EJB Talks Podcast

Michael L. Lahr, Ph.D.

Travel and tourism: Key factors in New Jersey’s economic recovery

August 20, 2020

The economic casualties of the pandemic are all around us–shops and restaurants shuttered, entertainment venues closed indefinitely, casinos limited to minimal visitors, and much more. As New Jersey begins the slow move towards reopening, the downstream effects of COVID-19 will continue to be visible for a long time. Stuart Shapiro and Michael Lahr, Distinguished Research Professor and Director of the Rutgers Economic Advisory Service (R/ECON) discuss some of the economic impacts facing businesses with a particular focus on tourism, and how the inability to travel will affect the economy of New Jersey and the nation in the year ahead.

Stuart Shapiro
Welcome to another episode of EJB Talks. I’m Stuart Shapiro, the Associate Dean of the Faculty at the Bloustein School. And the purpose of this podcast is to talk with my colleagues and our alumni about issues affecting people in New Jersey, the United States, and the world.  The effects of the pandemic and the ensuing recession are obviously widespread. Today we’re going to talk about a few of the many economic impacts these past few months have had. Distinguished Research Professor Mike Lahr directs the Rutgers Economic Advisory Service at the Bloustein School, as well as teaching in our world-ranked urban planning program. Professor Lahr, thanks for joining us.

Mike Lahr
Thank you for having me.

Stuart Shapiro
Mike, can you start by explaining what the Economic Advisory Service, what we call R/ECON, is?

Mike Lahr
Sure well, this is something started just a year before I arrived at Rutgers in 1992. It was started by Joe Seneca and Norm Glickman, our erstwhile colleague. The two of them, both retired, and Norm passed away a year or so ago, started this in what’s called the Center for Urban Policy Research; which is like a two-man venture at this point but used to be like 20 to 30. And this was started to, you know, give and make forecasting and policy simulation tools accessible to people here for the New Jersey economy. And one of them was an econometric forecasting model in the vein of Norm Glickman’s dissertation, and that was originally developed by Nancy Mantell.  And, I brought in something called an input/output model to it. Go along with that, now we do some computer-generated equilibrium models as well. So we produce models to assess what’s going on in the economy here, but some of these models can be done anywhere. For example, the CGE model [computable general equilibrium], we’re producing one for Philadelphia at this point, and I’ve done work in San Antonio. So we can do some of this work all over. But the forecasting model is something that’s fairly selective to New Jersey. And so that’s what a lot of what will be informing our discussions today.

Stuart Shapiro
So in other words, a model to kind of predict the economy, how the economy will go in a particular area.

Mike Lahr
Right. And one of our main clients there is the New Jersey Department of Treasury.

Stuart Shapiro
Right. So most often New Jersey, but as you said, you do it for a number of areas, depending who’s interested. There’s probably a million things I could ask you about economic impacts. But since R/ECON’s primary focus is New Jersey, let’s start there. What do you see as the chief vulnerabilities for the New Jersey economy in the year ahead?

Mike Lahr
Well, I mean, clearly, one of them is almost everything related to tourism. I mean, we know in our everyday lives that the restaurants are not up to snuff yet they’re at best 50% of capacity if they’re even operating. That’s one of them with regard to that. Also, we know transportation is not back yet, people are not traveling on transit, we’re all staying home. Also, we’re not going abroad. We’re not even traveling much within the United States by air, we tend to travel by car for traveling. So that whole thing is down.  And in addition, while at present, the healthcare industry was getting a boost through the COVID cases, it was not everything. The most lucrative parts are usually surgical centers and surgery. Elective surgeries were out until about a month ago. They’re back, but still, doctors are cautious. Everybody’s cautious. So it’s only if you really need that elective surgery. You maybe get a knee replacement or something like that right now, but you wouldn’t do it if you were someone who had several comorbidities. So that’s something that’s still down a bit.  And, and of course then, in addition, anything dealing with entertainment is pretty much out. Movie places. Going into New York to see a play is out. Going to see the Yankees play in the stadium is out–not to mention the Phillies–and not to mention, then, all the other local things. It’s enough that some of the little leagues and so forth are actually active. But even there we see some thing’s laying low a little bit for our economy. Not that that’s a big moneymaker.

Stuart Shapiro
Right, and that could last for quite a while, or could even get worse if we have a surge.

Mike Lahr
Yeah, the entertainment thing is really what we don’t know. We know, pretty much know at this point, the football season is probably not going to be in play. And we know the basketball players may be getting together in Orlando right now, even that’s not clear what’s going to happen there for the year. So we… and that’s just sports. Plays, who knows. I just heard that some of the entertainment venues are now letting go of some of their employees. I guess they were paying them up to a certain point. I just heard one of them, I can’t remember which one, let things go for a while. So that’s all problematic. I think there are some other things that are maybe positive cures for that people are coming up with.  And we don’t hear mentioned much, which is, you know, the whole thing about unemployment. It’s caused a real problem for those people who underreported their income. A lot of people in restaurants and so forth. And so they’re not making as much now as they were. So there’s been some thought that maybe what we should do is make sure that tips….or, do away with tips. This is kind of like the Shake Shack sort of thing. They don’t let their people have tips. So the idea is, they pay their people a full, $20, $25 an hour, and then at least when it comes down to employment pay, they would get a reasonable amount in the long run. But this is, you know, this one of the things we learned.

Stuart Shapiro
Right. Yeah, I don’t think we’re gonna see large gatherings like theatres or such, at least until a vaccine.

Mike Lahr
Certainly, not seeing people sing. Obviously that’s been one of the major things that we’ve heard coming out of this. That church choirs and other singing venues, not only the singers got sick, but the audience did too. So that’s probably the worst thing and I’m not sure what will be done about that.

Stuart Shapiro
Right. I saw you did something recently on travel and tourism. What’s the prognosis for the Jersey Shore, we’re now halfway into summer.

Mike Lahr
Well, there are limits. You know, the Jersey Shore is actually probably not going to be hurt as bad as some other places. The only place that probably would be hurt bad is the international venue along there. Although I know that having worked down in Wildwood, a lot of French Canadians went there, but that was a minority of people who attended. Atlantic City will be hurt the most. That’s where a lot of people came internationally. Not just from Philadelphia and New York, but people would come in from Japan or Korea. And that was one of the places they would go to visit on the East Coast because they don’t have gambling venues in their countries. So this was one of their outlets while they were on the East Coast if they were not going to Las Vegas. So, you know, I think in the long run, that’s going to hurt. Also the hotels there were a place to stay. I think otherwise, the weekends will be well attended.  The trouble is social distancing. And the limits of the beach badges by the municipalities for the sake of social distancing will limit visitations more than usual. That doesn’t mean that they’ll be up to their fullest capacity, probably around 50 to 75%. I heard that Fourth of July weekend, that things were packed. The last past week when things were hot, the beaches were more full than they would have liked to have been. But that doesn’t mean they’re at full tilt. So you know, there’s room to improve but it is better than people might have hoped at the outset.

Stuart Shapiro
Right. Atlantic City is particularly vulnerable because it’s based around casinos as much as the beach activity.

Mike Lahr
Yes, and they’re not even…we’re talking again about entertainment and restaurants. And when you’re indoors–and that’s what all of them are there–you can’t open up. So they have real issues there and who knows when all that will open up. I’m sure they’re pushing hard and lobbying hard for the state, but they’re also trying to be good guys because everybody envisions them as kind of a necessary evil of sorts.

Stuart Shapiro
Right. I mean, at the very least we think of things like that as a luxury. But the reality is, of course, there’s a lot of downstream effects of cutbacks in going to places like casinos or even nationwide, a cutback in tourism. Can you talk about some of those downsides? 

Mike Lahr
Yeah well, the casinos have a particular thing because when they were set up the New Jersey assemblies and senate were very thoughtful and thought about the development of New Jersey’s economy with regard to the casinos. Making sure that their employees, at least those on the casino floor, lived in the state and that they did as much purchasing within the state as possible. So that has waned as the economy and the casinos have weakened. That is, as they purchase more things from outside the state. But still, they are more reliant than the average hotel is on the state. They’re also 50% of the hotel space in the state. So when we see accommodations going down, the bulk of that is Atlantic City. And there were concerns already, of course, about Atlantic City casinos performing poorly due to incursions from casinos in Pennsylvania, Delaware, and New York. And there’s going to be more in New York and Philadelphia. There was one that was going to be right outside of Citizens Bank Park that would have opened this year. Of course, it’s not opening. But still, every time a new hotel or casino opens near or within two hours of Atlantic City, it bites into the Atlantic City casino economy. And any new casinos in Atlantic City, at this point, really just cannibalize other casinos there. 

So there were already problems and competition. And this is just going to hurt them. Fortunately, they’re usually larger companies, and so they may be able to sustain in this economy. And that’s really what’s the sore point at the Jersey Shore is that a lot of people were entrepreneurial and opening up new businesses, and this is what’s going to be killed. And probably, when you ask about downstream effects, that’s probably the main thing. On the other hand, one of the things that may be positive coming out of this, and I hate to say this because it’s such a negative thing, but … is the job quality. And when we economists talk about job quality, we’re talking about usually 10 dimensions. One is level of pay, stability and predictability of pay, that we have control over the hours that the workers have, job security, employment benefits. These were all on the low side in the tourism industry. 

So the idea is, maybe some of the New Jersey employees may find something more stable in the long run. Of course, right now, the problem is nobody’s able to find many new jobs as it is. So, there may be some ability to convert for those people who usually rely on this for summer money. They may, as things bounce back elsewhere, find other positions or retrain themselves. There are a lot of retraining programs.

Stuart Shapiro
Right. Well, that’s at least something hopeful there. But…

Mike Lahr
It’s hopeful, I’m not saying it’s happening, but it’s something.

Stuart Shapiro
Right. And who knows how long the long run is? I mean, it could be quite a while.

Mike Lahr
[British economist John Maynard] Keynes said, in the long run, we’re all dead. So…

Stuart Shapiro
Right, exactly. I was going to say that if you didn’t. (((laughing)))

Mike Lahr
Ah, sorry about that! ((laughing)) Thanks for the fee!

Stuart Shapiro
So right now as we’re talking, in Washington Congress is debating the next relief bill. And this one is more contentious than the previous one. Back in March, April, everyone realized we were in a crisis and nobody was in complete denial about it. We’re still in the crisis, but now some people have moved to the denial stage. And so, there’s going to be a lot of discussion and debate over what should and should not be in this relief bill, which is almost certainly going to be the last one of calendar year 2020. Where do you think they should, Congress should, be devoting its resources from an economic standpoint?

Mike Lahr
Well, I mean, there are some gaps that have been persistent. And one that concerned me right from the outset is, you know, people paying their rents. Especially if you lost your job, or at least had your hours reduced substantially. But, you know, some people effectively got pay increases from the boost of $1200 a month plus their unemployment checks. There were a bunch of people who lost their jobs, and while they maybe couldn’t apply right away, or didn’t, or worse just never got the hours to be able to pay rents. And rents here in New Jersey, generally speaking, are not low. They’re lower in South Jersey than in the north. But if you’re living in North Jersey, it’s very tough. So one of the things I think…and, I’ve not heard much discussion of this, is low-interest loans at least to landlords and potentially, retailers and restaurants. At least something that would enable them to continue. 

For the reasons I mentioned before, the small business. Small businessmen are not able to survive this kind of situation….or the entrepreneur. And low-interest loans, something on the order of 2 to 3% that they would have to pay, but still pay it back would help. Otherwise, right now all that’s happening, is the rents are being deferred…

Stuart Shapiro
Right.

Mike Lahr
They will eventually have to pay it back. It may be that the rents could become 120% of what they are for the next year or something like that. But it’d be helpful if somehow, they didn’t or the landlords didn’t have to pay the interest on that. Because eventually, they’re going to have to pay it and when that happens, commercial properties are going to be devalued next year somewhere in New Jersey. And so we’ll have lower… well, somehow the budgets will have to be met. But what will happen is residential areas will have to have higher tax rates as a result if they downgrade the values of the commercial properties. 

I mean you can see where everything’s cascading here in New Jersey, at least. It’s not…. I think something like a low-interest loan would really be beneficial because the government’s really only paying on anybody who defaults on those loans. And of course, they can secure them with mortgage insurance or something like that. But the other thing is, they’re only really paying for the interest on those loans, or part of the interest. And it would really be… I think a bang for the buck wise… I think that’s always the best thing. 

The one other thing I think they should stop is to make sure that people like you and me, Stuart, don’t get those $600 checks we were getting. Not that I don’t need them, but I have a full salary. But I’m just saying there are some things that probably shouldn’t be done. And we didn’t get to this, but one of the groups that’s not spending as much as usual is not the poor. The poor are actually spending as much and the middle class as well. 

It’s the wealthy, and they’re down something on the order of 10% in their spending because they can’t do the luxury things. We can’t go on an international vacation. We can’t go on vacation to Rocky Mountain State Park. We can’t do a lot of things that we might ordinarily do. Or if we can, we’re not doing them. We’re not buying new cars because we haven’t been using our cars. Or we’re not getting that new yacht because what’s the point? I can’t really go out in the ocean with a whole crew of people anyway. So there’s a lot of things that are being disabled that are luxury goods. And so, that group is likely to save their money, or be spent, maybe there is some pent-up demand. But a lot of it’s just being saved up for later vacations. And, you know, I’m not sure how many… I know I’m not going to be able to use in all my vacation this year.

Stuart Shapiro
Right. It’s, I mean, it’s a cardinal rule of economic stimulus that if you give money to poor people, they’re going to spend it. That it’s going to go back into the economy.

Mike Lahr
That’s true. And they will. I mean, this is the thing that, they definitely will and they have, but what they spend on maybe things he shouldn’t. But that’s another kettle of fish.

Stuart Shapiro
All right, we’re almost out of time. But I do want to give you a chance to talk a little bit about the global impacts. You recently wrote a paper on global inequality. Do you want to say a few words about that?

Mike Lahr
So you know, a lot of my contract research is mostly in New Jersey and in the United States. Every once while I do things with others and talk about broader things. And so, we did some work looking at countries. Because one of the obvious things that came out of this is, you know, as I just mentioned, wealthier people aren’t spending as much. So if the wealthy countries aren’t spending as much, the thought is that they would be the ones that would be… their economies would, in terms of GDP, suffer most. And that’s what most economists were thinking. And our point was, hey, look, that’s what’s apparent, but we have these things called supply chains, and value chains, where our economy is diverse. That is, you buy an iPhone. Well, you know, maybe 20% of the value of that is produced here in the United States. The rest is along the Pacific rim, like in Taiwan, Japan, Korea, and China. And it’s assembled in China and sent here. So China doesn’t even have that much as far as parts in it. 

And so the idea is, you know, just because it’s sold here and meets demand here, it doesn’t mean it’s produced here. And I know we’re all cognizant of that, but some of these people, in even the field of economics, don’t think about things that deeply. And our thought was, well, maybe things will be different. And it will be the poor countries who are actually suffering as a result of that. So we just did, it’s kind of a little quick simulation. Say what happens if demand cuts 10% across the board, it’s probably more than that — actually, I’ve noticed the jobs are down 25% here in New Jersey, for example, according to our former colleagues, Jim Hughes and Joe Seneca, at least at this point. So the idea is what will be the net effect? 

Mike Lahr
And in fact, we showed, it was close but the balance is, that in fact, the poorer countries are suffering most. And it wasn’t really a big surprise to me, but we just were trying to show people that, hey this, you know, not only are they dying more because they don’t have as good health care and so forth in places like India and southern South Asia and the Middle East, but they’re also suffering economically far worse. Not just because they’re losing employment, but because the demand is down in the western countries. So that was really all we did. It was just a little quick piece. We hope to get into a journal that was requesting manuscripts. It’s a nice little piece, and just to show something different. That it was different than what people supposed.

Stuart Shapiro
Yes, it strikes me whenever things go bad it’s the poor countries and the poor people that suffer first.

Mike Lahr
And that’s whose suffering here in this economy. I mean, it’s not us wealthy…we know…

Stuart Shapiro
We’re doing fine…

Mike Lahr
We’re definitely in the top 10% I think…

Stuart Shapiro
The IRS is listening Mike!

Mike Lahr
Ahhh, well you know, 10% sounds like– but, you know when in New Jersey, probably I’m only in the top 30%. ((laughing)) You have to be wealthy here in New Jersey to live here. So, basically it’s look at what’s suffering. It’s the entertainment industry. Well, while we have the sports players making millions of dollars, most of the people are like ballet artists, ballerinas and so forth, who you know, some making close to minimum wage.

Stuart Shapiro
And the hot dog vendors, and the person selling water outside the stadium.

Mike Lahr
Yes, the hot dog vendor. You know, the waiters and waitresses who are…

Stuart Shapiro 
Right.

Mike Lahr
Most of the people, they’re back in business now, but the beauty parlors and barbers. I mean, you go through them. You know, people like dry cleaners. These are not people who are, generally speaking, wealthy or high income. It’s the low-income jobs that are suffering. And the sad part is, really, the people who transmit it to and brought it overseas were wealthy. They went over to conferences in Europe or in China, and so forth, and brought it back here. It’s really one of those sad stories that, as you said, it’s always the poor that suffer.

Stuart Shapiro
Yeah. Well on that cheerful note, we will call it a wrap. A big thank you to Michael Lahr. And of course to our production team, Tamara Swedberg, Amy Cobb and Karyn Olsen. We will be taking a few weeks off to end the summer and to start the new school year here at the Bloustein School. But we’ll be back with a new season of podcasts in early September, and we’ll hope you’ll be listening then. Thanks for listening.

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