COVID-19 and the Hospitality Industry: The Case of Food and Accommodation Sectors in Turkey

Introduction

The COVID-19 pandemic has had unprecedented impact on societies all over the world. The pandemic and the measures to mitigate its spread seem to have changed the lives and livelihoods of all people on a global scale. Until a vaccine or a treatment becomes available, the only ways to contain the pandemic remain to be confinement measures such as travel restrictions, lockdowns or curfews and the closure of schools and non-essential businesses.

While the enforcement of stringent public health measures has helped reduce the transmission of the COVID-19 virus, it resulted in a major disruption of business activities in almost all sectors since those measures restricted the mobility of individuals and the operations of supply chains. From an economic perspective, the pandemic caused both a supply shock and a demand shock. A supply shock is any event that decreases the ability of an economy to produce goods and services, at given prices. Any public health policy measure that prevents the individuals from working may then represent a supply shock. A demand shock is anything that lowers the ability and the desire of individuals to buy goods and services. During the pandemic, firms whose business involved close personal interaction or travel were closed often leading to layoffs in the absence of business revenues. As these jobless individuals lost their incomes, they lowered their spending on goods and services as much as possible resulting in an economic downturn. Hence, the economic downturn caused by the outbreak may be classified as a combination of demand and supply shock.

The economic impact of the pandemic is heterogeneous across sectors. While businesses in some sectors were closed almost entirely (such as hotels), others faced even increased demand (such as groceries in the food retail sector). Clearly, the impact of the pandemic at the sectoral level depends on the degree of personal contact involved in the activities. Brinca et al. (2020) documented that the sectoral impact of the pandemic is a combination of labor demand and supply shocks. As labor demand is derived from the demand for goods, it provides information regarding the change in demand for the good or the service. Using U.S. data for March and April 2020, the authors found that while most sectors received historically large negative labor demand and labor supply shocks, leisure and hospitality were hit the hardest in terms of labor demand and labor supply. On the other hand, the authors also detected that some sectors, such as retail trade, received almost negligible labor supply shocks and even positive labor demand shocks. These findings suggest that labor supply shocks are negatively related with availability of remote working arrangements in the workplace.

Although the priority of policymakers is unquestionably human lives, it is inevitable to consider the economic conditions as the world is now undergoing the most severe recession in nearly a century. Under a single-hit scenario, the world economy is expected to shrink by 6 percent with unemployment rising from 5.4 percent to 9.2 percent in 2019 (OECD, 2020). In the event of a second wave of the outbreak in this year, the decline in economic output is estimated to be 7.8 percent and unemployment is expected to reach 10 percent. Therefore, governments throughout the world have adopted various fiscal and monetary policies targeting firms and households (Elgin et al. 2020; Gourinchas, 2020). As is much repeated, the management of the pandemic in the absence of a vaccine or a treatment involved a tough tradeoff between “flattening the curve” of the epidemic and “flattening the curve” of the recession, causing policymakers in many countries to adopt a gradual lifting of the restrictions (Robalino, 2020). About 3 months after the World Health Organization declared a pandemic on March 11, many governments started to implement a phased reopening of their economies by gradually easing social distancing restrictions. As such, the term “new normal” refers to life after the pandemic and it captures how public life and work environments are reorganized while continuing with social distancing and self-isolation measures.