The road to productivity

A road in Thrissur.

A road in Thrissur. | Photo Credit: NAJEEB K.K.

It has taken a pandemic to know how important cities are. One reason why our progress towards a $5 trillion economy could be stifled is the pandemic-induced lockdowns in cities which play an important role in realising national and macroeconomic growth targets. Even as early in the pandemic as April 2020, a Barclays report found that “the absolute economic loss was likely the largest from the shutdown of Kuala Lumpur, Manila, Delhi and Mumbai, ranging from $1 billion-$1.7 billion per week.”

Travel time

One aspect of cities that we know very little about, which contributes to their economic productivity, is that they are labour markets where the labour force exchanges their labour and creates knowledge spillovers. As the famous French planner Alain Bertaud points out, a lot of economic and productive activity takes place in cities and its jobs.

There is no doubt that the commute time for the labour force to the workplace plays a very important role in determining their productivity in cities. The travel time to work was one of the slowest in our cities in 2016: Bengaluru being the slowest at 22 km per hour, Delhi at 25 km per hour, and Chennai the highest at 33 km per hour.

Travel time continues to be long in our post-pandemic cities which are fiscally stressed and battling the problem of potholes following heavy rains. The longer the commute time in a city, the smaller is its effective labour market and vice-versa. While the nominal labour market of the city refers to all jobs created in the metropolitan area, the effective labour market refers to the jobs accessible within a certain commute. From the viewpoint of enlarging a city’s effective labour market and economic output, it is therefore very important to keep the commute time short and commuting cost cheap within a city as it keeps growing in population. It should be clear that a short commute is desirable not only from the micro perspective of the commuter who otherwise wastes time, health and productivity with the delays in traffic, but also from a macro, city-level perspective, to enable a large effective labour market. In this context, it is instructive to note that in the pre-pandemic period, firms in Bengaluru threatened to leave the city and relocate if the traffic problems were not fixed, as it was affecting the productivity of their employees.

There is no doubt that the larger a city’s effective labour market, the greater its agglomeration economies and knowledge spillovers will be. A study found that within a 45-minute commute on public transit, only 66,427 jobs were accessible in the Phoenix metropolitan area in the U.S. compared to the nearly 2,02,724 jobs which were accessible in the Philadelphia metropolitan area within the same commute time, even though the two cities have the same population(about 1.6 million). Therefore, there is no doubt that Philadelphia’s effective labour market is bigger than its counterpart in Phoenix. This is reflected in the higher per capita income of $22,874 in Philadelphia compared to $21,907 in Phoenix in 2010.

A priority

One way in which urban local bodies (ULBs) directly impact the city’s economic output is through their infrastructure. Why aren’t our cities investing adequately in roads? In recent research, taking the case of Karnataka’s cities, we found that road length has a positive effect on the city’s tax base. This is because roads lead to easy access to jobs and increased economic activity; that also gives the public more confidence and motivation to pay taxes. Our estimate indicated that for every one km increase in the road length of a ULB, there is an increase in the ULB’s own revenues by roughly ₹430 per capita. So, for a ULB with an average population of 78,415, the extent of increase in its own revenues can be to the extent of ₹33 million, for an increase of 1 km of roads per 1,000 of its population. So, cities should not view investment in road networks as expenditure; rather, roads add to the city’s revenue base which the city can use to improve infrastructure and public services. Even simple things such as fixing potholes and puddles on roads lead to significant reductions in travel time and should be an important city government priority.

Investing in roads not only reduces travel time and enlarges effective labour markets of cities and their economic output, but also improves access to schooling for children as well as healthcare, thereby upgrading human development. This is indeed the road to the $5 trillion economy along with improvement in human well-being.

Kala S. Sridhar and Vishal R. are Professor, Institute for Social and Economic Change, and IAS officer, Government of Karnataka, respectively

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Printable version | Sep 4, 2022 9:54:30 am |