Commuting costs

Time for a review of Business Economics 101. Focus on commuting costs. The problem with this cost review is that it all depends on who is counting and what is being counted. Commuting, that daily to and fro between home and workplace, usually is viewed entirely differently by commuters and their employers. Commuters may look at commuting as a cost of transportation. Employers, mostly, consider commuting costs as what economists call externalities: something that may or may not exist but is of no concern to them unless it disturbs the normal work routine.

The view of both of these groups is way too limited. Commuting imposes costs on all parties involved.

Lets take a recent example from an article by Emma G. Fitzsimmons in the New York Times titled: Crowds and Long Delays Fray Subway System and Rider’s Nerves. The gist of the story is:

Widespread problems across the subway system in recent weeks have left weary commuters waiting on crowded platforms, stranded inside stalled cars and scrambling to find alternate routes. With a fare increase set to go into effect on Sunday, riders across New York City are complaining of having to pay more when service is worse.

For another view, from the west coast of the U.S,  in an article titled: Lots of time for irritation Dan Weikel of the Los Angeles Times writes:

During the evening rush hour, a section of Interstate 5 between the 710 and 605 freeways becomes a mosh pit of commuters as tens of thousands of vehicles outbound from L.A. squeeze from five lanes to four.
The crush can last three hours or more and, by one estimate, wastes a total of 67 years of motorists’ time annually. On the busiest days, a trip through the 5.8-mile choke point can take 40 minutes or more.

The Commuters

On March 22, 2015 the New York City subway fare rose to $2.75 — or $5.50 round trip. So the average subway commuter, at 220 work days annually, lays out about $1210 each year as an obvious commuting cost.
Then there is the opportunity cost: the imputed cost of the commuter’s time while commuting. The average round trip urban commute time in large US cities runs about an hour; obviously more than that when the subway is impacted. So if the commuter’s commute time is priced at $7.50 per hour, half the recommended minimum wage, then 220 days of personal time spent annually in the commute comes to $1650. Of course, if the commuter finds a way to do something useful during the commute, that opportunity cost is reduced.
So let’s say conservatively that the average subway commuter incurs costs between $1210 and $2860 every year just getting to and from work. Not counting times when the subway is screwed up.
Of course commuters by car (four-fifths of all commuters in the U.S.) don’t worry about subway mishaps; they have plenty to complain about with “normal” commuter traffic. For them the calculation is more complicated. There’s the amortized down payment, the monthly car payments, fuel costs, parking, insurance and maintenance as evident costs, all in proportion to the amount of time the vehicle is used for commuting. Let’s say those costs work out to about $0.75 per mile; at 30 miles round trip that’s $22.50 per workday or $4950 annually. Add in the opportunity costs that may be roughly the same as those of the subway commuters and we get as much as $6600 as the yearly cost to the commuter by car.
None of these costs, except possibly parking, are borne directly by the commuters’ employers.

Their Employers

The general assumption by employers, or at least by their accountants, is that the cost of commuting is embedded in the salary/wage demands of their employees and need not be considered further. Yet in 1973, when we were planning our first telecommuting test, we came upon a large employer that was definitely concerned about commuting costs as reflected in its ability to attract new employees. The employer found that it had to pay a premium of about 10 percent to attract suitable workers to its downtown facility. This, combined with a fairly high turnover rate of such employees, was one of the company’s motivations to participate in our telecommuting test project. Since then, many more companies have seen the light and have looked for ways to to keep or attract employees who might need to commute. The most common of these attractants are subsidized parking and promotion of car and van pooling. In the U.S. the federal government also adds such incentives to large organizations. The growth of Transportation Demand Management (TDM) organizations is an outcome of this employer-felt need. So let’s say that the cost to employers of commuting, at least in urban areas, is about 10% of the salaries of their employees.
And then I’ve left out some other major externalities: the transportation infrastructure and the impacts on the environment (air pollution and global warming, for example). Those costs are shared by all of us, whether or not we commute.

The Telecommuters and Their Employers

Most telecommuters either work from home or from a facility within walking or biking distance from home. Their out-of-pocket commuting costs tend to be zero while they’re telecommuting. So full-time telecommuters, about 10% of all telecommuters, might be saving from $1200 to $6600 annually in work-related expenses when compared to their commuting coworkers. Not to mention the cheaper lunch costs and the reduced need for business-suitable attire. In cases where telecommuting eliminates the need for a second — or any — car the savings are proportionally greater. On the other hand, part-time telecommuters incur the commuting costs covered above on days they’re not telecommuting so the savings may be proportionally reduced.
Employers of telecommuters might have some increased infrastructure costs, primarily to support the telecommunications networking required by the telecommuters, but these days those costs may be a small blip in the overall information technology support program. On the other hand employers have less need for office space in proportion to the the size of their telecommuting staff and the frequency of their telecommuting.
Then there are those other factors such as reduced turnover rates, improved productivity/effectiveness, decreased use of sick leave and other benefits to employers that have been documented over the decades since our 1973 test program.

The Bottom Line

For many commuters, commuting costs are high — and unnecessary. For details in your own case try our cost-benefit test.

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