Greece, Israel, Malta and Tunisia. Tourism demand has a positive effect on all these countries and economic growth positively affects the employment rate only in Greece, Israel and Tunisia. Besides, the inflation rate has a negative effect in Israel and Tunisia and a positive effect in Malta. Overall, the authors' results provide important policy suggestions, such as the training of the employees in the tourism sector should be improved to keep up with the requirements of the times. Practical implications: The impact of the tourism sector on total employment varies from country to country. In particular, the employment creation policies of the sector need to be changed by taking technological changes into consideration. Originality/value: Since tourism is a labor-intensive sector, tourism's impact on employment is an important research topic. However, whether this effect applies to all countries is debatable. Furthermore, the development of technology can also reduce employment in labor-intensive sectors. Therefore, this research can be regarded as important as this research addresses such a critical current issue and suggests a novel econometric method such as the ARDL Bounds Test with Sharp and Smooth Breaks.