Liberalizing Passenger Rail: The Effect of Competition on Local Unemployment

Abstract

Competitive passenger rail can help workers access new or better jobs. This paper studies the wider economic impacts on local unemployment of the liberalized passenger rail between Ostrava, the third-biggest city in the Czech Republic, and Prague, its capital. The local impacts are estimated at the LAU 1 level (administrative districts) using the difference-in-differences method within a regression model including district-level control variables. The districts on the railway line are the treated districts and the districts that do not neighbor the treated districts are the control districts. The liberalization of passenger rail on the Ostrava-Prague line motivated the entry of two new private providers. The resulting competition in ticket prices, the number of connections, and service quality had a strong beneficial effect on labor market connectivity. It significantly reduced unemployment in the districts along the line compared with the control districts. The effect weakens with the distance from the route and the level of urbanization of the treated district. The results are robust to a battery of tests.

Keywords: Competition, difference in differences, districts, liberalization, local labor market, passenger transport, railways, unemployment, urbanization, EU country, OECD country

JEL Classification: J6, L4, R1, R4