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Economic Impact

Overview

The major challenge to the implementation of smoke-free legislation is the fear of negative economic impact. This is the first and most frequent argument of both hospitality proprietors and many municipal politicians.

While there is some indication in the literature of short-term, transitional fluctuations in restaurant sales immediately following implementation of smoke-free legislation, there is no objective, independent evidence of any long-term net negative impacts in restaurants or any other hospitality venues.    The only objective way to measure economic impact is by examining sales tax receipts or conducting financial audits of hospitality establishments.   Patronage surveys are another way to gage the impact of smoke-free legislation, but they are subjective and thus not as reliable as audited statements or sales tax receipts.

There is some evidence from smoke-free municipalities in Ontario, the state of Cali fornia and other jurisdictions (to view the evidence, go to Studies and Reports & Surveys) that point to an increase in patronage at smoke-free bars and restaurants as a result of smoke-free legislation, but this is not a highly noticeable trend.   Rather, the consensus of economic impact studies available to date is that following a brief transition period where a minority of facilities experience both upward and downward fluctuations in business, any fall-off in business from smokers ceasing to patronize certain establishments is offset by increased patronage from non-smokers, with a neutral impact on revenue as the general result.

Furthermore, recent research has shown that every study that has concluded a negative economic impact in the hospitality sector due to smoke-free policies was funded by the tobacco industry, compared to none of the non-industry supported studies.   The studies examined were published prior to August 31, 2002 .   The following is the article citation: Review of the quality of studies on the economic effects of smoke-free policies on the hospitality industry. M Scollo, A Lal, A Hyland, S Glantz . Tobacco Control. 2003; 12:13 -20.

No evidence of economic impact: New York City

Since the implementation of a smoking ban in New York City in March 2002, several studies have shown that there has not been an economic impact as a result of the ban.

Roswell Park Study Reports Smoking Restrictions Have Not Harmed New York State Restaurant and Hotel Business. June 18, 2003.

The 2004 Zagat New York City Restaurant Survey of nearly 30,000 restaurant patrons showed that 23 percent were eating out more often because of the smoking bylaw, which includes both restaurants and bars.

New York City's Department of Health released a study which was based on data from the Department of Labour and showed a seasonally adjusted increase in employment among the city's restaurants and bars by 0.9 percent in the months following the implementation of the smoking ban, compared to a 0.2 percent increase the previous year. Furthermore, data from the city's Department of Finance showed a 12 percent increase in the amount of business taxes paid to the city in the months since the smoke-free law came into effect, when compared to the corresponding period in 2002.

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No evidence of economic impact:  City of Ottawa and KPMG studies

The vast majority of objective, economic impact studies (see Criteria) measuring the effects of smoke-free legislation originated in the United States , while a smaller number of studies have come out of Canada . One study by the Conference Board of Canada, entitled The Economics of Smoke-Free Restaurants (March 1996) deals with the subject in various Canadian jurisdictions.

In an attempt to measure the economic impact of Ottawa’s 100% workplace and public place smoke-free bylaws on its hospitality industry after the bylaws’ August 1, 2001 implementation, the City asked KPMG to assess this impact.  

December 2001 KPMG report
The first KPMG report, The Economic Impact Analysis of the No-Smoking Bylaw on the Hospitality Industry in Ottawa was released December 2001.   It discussed factors taken into considering when trying to gauge the exact economic impact of the smoking bylaws, which included September 11/01, tourism trends, and the general economic climate.   The first report found no evidence that the bylaws had a negative economic impact on the hospitality sector.   Some other findings were:

  • Employment in the Ottawa accommodation and food service sector rose 6.5 percent from June to October (from 22,800 to 24,300) despite the decline in total employment from 585,500 to 566,900 (a decline of 18,600 or 3.1 percent).
  • Employment Insurance claims in the accommodation and food service industries declined by 5 percent in August 2001 compared to August 2000 and by 9 percent in October over a year previous. Claims increased by 1 percent in September 2001 relative to a year earlier.
  • Bankruptcy and insolvency statistics for restaurants were lower for the period August to November than they had been the last 2 years (7 versus 12 last year and 8 in 1999). Two tavern, bar or nightclub operations underwent insolvency procedures this year, versus 1 last year and 2 in 1999.
  • The number of bars and taverns by the end of 2000 was 122.   By June 2001, the number had climbed to 130, a 6.5% increase over six months.

Two separate surveys supported the December 2001 KPMG report findings.   First, an Ottawa Sun poll conducted by Corporate Research Group reported that 29.5 percent of Ottawa residents said they were going out to bars and restaurants more often since the smoking ban was imposed, versus 16.9 percent who reported going out less often. 53.3 percent said the bylaw had not impacted their social habits ("Poll Clears Air on Butt Ban Impact," Ottawa Sun, Wednesday, December 12, 2001 ).

Second, a June 2002 poll by Decima Research showed continued support for Ottawa ’s smoking bylaws.   It found that the number of Ottawa residents visiting hospitality establishments grew by 17%, while the vast majority had not reduced the number of visits to such establishments since the bylaws took effect August 1, 2001 .

November 2002 KPMG report
As a follow-up to its December 2001 report, KPMG was asked by the City of Ottawa to conduct a second study, focused exclusively on Ottawa bars and pubs, in order to determine if they were adversely affected as a sub-sector. The decision to proceed with the second study followed allegations by PUBCO (an association of pubs and bars opposed to Ottawa 's smoking bylaws) that the impact on bars and pubs is much greater than the impact on restaurants, and would be hidden in sector-wide examinations of economic impacts.

After consultation and developing the study methodology with PUBCO and the Ottawa chapter of the Ontario Restaurant, Hotel and Motel Association (ORHMA), KPMG attempted to carry out this survey in March-May 2002, but was unable to obtain responses from a sufficient number of identified bars and pubs in order to produce statistically valid results. ( Click here to access the letter from KPMG to Ottawa 's Medical Officer of Health which describes the methodology and lack of cooperation by bar and pubs). The high refusal rate raised the question of why bars and pubs allegedly losing money as a result of Ottawa 's bylaws would not wish to provide economic data proving the allegation, and called into question PUBCO's assertions of economic loss in this sector.

Despite the low number of survey responses, the second KPMG report, Economic Impact Analysis of the Smoke-Free Bylaws on the Hospitality Industry in Ottawa, was made public on November 2002. Because only 51 bars and pubs out of the 150 sample submitted sales tax receipts and some bars with increased sales did not respond to the survey, no conclusion could be drawn regarding whether or not the smoking bylaws have had any economic impact on bars and pubs in Ottawa .  

Instead, the second KPMG report discussed the many factors that have affected the Ottawa business climate over the year prior to the release of the November 2002 report.   Factors such as the high-tech industry crash and corresponding layoffs, decreased tourism and business travel following September 11/01, increased consumption of liquor and decreased consumption of beer, and changing customer preferences are factors when taken together or separately, have had more impact on the hospitality industry than the smoking bylaws in isolation.  

However, KPMG noted that overall, the hospitality sector in Ottawa continued to grow, with 90 establishments closing since the bylaws were implemented and 123 establishments opening, resulting in approximately 1,600 licensed establishments, and an increase in 33 new restaurants and bars opening over the last year.   The growth in numbers of new establishments indicates a healthy hospitality sector, despite changes in consumer preferences and normal turnover fluctuations.   Furthermore, Employment Insurance applications significantly decreased since May 2002.  

KPMG finally concluded: “in the overall economic context, the food and beverage industry appears to be stronger than one would expect.   This suggests the smoke-free bylaw has had little or no negative impact on the industry as a whole.”

As of March 2003, 181 new bars and restaurants have opened in Ottawa since August 2001.   For a list of establishments, and the accompanying press release from the office of Ottawa City Councillor Dwight Eastman, contact OCAT.

In June 2003, the Ontario Tobacco Research Unit released a study that showed Smoking Ban Has No Impact on Food, Drink Sales: U of T Research

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Hospitality workplaces

“Hospitality workplaces” is a term used to describe bars and restaurants, and are those places open to the general public.   Consequently, bars and restaurants are often classified as “public places” in smoke-free bylaws.   “Workplaces” are understood to be private workplaces and are not open to the public.   Offices and factory floors are examples of workplaces.   Smoke-free workplace rules include any part of a workplace establishment used by employees.

Exceptions to the above approach include the state of California and the province of British Columbia . California workplaces, whether hospitality or otherwise, are all regulated as worksites under the state's smoke-free law which began implementation in 1995. In the case of British Columbia 's Workman's Compensation Board (WCB) regulations, all establishments where people work (including hospitality premises) are considered worksites for the purposes of the regulations.

In 1995, approximately seven million Canadians (60% of the workforce) were exposed to second-hand smoke in the workplace to some degree. In Ontario , approximately 2.2 million (52% of the workforce) worked in places that allowed some level of smoking (Workplace smoking: Trends, issues and effective strategies.   Prepared by the University of Alberta for Health Canada ’s Strategic Planning Workshop to Reduce ETS Exposure, October 19-20, 1995 ).

Since 1997, the total number of people covered by total workplace smoking bans has increased, but the reported exposure (five or more minutes, at least once in the past five days) has not significantly decreased.   Of those workers reporting a 100% smoking prohibition in their workplaces, 29% nevertheless reported being exposed to second-hand smoke (8th Annual Monitoring Report, Part 3.   Indicators of Progress, 2001-2002.   Ontario Tobacco Research Unit.   November 2002).   This appears to indicate significant non-compliance in many Ontario workplaces.

Support for total workplace smoking bans is growing among Ontarians.   In 2001, 84% of adults supported a 100% smoking ban or a separately-enclosed, separately-ventilated designated smoking room in the workplace.   Furthermore, 52% of Ontario adults supported a total workplace smoking ban, while 32% supported the designated smoking room option (8th Annual Monitoring Report, Part 3.   Indicators of Progress, 2001-2002.   Ontario Tobacco Research Unit.   November 2002).

Below are selected articles that examine the health of bar and restaurant workers in workplaces that allow smoking:  

Exposure of hospitality workers to environmental tobacco smoke . Bates M.N., et al. Tobacco Control. February 2002; 1: 125-129.

Restaurant smoking restrictions and environmental tobacco smoke exposure. Brauer Michael and 't Mannetje Andrea. American Journal of Public Health. 1998; 88(12):1834-1836.

Bartenders' Respiratory Health After Establishment of Smoke-Free Bars and Taverns, Eisner MD, et al. Journal of the American Medical Association. December 1998; 280(22): 1909-1914.

Environmental Tobacco Smoke Exposure in the Home and Worksite and Health Effects in Adults . Mannino DM, et al. Tobacco Control. 1997 ;6(4): 296-305.

Occupational Exposure to Environmental Tobacco Smoke , Hammond SK , et al. Journal of the American Medical Association. September 1995; 274(12): 956-960.

Involuntary Smoking in the Restaurant Workplace - A Review of Employee Exposure and Health Effects , Siegel M. Journal of the American Medical Association. July 1993; 270(4): 490-493.

Other articles:

Lung Cancer From Passive Smoking at Work. Wells AJ. American Journal of Public Health. July 1998; 88(7): 1025-1029.

Smoking in the Workplace: Do Smoking Patterns and Attitudes Reflect the Legislative Environment? Pederson LL, et al. Tobacco Control. 1996; 5(1): 39-45.

Smoking Control in the Workplace: is Workplace Size Related to Restrictions and Programs? Ashley MJ, et al. Ontario Tobacco Research Unit. University of Toronto .

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