Association for Public Policy Analysis & Management

This paper examines the effect of transportation policies directed at reducing travel times for commuting on inequality in urban labor markets. I consider the choice of city of residence by workers with and without a college degree to model the effect of changes in commuting patterns on economic inequality. Overall the paper documents limited benefits to workers without a college education from the set of proposed policies relative to those with a degree.

The principal data for the estimation come from three waves (1980, 1990, and 2000) of the US Census 5% sample, which allows for rich estimation of individual preferences across MSAs, as well as then MSA-level prices and quantities in housing, labor and transportation markets. Additional transportation data comes from the National Household Travel Survey (NHTS), the American Public Transit Association and the Highway Performance Monitoring System. The estimation approach considers market outcomes for wages, commuting costs, housing costs and amenities, controlling for variation in preferences due to demographics and birth location. The system of equations I estimate in the second stage of the model arise from the equilibrium conditions of locational sorting allowing me to uncover the structural parameters for labor demand, housing supply and transportation capacity. This model allows me to consider how the commuting decisions of high and low skilled workers determined by joint work and residential location decisions vary across cities and between regions within a city. I also use a rich set of instrumental variables to control for the effects of endogenous sorting and the estimating equations are constructed in first differences to control for time invariant unobservables. My results suggest that while aggregate travel times in cities may be largely unaffected by increases in roadway expansion it is not necessarily the case that this effect is the same for commutes to work. Using these estimates, I incorporate a public sector that finances provision of public transit via taxation and compare the effects of a standard set of transportation policies, congestion pricing and public transit subsidization, on the distribution of workers and welfare. Public transit subsidization seems to do reasonably little to improve the welfare of low skilled workers, largely because most of them drive to work. On the other hand, skilled workers obtain a welfare benefit relative to income twice that of their less skilled counterparts. Benefits from MSA-wide subsidization of public transit financed by congestion pricing seems to have meaningful effects for high and low skilled workers and results in average lower commuting times. Reallocation of workers within and between cities show interesting but relatively small effects from the policies modeled. These results have important distributional consequences for national and state-level policies intended to mitigate congestion externalities and spatial mismatch of workers in urban labor markets, suggesting that alternative policies that reallocate workers in space might better serve equity concerns.