Long-run labour flexibility in hospitality: A dynamic common correlated effects approach

Matching staff level to demand is a key lever for utilizing resources efficiently and raising productivity in hospitality. The aim of the current study is to measure the long-run labour flexibility - that is - how quickly labour adjust to demand changes. We estimate the short and long-run labour flexibility at the firm and department levels of hospitality organizations. To account for endogeneity, unobserved heterogeneity and unobserved common shocks, we used the dynamic common correlated effects model on daily performance data of 94 hotels and restaurants from Norway over 12 years, but with gaps. We found that these hotels and restaurants operated at suboptimal levels in the long run. The findings suggest that the organizations can enhance labour flexibility in each department and, in particular, in food and beverages.