How Does Improvement in Commuting Affect Employees? Evidence from a Natural Experiment

Abstract

We collect rich worker month-level administrative panel data from two companies for a two-year period prior to and after the opening of a nearby subway station, which significantly improved public transportation commutes for a subset of workers. Consistent with a simple principal-agent model where improvement in commute reduces the cost of effort for workers, we find a significant difference-in-differences (DID) increase (12.6% of the standard deviation) in bonus pay (which is strongly correlated to worker-level performance measures) for affected workers relative to coworkers not impacted by the subway. The bonus increase is larger for workers with more variance in performance measures (marketing personnel and non-managers), is positively correlated with commute time saved, and lower for workers with access to technology that facilitated telecommuting. We do not find that improved performance is simply a result of affected workers spending extra time at the workplace. Additionally, we find a significant relative decline in monthly exit hazard (by about 50%) for affected workers, and evidence for higher quality (conditional on wages) of new hires from affected areas.

Keywords: labor productivity, transportation, principal-agent, worker turnover, incentives

JEL Classification: H54, J63, J24, J22