Blog: From COVID to the Cost-of-Living Crisis: Data from Scotland’s Hospitality Industry
From internationally renowned accommodation and restaurants to your local pubs and cafés, the hospitality sector forms a critical part of Scotland’s economy.
The sector is also a large employer with around 7% of all jobs in Scotland within food and accommodation services at the last count[1]. However, it is a sector that can be challenging to work in, both for business owners and employees with tight margins, unsociable hours and low pay.
The industry has of course been greatly impacted by the Covid-19 pandemic. In this article, we look at data that can help us understand the changes in the industry over the course of the pandemic and what challenges this poses for the future.
We’ve taken a look at labour market data over the last few years to understand the trends in hospitality ahead of our research kick-off for Serving the Future.
Definitions
Scotland’s economy can be broken down into industrial sectors. Hospitality is largely captured by the Food and Accommodation Services group (Standard Industrial Classification section I). The arts, recreation and entertainment (section R) may also be considered part of hospitality, but for simplicity we will refer only to section I in this analysis.
Pre-pandemic, food and accommodation services in 2019 accounted for approximately 3% of Scotland’s GDP and 8% of Scotland’s jobs.[2]
Hospitality output suffered more from COVID than other sectors
It is no surprise that the restrictions put in place across the UK due to the Covid-19 pandemic put a huge strain on the hospitality sector. Although some were able to adapt to restrictions (for example by providing takeaway options) many businesses were forced to close when the restrictions were at their peak.
GDP (Gross Domestic Product) shows changes in the output of Scotland’s economy which can be thought of as the value of goods and services sold in Scotland. GDP is standardised so that the growth of the economy can be compared in real terms over time. Each sector of the economy contributes what is referred to as GVA – Gross Value Added. By using these values, we can compare the growth of individual sectors compared to the economy as a whole.
Chart 1 (source: Scottish Government Quarterly National Accounts)
In 2019 quarter 4 (just before the pandemic), hospitality in Scotland provided GVA £1.27 billion (seasonally adjusted, current prices). At the height of the first pandemic lockdown this dropped to just £179 million in Q2 2020.
If we standardise GDP using 2018 prices (Chart 1), we see that the food and accommodation sector had lost over 80% of its GVA by Q2 2020. In comparison, total GDP in Scotland lost around 20% of its value over the same time. The second lockdown at the end of 2020 and beginning of 2021 also had a more adverse impact on hospitality compared to the rest of the economy.
The recovery since restrictions have been lifted has been gradual, but encouragingly the sector had returned back to its pre-pandemic level of output earlier this year (chart 2).
Chart 2 (source: Scottish Government Monthly GDP Estimates)
These favourable looking statistics do not mean the sector is back to pre-pandemic strength. The clearest indication of this comes from looking at the data on employment.
Hospitality employment has not returned to pre-pandemic levels
Pre-pandemic, the food and accommodation sector in Scotland provided approximately 214,000 total workforce jobs in September 2019 (Chart 3). Hospitality jobs in Scotland were reduced to 166,000 by December 2020. The number of jobs in the sector has slowly returned to around 200,000, but COVID has clearly had a significant impact since jobs in the sector are still not back to 2019 levels.
Chart 3 (source: ONS Workforce Jobs data, accessed via NOMIS)
The sector was insulated to a large degree due to the Furlough scheme and this explains why jobs did not fall further. 77% of 189,000 eligible employees in food and accommodation services in Scotland were fully furloughed between the beginning of lockdown and 30th June 2020[3].
The number of workers on furlough in the sector dropped to around 35% in the second half of 2020, when businesses began to reopen and the Eat Out to Help Out scheme[4] was launched. However, the second lockdown increased furlough numbers again. Time series data is not available by sector in Scotland, therefore we have included time series data for hospitality across the UK to show the trend in furlough take-up over time (Chart 4).
Chart 4 (source: HMRC Coronavirus Job Retention Scheme Statistics)
Hospitality has historically had a high number of part-time workers. An interesting effect of the pandemic is shown in Chart 5, where between March and June 2021 the number of full-time jobs in the industry spiked and overtook the number of part-time jobs in the sector.
Chart 5 (source: ONS Workforce Jobs data, accessed via NOMIS)
It’s possible that the sudden spike in full-time work in the sector is partly due to the surge in hospitality vacancies in the UK (Chart 6). The gap between full-time and part-time jobs seems to be closing in the latest data – we will need to monitor whether this marks a permanent return to more part-time employees or a temporary flux.
Chart 6 (source: LFS data, accessed via ONS Labour Market Statistics)
There are a number of factors that could explain the high number of vacancies the sector is currently experiencing. One factor is likely to be European workers who have left the industry due to a combination of the pandemic and Brexit and have not returned[5]. UK domiciled workers who previously have worked in the sector may also have chosen not to return.
Recruitment and retainment of staff is a big issue for the sector
This poses challenges for the short and medium term outlook for the sector, with issues around recruitment and retainment posing more of a headache for business owners than was the case pre-pandemic.
This was reflected in the latest Fraser of Allander Scottish Business Monitor survey. Of all responding businesses in the Accommodation and Food Services Sector for Q1 2022, 75% currently had vacancies to fill. 65% of businesses with vacancies in the Accommodation and Food Services Sector said they were finding it difficult or very difficult to fill them (30% did not respond to this question, and 5% were finding it neither easy nor difficult).
The main factors making it difficult for businesses in the Accommodation and Food Services sector were a lack of applications, wage expectations from applicants, lack of required skills and experience, and expectations around flexible working.
Other difficulties include inflationary pressure, with all responding businesses in the sector expecting prices to increase more or a lot more than normal over the next 12 months.
Average pay in the sector is yet to respond
The hospitality sector is much lower paid than the average of all sectors in the economy: median hourly pay across Scotland in 2021 was £15.36 for men and £13.52 for women, while median pay in the hospitality sector was only £8.91 for men and £8.72 for women. As of March 2022, 54% of the hospitality workforce is female[6].
Between 2019 and 2021, pay has remained fairly flat in real terms in the hospitality sector, while across all industries in Scotland it has risen slightly[7]. We don’t yet have pay data past April 2021 so cannot comment on more recent changes. We will monitor new pay data as it is published.
Previous FAI analysis[8] showed that, pre-pandemic, workers in food and accommodation services were more likely to be in poverty compared to the population average.
More recent data shows that there were 45,000 households with children in Scotland where at least one adult worked in hospitality pre-pandemic[9], which means that in work poverty in the sector also has an impact on child poverty.
Pay is not the only consideration for people who work in the sector: working conditions (for example the regularity and certainty of hours) will also directly impact on earnings.However, if pay and conditions are combining to the extent that hospitality workers, and their families are unable to keep their heads above water financially, they are unlikely to wish to continue working in the sector long-term.
This is the main reason for this project: to try and understand some of these broad issues – including but also looking beyond pay – that could make working in the sector viable for a greater number of people and help employers retain these staff for a longer period of time.
Looking to the future
The last few years have been tumultuous for the hospitality industry. Periods such as this force businesses to reconsider how they operate. Although painful, this can lead to a transition to a better business model. For the hospitality industry, the workforce is front and centre of their operations and this is where our research programme hopes to evidence changes for the better.
Increased costs for employers in hospitality will put additional strain on businesses over the next few months, but high inflation also impact the cost of living which disproportionately impacts those on lower incomes.
Employers often need to bear a lot on their shoulders and it can be hard to look too far forward when everyday challenges are difficult to overcome. We hope the work we are doing in the Serving the Future programme will illuminate areas where employers can make changes that lead to a more sustainable financial future for businesses and their employees.
We are looking for employees to work with us and share their experiences and if this interests you please see details on our website for how to sign up. If not, stay tuned for updates over the next year.
[1] Source: ONS Workforce Jobs series, year to March 2022, accessed through NOMIS
[2] See https://fraserofallander.org/coronavirus-quantifying-the-impact-on-the-scottish-economy/.
[3] Source: HMRC Coronavirus Job Retention Scheme Statistics, published August 2020 (covering period March-June 2020)
[4] The Eat Out to Help Out was a UK Government scheme that offered discounts for eating at restaurants across the UK. More information is available here: https://commonslibrary.parliament.uk/research-briefings/cbp-8978/
[6] Source: ONS Workforce Jobs series, year to March 2022, accessed through NOMIS
[7] Source: ASHE hourly pay data years 2019-2021, accessed through ONS
[9] This is taken from the Family Resources Survey, published by DWP, for the years 2017-18 to 2019