The New York Times has a nice front page piece explaining the challenges that the Washington Metro subway lines face.  They are old and not being maintained.   One economic explanation for these facts is that Metro Transit Agencies are investing in labor not capital.  This piece provide specifics about how public transit workers in this area are paid.   In a recent NBER Working Paper,  Jerch, Li and I study public sector bus driver pay across the United States.

Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions

  • Rhiannon Jerch
  • Matthew E. Kahn
  • Shanjun Li
Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector’s productivity in delivering key services. To understand the productivity both over time and across space, we examine public bus service, which represents a standardized output for benchmarking the cost of local government service provision. There is significant dispersion across transit agencies in the operating cost per bus mile with the highest being more than three times as high as the lowest among top 20 largest cities by population. We estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis finds that the full privatizaton could result in cost savings of $5.7 billion in 2011 and that the gain in economic efficiency from more closely aligning bus fares with production costs would be worth at least half a billion dollars.
In an era of binding budget constraints, if labor is paid "too much" then there is no $ for capital expenditure.


Dear Readers, In recent months, I have posted my public writing to my free Substack. I have such fond memories of Google Blogspot, thus it deeply surprises me that Google's search engine does a terrible job in helping those who search to find past blog posts. This deeply surprises me. As I age, I'm trying to post more dignified material to my Substack. I am sticking to what I know based on my ongoing research in microeconomics. Thanks very much for reading my posts. Best Regards, Matthew E. Kahn
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