Productivity and Wage Effects of an Exogenous Improvement in Transport Infrastructure: Accessibility and the Great Belt Bridge

Abstract

In this paper, we study the productivity and wage effects of a large and very localized discrete shock in the quality of transport infrastructure, viz. the opening of the Great Belt Bridge connecting the Copenhagen area with the neighbouring island Funen and the mainland of Denmark. We focus on two effects: (i) an agglomeration externality captured via changes in an accessibility indicator at the municipal level; (ii) better matching of workers to jobs, enabled by the shorter travel times due to the opening of the bridge. We can disentangle the accessibility and matching effects, as the latter are only realized via new commutes crossing the Great Belt after the opening of the bridge. Our results show that the increased accessibility resulting from the opening of the bridge had significant effects on productivity as well as wages, the latter being much more localized. The productivity effects of improved labour market matching are larger than the accessibility effects, but restricted to a small share of the firms. Wage effects of better matching are small relative to the productivity gains. Overall, the estimates suggest that firms benefited more from the opening of the bridge than did workers. Moreover, the bridge benefited mainly highly educated and male workers, and it increased wage inequality.

Keywords: accessibility, agglomeration, labor market matching, productivity, transport infrastructure, wages.