Estimation of staff use efficiency: Evidence from the hospitality industry

Abstract

We analyze the extent to which hospitality firms overuse staff using a production function model which considers firm heterogeneity and accounts for environmental variables in staff use. We decompose overall staff use inefficiency into transient and persistent inefficiency. To do this, we employ a state-of-the-art stochastic frontier model, which is estimated using daily data on 94 Norwegian hospitality firms from 2010 to 2014. The environmental variables, especially the annual time trend, seasonality, and days of the week are found to exert heterogeneous effects on staffing. The mean transient, persistent, and overall efficiencies of the hospitality firms are 69%, 67%, and 46%, respectively. We find that seasonality (days of the week) decreases (increases) transient inefficiency by about 4%, suggesting significant room for improvement in hospitality staff use.