BAUMOLS COST DISEASE IN THE LOCAL TRANSIT SECTOR - SECTOR - A - - PowerPoint PPT Presentation

Institute of Transportation and Economics

“Friedrich List” Faculty of Transportation and Traffic Sciences

BAUMOL’S COST DISEASE IN THE LOCAL TRANSIT SECTOR -

http://www.trafficscience.org MOVING THE WORLD.

SECTOR - A comparative analysis of Germany and the USA

Christos Evangelinos Tilo Kühnhausen

9th Conference on Applied Infrastructure Research (INFRADAY): “Sustainable Infrastructure – Theoretical and Policy Challenges” Berlin, October, 8th -9th ,2010

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

2

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

• Affordability
• Development of Demand
• Multisector Analysis
• Policy Implications

The Nature of the Cost Disease

• Productivity

Technological innovation Productivity growth in industry A No productivity gains in industry B

Increasing wages in Increasing wages in

3

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

Increasing wages in industry A Increasing wages in industry B Constant cost per output in industry A Rising cost per output in industry B

Baumol effect

The Nature of the Cost Disease

• Affordability

P(∞)

Y1 aL

X‘‘

X‘

A

B

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INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

P(t‘) P(t) bLert bLert‘ Y2 X‘ X‘‘‘

A

B

Application for Public Transit – Partial Productivity Measures (1)

• Real GDP per Employee (USA)

80 100 120 140 160 all industries local transit performing arts 5

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

1977 1987 1997 2007 performing arts cealthcare government enterprises

• Labor Productivity - Annual Growth Rate

Application for Public Transit – Partial Productivity Measures (2)

1977-2007 average annual growth rate in % local transport

• 1.631

entire economy 1.394

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INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

government enterprises

• 0.139

performing arts

• 0.089

healthcare

• 0.896

education

• 0.838

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:

7

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

• Sample:
• USA:

250 – 21

• Germany:

75 – 49

• Period of Analysis:
• 1998 – 2007 (USA)
• 1994 – 2007 (Germany)

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

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INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

USA bus (250) 0.5 mixed operation (21) 0.9

• nly rail operation (31)

1.6

Costs (1)

New York

unit costs CPI EXP HR/VRM HR EXP MB/VRM MB 9

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

0,0 50,0 1991 1993 1995 1997 1999 2001 2003 2005 2007 EXP MB/VRM MB

Costs (2)

1991-2007 average growth rate in % Chicago New York unit costs 3.544 2.897 unit cost bus 4.333 5.447

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INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

unit cost bus 4.333 5.447 unit cost rail 2.331 2.047 CPI 2.649 2.663

Affordability

0,4% 0,6% 0,8%

(Nominal) Share of Public Transit in GDP

government enterprises local transit 11

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

0,0% 0,2% 1977 1982 1987 1992 1997 2002 2007

Affordability (2)

0,6% 0,9% 1,2%

(Real) Share of Public Transit in GDP

government enterprises local transit 12

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

0,0% 0,3% 1977 1982 1987 1992 1997 2002 2007

Multisector Treatment (1)

6% 8% 10%

Real Share in GDP

education 13

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

0% 2% 4% 1948 1956 1964 1972 1980 1988 1996 2004 health care performing arts

Multisector Treatment (2)

6% 9% 12%

Share of Labour

education health care performing arts 14

INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

0% 3% 6% 1948 1956 1964 1972 1980 1988 1996 2004 performing arts

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?

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INSTITUTE FOR TRANSPORTATION AND ECONOMICS Professorship for Transport Economics and International Transport Policy

• Decreasing Subsidies: How about Public Transport?
• Possible Solutions:
• Subsidy-Decoupling: Pricing Reforms
• Long-Run Cut of Services
• City-Planning Instruments

Institute of Transportation and Economics

“Friedrich List” Faculty of Transportation and Traffic Sciences http://www.trafficscience.org MOVING THE WORLD.

THANK YOU FOR YOUR ATTENTION!

FURTHER INFORMATION: Christos.Evangelinos@tu-dresden.de Christos Evangelinos