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BUFFALO BRANCH, FEDERAL RESERVE BANK OF NEW YORK

THE REGIONAL ECONOMY
OF UPSTATE NEW YORK
Tourism’s Role in the Upstate New York Economy

Spring 2004
Buffalo Branch, Federal
Reserve Bank of New York
160 Delaware Avenue
Buffalo, NY 14202
Tel: (716)849-5023
Fax: (716) 849-5218
www.newyorkfed.org/
buffalo

Barbara Walter
Senior Vice President and
Branch Manager

Reggie Melson
Community Affairs
Representative
reggie.melson@ny.frb.org

Richard Deitz, Ph.D.
Regional Economist
richard.deitz@ny.frb.org

For the online version of this
and other economic research
published by the Federal
Reserve Bank of New York,
visit: www.newyorkfed.org/
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Our upcoming Summer
newsletter will discuss the
economic benefits of Historic
Rehabilitation and provide
excerpts from a conference
being held on June 15 at the
Buffalo Branch.

As the tourism industry has expanded nationwide,
it has also grown into a regional economic asset.
Tourists buy local products, patronize neighborhood
establishments, create tax revenues, and support
area amenities. Accordingly, tourism is frequently
cited as a vital component of regional economic
development strategies.
While the upstate New York economy is most
often associated with manufacturing, tourism is
becoming an engine of growth in parts of the region.
In this issue of The Regional Economy of Upstate
New York, we analyze the tourism industry and its
role in the upstate economy.
We begin with a broad discussion of how
tourism has emerged as a force in the U.S. and
regional economies. We follow with an examination
of the industry’s size and growth in upstate New
York. Tourism is shown to be a comparatively small
component of the upstate economy, employing only
about 3 percent of private-sector workers in New
York State. Nevertheless, two metro areas—Glens
Falls and Jamestown—boast relatively large tourism
industries, and Glens Falls is one of the most touristintensive metro areas in the country. We also show
that the state’s rural economy is generally more
dependent on tourism than are its metro areas.
Finally, despite its size, upstate New York’s tourism
industry is growing faster than the overall economies
of Dutchess County, Glens Falls, Jamestown,
and Binghamton—thus making the industry an
increasingly important contributor to growth.

The Rise of the U.S. Tourism Industry
Tourism is ordinarily defined as activities in which
visitors travel to places outside their residential
environment. Although most often linked with
leisure, tourism also includes business activity. Trade
shows, business conventions, and other business
travel are all examples of tourism.
Tourist activity has expanded dramatically in
the United States in recent decades. An increase in
leisure time, added to rising wages, has resulted in
a growing demand for recreational activities. The
average workweek is now five hours shorter than
it was in the 1960s, and the average household
income is more than 50 percent higher.1 This trend
has been complemented by greater access to travel
for the average consumer. The rate of automobile
ownership has doubled since 1950, while highway
construction has increased, enabling most of the
population to travel farther from home.2 Air travel
has also become much more affordable for the

average consumer—the cost has been cut in half
since the 1960s, and air travel is one-quarter its
price in the 1950s.3 These forces have combined to
make tourism less costly and more accessible. As a
result, per-capita spending on recreation has nearly
quadrupled since 1960.4
Business tourism has also been on the upswing,
particularly as the country has moved toward a
service- and information-based economy. The
exchange of information, and hence person-toperson contact, has become increasingly important.
This development has led to more conferences,
conventions, and trade shows as well as more travel
between company offices. In addition, business
travel is often linked with leisure activity, as
business travelers engage in such pastimes as local
sightseeing, dining, and visiting attractions.
The higher demand for tourist-related activities
in recent decades has spurred the industry’s rapid
expansion. As the industry has grown, its potential
economic contribution has become more evident,
and regional planning strategies have increasingly
emphasized the development of local tourism
industries.

Tourism’s Effects on a
Regional Economy
Tourism’s economic benefits have earned it a
reputation as a potential engine of regional growth.
Traditional industries, like manufacturing, generate
growth through the regional export and sale of
goods and services, bringing income into the area.
Tourism also brings income into a region, but it
draws consumers directly to the service provided at
a fixed location. In addition to spurring economic
growth, tourism benefits local residents, who enjoy
the same cultural amenities as visitors do—such
as nightlife, parks, and museums—with the added
advantage of having these amenities subsidized
by nonresidents. In addition, the availability of
amenities is becoming more important in attracting
workers and businesses to a region. Indeed, research
suggests that high-amenity cities experience more
rapid population growth than do low-amenity cities.5
In addition, a local tourism industry diversifies a
region’s economic base. Areas like upstate New
York, where manufacturing jobs are being lost, may
find that a tourism industry adds long-term stability
to the industrial economic base.
However, a regional tourism industry has
drawbacks. While tourism creates jobs, they are
often low-paying and seasonal. The average annual

THE REGIONAL ECONOMY
Table 1

Table 2

Top Twenty Tourism-Dependent Metro Areas, 2001

Tourism Industry Employment Shares, 2001

Accommodation
Location Quotient
Area
Atlantic City, NJ
19.8
Las Vegas, NV
15.6
Reno, NV
9.9
Flagstaff, AZ
6.3
Biloxi, MS
5.0
Myrtle Beach, SC
4.8
Lake Charles, LA
4.1
Salinas, CA
4.0
Orlando, FL
3.5
Honolulu, HI
3.1
Naples, FL
2.9
Pittsfield, MA
2.9
Panama City, FL
2.8
Santa Barbara, CA
2.4
San Luis Obispo, CA
2.4
Santa Fe, NM
2.3
Shreveport, LA
2.2
New Orleans, LA
2.1
Savannah, GA
2.1
Glens Falls, NY
2.0
Source: U.S. Bureau of the Census, County Business Patterns (2001).

Area
Share
United States
4.1
New York State
2.9
Glens Falls
8.3
Jamestown
5.8
Dutchess
3.4
New York City
3.3
Albany
2.7
Syracuse
2.3
Buffalo-Niagara Falls
2.3
Niagara County
6.2
Binghamton
2.2
Rochester
1.9
Elmira
1.8
Utica
1.7
Rural New York
6.2
Upstate metro aggregate
2.5
Source: U.S. Bureau of the Census, County Business Patterns (2001).

Notes: Shares are expressed as a percentage of private-sector employment. The
estimation methodology is outlined in the box. Rural New York is the sum of all
New York counties not part of metropolitan areas. Niagara County is included
in the Buffalo-Niagara Falls metropolitan area.

areas most highly dependent on tourism are in the South and
the West, in states such as Florida, Louisiana, Arizona, and
California.

Notes: The location quotient, a common measure of employment concentration,
is defined as the local share of private-sector employment in accommodation
divided by the national share. A quotient of 1.0 indicates a concentration of
employment equal to the U.S. average.

Only two metro areas in the Northeast make the top twenty:
Pittsfield, Massachusetts, and Glens Falls, New York. Pittsfield
is home to the Berkshires; Glens Falls is located in eastern New
York State, nestled between the Hudson River and the Adirondack
Mountain range, and includes the popular tourist destination Lake
George as well as offers proximity to Saratoga Springs.

wage in the industry is slightly more than $18,000, well below the
national average (although tourism does create job opportunities
for low-skilled and part-time workers).6 In addition, the often
seasonal nature of tourism can result in volatile employment
year-round for workers in this industry. A sizable tourist
population can also prevent residents from fully enjoying local
amenities, inflate prices of local goods and services, and worsen
traffic congestion. Furthermore, tourism must be supported by
local public services—such as police protection and highway
maintenance—and research suggests that economies with larger
shares of tourism also have higher levels of local government
expenditures.7

We also compare tourism employment shares for upstate
New York’s metro areas with the national share (Table 2). The
U.S. tourism industry employs roughly 4 percent of privatesector workers, making it a relatively small industry compared
with manufacturing (14 percent) or health care (13 percent).
By comparison, two upstate metro areas—Glens Falls and
Jamestown—have relatively high tourism employment shares. In
Glens Falls, 8.3 percent of the workforce is employed in tourism,
more than double the U.S. share. Jamestown’s comparatively
high share of 5.8 percent is largely attributable to the Chautauqua
Institution, a not-for-profit, 750-acre educational center on
Chautauqua Lake in southwestern New York State.

Tourism in Upstate New York
Tourism is clearly playing a more prominent role nationally and
regionally, but how is this industry contributing to the upstate
New York economy? To answer this question, we examine
upstate’s tourism industry using data from the U.S. Census
Bureau’s County Business Patterns, which is available annually
from 1964 through 2001. To proxy for regional tourism industry
activity, we use data on tourism-related employment. There is no
predefined tourism industry classification available in the data,
so we design a methodology to estimate tourism employment
(see box).

All other metro areas in upstate New York, and New York
City, have tourism employment shares smaller than the national
average.8 The Buffalo-Niagara metro area, which includes
Niagara Falls, has a share of 2.3 percent, well below that of
the nation. Yet when separated from the Buffalo metro area,
Niagara County has a share of 6.2 percent. Given Niagara Falls’
status as one of the world’s most highly recognizable tourist
sites, one might expect this share to be much higher. However,
Niagara County is highly industrialized, owing to the historical
availability of inexpensive electricity from Niagara Falls and
its strategic location as a water transportation node. In addition,
the Canadian side of Niagara Falls, which competes with the
American side, benefits from Canada’s more highly developed
tourism industry.9

We begin by identifying the U.S. metro areas with the
twenty highest concentrations of accommodation employment
(Table 1)—a category that includes hotels and other forms of
lodging, which are a common indicator of a regional economy’s
dependence on tourism. As one might expect, two metro areas
centered around casino gambling—Atlantic City and Las
Vegas—have the highest concentrations. In general, the metro

Buffalo Branch - FRBNY

2

THE REGIONAL ECONOMY
Employment Growth in the Tourism Industry and
Total Employment Growth, 1964-2001

Tourism is also an important component of the rural economies
of upstate New York. The share of tourism employment in these
counties is 6.2 percent, well above the metro area aggregate of
2.8 percent. Indeed, some rural counties, particularly those in the
Catskill Mountains and around the Capitol Region, have shares
ranging from 10 to nearly 25 percent. These areas are close to
New York City, a prime source of regional tourists.

Percent
5

Tourism growth

Total employment growth

4

Our analysis also compares the growth rates of tourism
employment in upstate New York’s metro areas with growth rates
for the nation and New York City (see chart). For the most part,
tourism industry employment in upstate New York is growing
more slowly than in the nation as a whole. In fact, it is expanding
at less than half the nation’s pace in Buffalo, Rochester, Elmira,
and Syracuse, and there is no growth in Utica. However, tourism
employment is growing more rapidly in Dutchess County, Glens
Falls, and Jamestown than it is in the nation. Although tourism’s
employment share is below average in Dutchess County,
employment in this industry is growing swiftly and outpacing
all metro areas examined.

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Source: U.S. Bureau of the Census, County Business Patterns (1964-2001).

Finally, while the tourism industry represents a relatively
small share of economic activity in New York State, it is growing
more rapidly than other economic activity in many regions.
For the United States as a whole, employment in this industry
has been expanding slightly faster than total employment. In
Elmira, Dutchess County, Binghamton, Jamestown, and Glens

Notes: Employment growth is the average of the annual growth rates in each year
between 1964 and 2001. Tourism industry growth is estimated using the
methodology outlined in the box.

Identifying and Measuring the Tourism Industry
An industry is typically defined as a group of entities that use a
similar process to create a similar product or service. Tourism,
however, does not readily fit into an industry classification. Its
diverse products and services--which include items such as air
travel, restaurants, hotels, and gift shops--are often unrelated
in the production process.

To address this problem, we use accommodation
employment to proxy tourism employment. We calculate the
ratio between the local share of accommodation employment
and the national share and apply this ratio to the national
tourism employment share. For example, if a region’s share
of accommodation employment is twice the national share,
we assume that the local tourism industry employment share
is also twice as large. This methodology assumes that the
share of tourism employment attributable to accommodation
is the same across regions. Although this assumption is fairly
accurate most of the time, it poses a problem for resort areas
like Las Vegas, where hotels are large and multifaceted.
Accommodation employment in such areas includes
restaurants and entertainment, but data classification methods
count them as hotel employment. Such classifications overstate
the hotel employment share and hence tourism employment
estimated by our method. In addition, tourism tends to be
understated in regions where tourist activity does not rely
heavily on accommodation, such as locations that specialize
in day trips. For New York State, however, these problems and
estimation errors are likely to be relatively minor.

The Bureau of Economic Analysis (BEA), which
constructs the national income and product accounts, has
recently created a methodology for estimating tourism
industry activity.1 The BEA identifies goods and services
typically purchased by tourists and the respective industries
that produce them. However, these goods and services are
not purchased solely by tourists--some are bought by local
residents. Therefore, the BEA allots a proportion of the
industry’s activity to tourism based on the share of products
sold to tourists compared with those sold to nontourists. For
example, the hotel industry has a tourism ratio of 80 percent
because most hotel business is generated by tourists, while the
restaurant industry ratio is roughly 20 percent because most
restaurant patrons are nontourists.
Our study uses these ratios to estimate tourism industry
employment for the United States as a whole. However, the
application of these ratios to local areas can be problematic.
For instance, while 20 percent of restaurant services on average
may be purchased by tourists, a high-tourism area, perhaps
famous for its restaurants, would likely have a ratio much
higher than 20 percent. Conversely, an area with little tourist
activity would tend to have a much smaller ratio. Thus, tourism
employment estimated using this method will understate hightourism areas and overstate low-tourism areas.

We use a similar proxy to estimate the growth of tourism
industry employment. We assume that employment growth in
the accommodation industry is roughly equal to employment
growth in the tourism industry.
Note:
1

David L. Kass and Sumiye Okubo, “U.S. Travel and Tourism Satellite
Accounts for 1996 and 1997,” U.S. Department of Commerce, Bureau of
Economic Analysis, Survey of Current Business (July 2000).

3

Buffalo Branch - FRBNY

THE REGIONAL ECONOMY
Falls, tourism industry employment has grown at twice the rate
of total employment, while it has increased slightly faster than
total employment in Buffalo. When Niagara County is separated
from the Buffalo metro area, the county’s tourism employment
growth has outpaced the nation’s and is significantly more brisk
than its overall employment growth. In Albany, Rochester, and
Elmira, tourism employment growth is roughly the same as total
employment growth.

Conclusion
Tourism is a small yet important component of regional economic
activity. A local tourism industry diversifies the economic base,
creates amenities, and is frequently an important contributor
to growth, although wages tend to be low and employment
seasonal.
In upstate New York, the tourism industry is especially
important for areas such as Glens Falls, Jamestown, Dutchess
County, and, of course, Niagara County. However, tourism is not
a particularly large factor elsewhere, nor is it growing particularly
rapidly— but it is still a contributor to the local economies. For
much of upstate New York, the tourism industry is growing faster
than the general economy.
Finally, it is worth noting that many regional economic
development strategies are emphasizing the creation and
enlargement of local tourism industries. While their prospects
can be encouraging, policymakers may wish to consider

these strategies with care. Regions throughout the country are
expanding their tourism industries, often by utilizing identical
strategies and creating similar attractions. Although the tourism
industry has room for growth, the wider availability of attractions
nationwide will be accompanied by greater competition for
tourist dollars.
Notes:
1
Workweek data are from the U.S. Department of Labor, 1964-2003; income
data are from the U.S. Census Bureau and are adjusted for inflation.
2
Federal Highway Administration; ownership figure is based on the number
of vehicle registrations.
3
Air Transport Association; figures reflect inflation-adjusted price per mile
traveled.
4
Bureau of Economic Analysis and U.S. Census Bureau; inflation-adjusted
spending per capita.
5
Edward Glaeser, Jed Kolko, and Albert Saiz, “Consumer City,” Journal of
Economic Geography 1, no. 1 (2001).
6
The average wage is calculated based on a weighted average of
tourism-related industries using the methodology described in the box.
7
John D. Wong, “The Impact of Tourism on Local Government
Expenditures,” Growth and Change 27, summer (1996).
8
For a discussion of New York City’s tourism industry, see Jason Bram,
“Tourism and New York City’s Economy,” Federal Reserve Bank of New
York Current Issues in Economics and Finance 1, no. 7 (1995).
9
In addition, visitors to Niagara Falls are often day-trip tourists, and our
estimation method understates tourism employment in such circumstances
(see box).

Richard Deitz
Research assistance provided by Feng Qian

The views expressed in this newsletter are those of the author and do not necessarily reflect the position of the Federal
Reserve Bank of New York or the Federal Reserve System.