“Friedrich List” Faculty of Transportation and Traffic Sciences Institute of Transportation and Economics BAUMOL’S COST DISEASE IN THE LOCAL TRANSIT SECTOR - SECTOR - A comparative analysis of Germany and the USA 9 th Conference on Applied Infrastructure Christos Evangelinos Research (INFRADAY): “Sustainable Infrastructure – Theoretical and Tilo Kühnhausen Policy Challenges” Berlin, October, 8 th -9 th ,2010 http://www.trafficscience.org MOVING THE WORLD.
Agenda • The Nature of Baumol’s Cost Disease • Application for Public Transit • Comparative Treatment of Germany and the USA • Partial Productivity Measures • TFP • Cost Development • • Affordability Affordability • Development of Demand • Multisector Analysis • Policy Implications INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 2 Transport Policy
The Nature of the Cost Disease -Productivity Technological innovation Productivity growth No productivity gains in industry A in industry B Increasing wages in Increasing wages in Increasing wages in Increasing wages in industry B industry A Constant cost per output Rising cost per output in industry B in industry A Baumol effect INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 3 Transport Policy
The Nature of the Cost Disease - Affordability Y 1 P( ∞ ) aL X‘‘ A A B B X‘ X‘ P(t) P(t‘) X‘‘‘ 0 bLe rt bLe rt‘ Y 2 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 4 Transport Policy
Application for Public Transit – Partial Productivity Measures (1) • Real GDP per Employee (USA) 160 140 120 100 all industries local transit 80 performing arts performing arts cealthcare government enterprises 0 1977 1987 1997 2007 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 5 Transport Policy
Application for Public Transit – Partial Productivity Measures (2) • Labor Productivity - Annual Growth Rate 1977-2007 average annual growth rate in % local transport -1.631 entire economy 1.394 government enterprises -0.139 performing arts -0.089 healthcare -0.896 education -0.838 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 6 Transport Policy
TFP – DEA Analysis (1) • Separation between Firms with “pure” Bus Operations and Firms with Mixed Operations • Output: Vehicle Kilometres • Inputs: Number of Employees, Number of Vehicles, Population Density • • Sample: Sample: • USA: 250 – 21 • Germany: 75 – 49 • Period of Analysis: • 1998 – 2007 (USA) • 1994 – 2007 (Germany) INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 7 Transport Policy
TFP – DEA Analysis (2): Results country sample average TFP in % Germany bus (75) 0.5 mixed operations (49) 1.9 lightrail and bus (31) 0.9 USA bus (250) 0.5 mixed operation (21) 0.9 only rail operation (31) 1.6 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 8 Transport Policy
Costs (1) New York unit costs CPI EXP HR/VRM HR EXP MB/VRM MB EXP MB/VRM MB 50,0 0,0 1991 1993 1995 1997 1999 2001 2003 2005 2007 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 9 Transport Policy
Costs (2) 1991-2007 average growth rate in % Chicago New York unit costs 3.544 2.897 unit cost bus unit cost bus 4.333 4.333 5.447 5.447 unit cost rail 2.331 2.047 CPI 2.649 2.663 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 10 Transport Policy
Affordability (Nominal) Share of Public Transit in GDP 0,8% 0,6% government enterprises 0,4% local transit 0,2% 0,0% 1977 1982 1987 1992 1997 2002 2007 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 11 Transport Policy
Affordability (2) (Real) Share of Public Transit in GDP 1,2% 0,9% government enterprises 0,6% local transit 0,3% 0,0% 1977 1982 1987 1992 1997 2002 2007 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 12 Transport Policy
Multisector Treatment (1) Real Share in GDP 10% 8% education 6% health care performing arts 4% 2% 0% 1948 1956 1964 1972 1980 1988 1996 2004 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 13 Transport Policy
Multisector Treatment (2) Share of Labour 12% 9% education health care 6% 6% performing arts performing arts 3% 0% 1948 1956 1964 1972 1980 1988 1996 2004 INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 14 Transport Policy
Consequences – Policy Implications • Existence of the Cost Disease for Local Transit Services • But Long-Run Affordability • However: • Cost Disease of other Stagnant Sectors (non-fundable) • Priorisation of tax financed Sectors still a feasible Possibility • • Decreasing Subsidies: How about Public Transport? Decreasing Subsidies: How about Public Transport? • Possible Solutions: • Subsidy-Decoupling: Pricing Reforms • Long-Run Cut of Services • City-Planning Instruments INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International 15 Transport Policy
“Friedrich List” Faculty of Transportation and Traffic Sciences Institute of Transportation and Economics THANK YOU FOR YOUR ATTENTION! FURTHER INFORMATION: Christos.Evangelinos@tu-dresden.de Christos Evangelinos http://www.trafficscience.org MOVING THE WORLD.
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