$5 Gas and Commuting Costs

Environmental and Urban Economics – Commuting Cost Arithmetic

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.

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.

Interesting point. CBDs tend to attract highly talented workers, who tend to earn higher salaries. So, will those people have the incentive to move closer? Probably not much. However, there are plenty of middle wage workers who commute to CBDs, and may be tempted to locate closer. But, a firm that desires to attract the most talented workers will most likely locate in the CBD anyway. Thus, I wouldn’t expect as much difference in firm location preference, compared with the shifts in housing location preference.

Those who work in suburban locations may end up moving closer to their jobs, making living patterns more compact near those job centers. While, some may switch jobs and work somewhere closer to home. Nonetheless, as the post states, few who work in the suburbs will decide to move to the city to save on gas.