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Field: Infrastruktur & kompetensförsörjning

Commuting, urban wage premiums and regional spillover effects

Commuting between Swedish municipalities has increased dramatically in recent decades. Today, more than one in three employed people commute to work outside their municipality of residence. We have analysed the driving forces for commuting from smaller to larger municipalities, how this form of commuting affects wages and productivity, and how commuting helps spread the productivity gains of cities to nearby smaller towns and rural areas.

Productivity advantages in large cities

Swedish and international research indicates that the economic environment in large cities promotes high productivity. Among other things, this is explained by greater efficiency in the matching of tasks and skills in larger labour markets. Large cities also provide good conditions for generation and diffusion of knowledge.

Five urban municipality types and their hinterlands

In this study we analyse commuting to five categories of urban municipalities – the municipalities of Stockholm, Gothenburg and Malmö, as well as two groups of municipalities that we classify as medium-sized and small urban municipalities. Around these five types of urban municipalities, we identify a commuting area consisting of smaller municipalities located within 80 minutes’ travel time from each city centre.

More commuting for short distances and among more skilled workers; women commute less and are more limited by family relationships

The likelihood of an individual commuting to an urban municipality increases with the size of the destination municipality and decreases with increasing distances. We also see that the propensity for commuting rises with the individual’s level of education and experience with working in a highly qualified occupation. Women are less likely to start commuting than men, and family relationships (e.g. being married or having children) limit women’s commuting more than men’s.

Largest wage premiums for starting to commute into Stockholm, and great potential for productivity gains in more peripheral municipalities

Using a matching method, we identify commuters and non-commuters who are comparable based on a variety of characteristics and use the estimated effects of commuting on individuals’ gross wages as an indicator of productivity advantages in urban municipalities. We find that there are wage premiums for starting to commute into all five categories of urban municipalities. Commuting to Stockholm has the greatest positive impact on wages. We interpret this as an indication that municipalities at the top of the urban hierarchy show the greatest productivity advantages. We also see signs of lesser productivity advantages in medium-sized and small urban municipalities. When it comes to commuting to Stockholm, we find that people with a high level of education or experience in a highly qualified occupation receive a particularly high wage premium. This suggests that it is easier for highly qualified workers to find jobs that match their qualifications in Stockholm's large and diversified labour market.

We also note that the wage premium tends to be higher for individuals who start commuting from more peripherally located municipalities into an urban centre. At the same time, the volume of commuting from these municipalities into city centres is considerably smaller than for the more nearby municipalities. This means that in the more remote municipalities, increased commuting into urban centres entails a great potential for productivity gains.

Commuting costs are currently subsidised, including via a deduction on taxable income for expenses related to travel to and from work. In the current system there are requirements for both minimum distance and time gain (for certain means of transport) in order to be entitled to make a travel deduction. The Travel Deduction Committee (Reseavdragskommittén) recently proposed that the travel deduction should be abolished in its current form and replaced by a distance-based and means-neutral tax reduction (SOU 2019:36). According to the proposal, the tax reduction is to be granted for that part of the distance between one’s residence and the workplace that exceeds 30 kilometres (one-way), up to a maximum of 80 kilometres. A certain additional tax reduction is also proposed in cases where public transport is inadequate. There is reason to ponder and carefully consider the maximum distance limit in the proposal. As we have seen, the extent of commuting over greater distances is admittedly relatively limited. At the same time, our results indicate that the potential benefits of increased commuting from more peripherally located municipalities can be significant.

Daily commuting is not without problems

While the commuting of the labour force can potentially contribute to positive effects at several levels of society, it is well-established in previous research that commuting in its traditional form – daily travel between home and work – is associated with various types of costs and problems. These include negative consequences for well-being, health, gender equality and the environment.

Teleworking – a new form of “regional enlargement”?

Even before the turn of the millennium, there were visions of another form of “regional enlargement” that was not based on daily travel. High expectations were attached to the then emerging technology for telecommunications, which it was hoped would pave the way for a more flexible working life, with a greater element of teleworking. But the new technology did not bring with it the boost for towns and communities outside the big cities that many hoped for. The current coronavirus pandemic can be seen as an involuntary, full-scale experiment on the true potential of teleworking.

High-speed broadband in all parts of the country is an important infrastructure prerequisite for teleworking. The government’s broadband strategy A Completely Connected Sweden by 2025 (Regeringskansliet 2016) establishes the goal that all households and companies should have access to broadband with a speed of at least 100 Mbps by 2020. In the longer term, ambitions are higher. The goal is that by 2025, 98 percent of all households and businesses should have access to broadband with a speed of at lest 1 Gbps. In a recent follow-up to the government’s broadband strategy, the Swedish Post and Telecom Authority (Post- och telestyrelsen 2020) concludes that the short-term target will not be achieved before the end of 2020, and that the long-term goal will not be fully achieved.

From a localisation and agglomeration perspective, there are several interesting aspects to the possible effects of increased teleworking. How are the downtown areas of major cities affected by a possible reduction in demand for office space and lower turnover for restaurants and shops? Will an increase in teleworking lead to the vision of a new form of regional enlargement, which to a greater extent benefits development in sparsely
populated and rural areas, being realized this time? These are examples of interesting questions that necessitate new knowledge and research.

Commuting, urban wage premiums and regional spillover effects

Serial number: PM 2020:21

Reference number: 2018/025

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