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Job creation is often held up as a major impact of transport investment, with two distinct mechanisms being suggested.

Impact on the supply side

Better transport may make it easier for people to get to work and may reduce discouraged worker effects. Individual's labour force participation decisions are based on comparing the costs of working (including commuting costs), against the after-tax wages earned from a job. By reducing the cost (in time and money) of getting to work, a transport investment is likely to increase the returns to work.

The labour supply impacts are calculated in monetary terms in three steps:

  • calculating changes of the round-trip commuting cost as the result of the investment
  • calculating the marginal wage of a worker entering or leaving the labour market, and
  • calculating the impact of changes in labour supply on tax income.

Impact on the demand side

Induced investment creates new employment opportunities when there is unemployment, that is, displacement is not 100%. This may be an important impact in the time of significant unemployment.

If demand is met by increased labour force participation then its value is, as above, the impact of changes in labour supply on tax income. If it is met by withdrawing labour from other activities, then the value is the alternative wage. There is no net benefit if wages are the same in both jobs. Displacement is 100%, so demand-induced employment effects should, from the national perspective, be ignored.

 

> Return to the overview of the Land Transport Benefits Framework