Wednesday, July 02, 2008

Commuting Cost Arithmetic

If the price of gas remains at $5 a gallon or higher, will people move back to Center Cities? Many bloggers seem to be assuming that people work in the Center City and live in the suburbs . This is a 1950s view of suburbia. Ed Glaeser and I have written about this point extensively. Haven't you read this and this ?

When people work in the suburbs, will they save many gallons of gasoline if they move to the center city? Yes, they will be closer to their center city friends and stores but they will still need to reverse commute by car to their jobs (unless they can ride the Google Bus from Center City San Fran to Mountainview).

So this raises the question of whether high gas prices will push employers to move back to the center city? Employers who need land (think of Google) will be unlikely to want to rent out 35 stories of a skyscrapper.

High gas prices are likely to LOWER gas prices at the suburban fringe making it more desirable location for firms seeking to cost minimize. As such land is less desirable as suburban housing, firms will seek it out and their employees will locate nearby with a short commute from their suburban house.

Is $5 gas a significant commute cost? This depends on your wage. Consider the following deep math;

Suppose you own a vehicle that gets 25 miles per gallon and you work 25 miles from where you work. Suppose you drive at 25 miles per hour.

Then to get to work, you need to purchase 1 gallon of gas and use 1 hour of your time.

Total One Way commute cost = price of a gallon of gas + hourly wage

Case #1: you make minimum wage = 5 + 7 = 12 and the share of expenditure on gas = 5/12

Case #2: Ivy League graduate = 5 + 100 = 105 and the share of expenditure on gas = 5/105

So this simple example highlights how the wage can swamp the price of gas for the high skilled but for the less educated, gas is a huge part of the commute cost.