New IZA WoL Report: High quality public transport reduces informal employment rate

A new report now published on IZA World of Labor shows that improvements in accessibility to public transport can lead to lower rates of informal employment.

In many large urban areas in the developing world today, a large segment of the lower- income population faces higher commuting costs, longer commuting distances, and longer commuting times for the same distance traveled. This situation has resulted from a history of transport infrastructure deficits, prioritization of cars over other transport modes, and, in some cases, lack of awareness of the benefits of more diverse and equitable transport provision.

While studies of the informal sector usually attribute its existence and persistence mainly to factors such as social protection subsidies and minimum wage regulations, a new report by economist Ana I. Moreno Monroy of the Universitat Rovira in Spain finds that the provision of more equitable transport can be a way to reduce labor informality. She summarizes a number of studies on transport expansions for the US, Brazil and Europe (e.g. San Francisco, New York, Denmark, Sao Paolo, Bogota) that find a direct and positive impact on formal employment of improved accessibility.

Among the reasons for these findings are that long and costly commutes lead workers to work informally from home instead of accepting an offer for a formal job farther away. Furthermore, lower- income workers in search of formal work opportunities may be reluctant to commute to central areas where formal jobs are concentrated, instead limiting their search to their local neighborhood, where informal employment may be more prevalent. Second, lower-income workers residing in areas with poor transport accessibility may be discriminated against by employers. Formal employers may be concerned about the consequences of long commutes on workers’ performance but yet be reluctant to offer compensation for commuting costs.

Although more evidence is needed on the extent of the problem and the precise channels through which it occurs, enough is known to suggest that the impact of public transport infrastructure projects on job choices should be considered within a wider agenda of more equitable transport systems. Because low-income workers are particularly dependent on public transport, better access to public transport can reduce inequality by improving labor market outcomes.

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Please contact Anna von Hahn for more information or for author interviews: anna.vonhahn@bloomsbury.com or +44 7852 882 770

Notes for editors

 IZA World of Labor (http://wol.iza.org) is a global, freely available online resource that provides policy makers, academics, journalists, and researchers, with clear, concise and evidence-based knowledge on labor economics issues worldwide.

The site offers relevant and succinct information on topics including diversity, migration, minimum wage, youth unemployment, employment protection, development, education, gender balance, labor mobility and flexibility among others.

Established in 1998, the Institute for the Study of Labor (www.iza.org) is an independent economic research institute focused on the analysis of global labour markets. Based in Bonn, it operates an international network of about 1,300 economists and researchers spanning more than 45 countries.