Saturday, February 8, 2014

8/2/2014: Economics of Olympic Games: Part 2: Labour Market & Host City Impacts

In Part 1 of the post I covered macroeconomic impact of Olympic Games:

Here, let's take a look at labour market impact and the effect of the games on host cities. As before, emphasis is mine.

Labour markets outcomes?

Feddersen, Arne and Maennig, Wolfgang, Mega-Events and Sectoral Employment: The Case of the 1996 Olympic Games (March 2010. used the 1996 Olympic Games in Atlanta, "which are also outstanding as one of the very few large sporting events where ex post academic analysis found significant positive effects." The study looked at 16 different sub-sectors of the economy, extending previous studies econometric methodology.

Key finding: "Regarding the Olympic effect, hardly any evidence for a persistent shift in the aftermath of or the preparation for the Olympic Games is supported. We find a significant positive employment effect in the monthly employment statistics exclusively during the staging of the Olympic Games (July 1996). These short-term effects are concentrated in the sectors of 'retail trade', 'accommodation and food services', and 'arts, entertainment, and recreation', while other sectors showed no such effects."

And worse: Willner, Jonathan and Aravantinos, Elias, Impact of the 1996 Summer Olympic Games on Unemployment in Georgia. (Southwestern Journal of Economics, Vol. 7, No. 1, 2004: find negative effects.

"Atlanta's 1996 Olympic Games were considered the most successful Olympics in the history of the event. Success in this case is based on financial considerations. There is no doubt that there was a tremendous economic activity associated with not only the city but much of the state of Georgia. Additionally it is well known that the Olympic Games are not a typical sport event, but a social event with several economic and financial extensions."

However, "At issue is whether the Olympic Games constitute a consumption or investment activity. We look at multiple measures of labor market changes in Georgia around the Olympics. We find limited positive effects on employment levels in counties close to but that did not have Olympic venues. Further we find that some measures of Olympic effects on labor market measures are startlingly negative."

But what about the fabled host city impact?

Nitsch, Volker and Wendland, Nicolai, The IOC's Midas Touch: Summer Olympics and City Growth (August 30, 2013. CESifo Working Paper Series No. 4378. show that "Hosting a mega-event is a costly activity of short duration. Still, cities frequently compete to become host of all types of events."

So for Summer Olympics, using a difference-in-differences methodology, the authors looked at "the rates of population growth of Olympic cities, candidate cities and other large cities in host and candidate countries over the period from 1860 to 2010. We find that, following the Games, host cities experience a measurable decline in population growth relative to cities in the control group. Our results indicate that being awarded the Summer Olympics has, on average, a negative impact on cities."

How on earth can this be the case if there are alleged cultural, marketing etc opportunities presented by the Olympics? Right, may be it is due to the sole large benefit the games provide? Yep, the old-fashioned property boom.

Kavetsos, Georgios, The Impact of the London Olympics Announcement on Property Prices (June 9, 2012. Urban Studies, Vol. 49, No. 7, 2012: "estimates the impact of the London 2012 Olympics announcement on property prices. Using a self-constructed dataset of a sample of property transactions, it is estimated that properties in host boroughs are sold between 2.1 and 3.3 per cent higher, depending on the definition of the impact area. A similar investigation based on radius rings suggests that properties up to three miles away from the main Olympic stadium sell for 5 per cent higher. It is estimated that the overall impact on the price of properties in host boroughs amounts to £1.4 billion, having substantial social and financial implications for existing residents."

So property becomes more expensive... what do you think happens to larger families with kids? And to potential would be migrants who would have moved into the city?

Never mind macroeconomic effects (negative) and labour market effects (negative) and host cities impact (negative)... may be there is a business case to be made for hosting Olympics? Tune in to the next post...

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