Riding the Smart Bus: Knowledge Workers, Agglomeration Economies and Public Transport Use

Transcription

1 : Knowledge Workers, Agglomeration Economies and Public Transport Use TERRY RAWNSLEY Associate Director SGS Economics & Planning BETHANIE FINNEY Consultant SGS Economics & Planning JULIAN SZAFRANIEC Senior Consultant SGS Economics & Planning AITPM 2011 National Conference 1

2 Abstract Some of Australia s major capital cities have experienced significant increases in public transport use since 2000, while others have experience modest growth and in some cases per capita declines. Factors including fuel prices, congestion or investment in new transport routes provide only limited explanations of these trends. Another explanation can be found in an analysis of the interactions between urban structure and recent changes to the economic geography of cities. Agglomeration economies, the productivity benefits derived by firms locating close to one another, have been a significant influence on the distribution of recent employment growth. The research highlights the agglomeration benefits enjoyed by different industries sectors. This analysis provides a better understanding of the locational behaviour of workers employed in those industries that enjoy the greatest productivity dividends from agglomeration. As knowledge intensive industries grow as a share of all employment, the agglomeration forces of these economic activities have resulted in a significant share of growth occurring in particular locations. The synergies between these locations and existing public transport networks provide an explanation for differing trends in public transport utilisation. AITPM 2011 National Conference 2

3 1 Introduction The internal working of cities is often blurred by the daily hustle and bustle of tens of thousands of residents going about their business. Travelling to work, accessing the many services presented by the city or just absorbing the buzz provided by the vibrant spaces can blinker us from the powerful economic and social forces that are shaping our cities. Despite being crowded and at times very expensive, the central business districts (CBD) of our cities continue to generate many thousands of new jobs. These jobs can be accommodated in 21 st Century sky scrapers or in 19 th Century converted warehouses. While the nature of office space does not appear to matter greatly the central location is vital to these jobs. However the fringe of our cities, despite having an abundance of cheap land which is relatively free from traffic congestion, still fail to produce anywhere near the same scale of employment growth. Agglomeration economies, the productivity benefits derived by firms locating close to one another, have been a significant influence on the distribution of recent employment growth in our CBD. Agglomeration economies foster innovation with so many firms located together there will be a high level of technological / knowledge transfer between firms. Agglomeration economies provide firms with the opportunity for economies of scope and scale which allow them to bolster their labour productivity. The research in this paper have drawn on estimates of employment and population to highlight the differing urban structures of our cities and highlights the agglomeration benefits enjoyed by different industries. This analysis provides a better understanding of the locational behaviour of workers employed in those industries that enjoy the greatest productivity dividends from agglomeration. The synergies between these locations and existing public transport networks provide an explanation for differing trends in public transport utilisation by workers in different industries. In most cases Melbourne in used as a case study to highlight the factors which are impacting on all cities. This paper is set out as follows: Section two briefly described the theory of agglomeration economies and a measure of the benefit enjoyed by particular industries. Section three discusses public transport usage patterns. Section four examines the industry variations in public transport usage. Section five presents travel times for residents in different parts of Melbourne. Section six presents the policy implications of these findings and some concluding remarks. AITPM 2011 National Conference 3

4 2 Agglomeration theory and analysis The term agglomeration is used in spatial economics to describe the benefits which flow to firms from locating in areas which have a higher density of economic activity. Macroeconomic theory would describe agglomeration as part of economies of scale and scope. Many of the theoretical benefits of agglomeration economies are well established in economic theory and are outlined in detail in most economic text books. Increasing the level of agglomeration - via improved transport linkages, increasing employment densities within existing employment clusters, or expanding the area of employment clusters - can boost labour productivity. This labour productivity boost is brought about in a number of ways such as economies of scope and scale, access to skilled labour and knowledge transfer. Increases in labour productivity brought about by increases in agglomeration differ across the various industries. This relationship partially explains the vigorous competition for centrally located sites amongst service-based firms. The premium paid for such sites is more than compensated by the increased labour productivity from their operations in these strategic locations. This also explains why it is difficult to attract these types of businesses to suburban locations, notwithstanding the sound urban planning arguments for setting such a goal. Agglomeration also helps to improve the quality of labour inputs available by increasing the stock of Human Capital. Essentially, if there are a large range of jobs on offer a worker can search through the job market and best match their skills to the available job and maximise their acquisition of on-the-job experience. They have the opportunity to work in a number of different jobs and hence gain a range of experiences (which can be seen as on-the-job investment in their education) which will also translate into higher productivity. A simple measure such as looking at the employment density of an area does not effectively demonstrate the phenomena of agglomeration. A firm in a relatively low-employment area but located on the edge of a CBD could potentially capture agglomeration benefits by being close to the CBD. Thus a measure of agglomeration must incorporate both proximity and the scale of the economic activity and be calculated for very small areas (Graham, 2006). Accordingly, this study has used the level of employment relative to the time taken to gain access to that employment and the mode split that is currently experienced by those employees. This measure, called effective job density (EJD), enables a more real life representation of the proximity (in terms of travel time) component of agglomeration that other more basic measures overlook. That is, 68% of people working in the CBD of Melbourne travel to work on public transport and thus the proximity to those jobs is closely related to public transport travel times. The other extreme can be seen in locations such as Cranbourne (an outer location of Melbourne), where 98% of workers travel to work using private vehicles. The EJD has been calculated for each Statistical Local Area (SLA) in Melbourne. The impact of doubling effective job density is referred to as the elasticity of the industry and allows the coefficients to be easily interpreted. Table 1 presents the elasticity for each industry. The weighted total for all industries included in the analysis is That is, a doubling of the EJD will result in a 7% increase in labour productivity in an area. This is within the range of results from international studies of agglomeration and Trubka (2009) who estimated 0.07 for Melbourne. It is worthwhile to note that Trubka used a significantly different methodology to the one employed in this paper but arrived at a similar outcome for Melbourne. AITPM 2011 National Conference 4

5 The industries that gain the largest increases in labour productivity from increases in agglomeration are those that have the highest elasticities of effective job density. These industries include Property & Business Services and Finance & Insurance which will have a 13% to 18% increase in labour productivity from a doubling of EJD. Economies of scope and scale, access to a deep and diverse pool of skilled labour and technological / knowledge transfer are most likely the benefits which agglomeration offers firms in these industries. The relationship between agglomeration (as measured by EJD) and labour productivity for Cultural & Recreational Services reflects the clustering of these types of firms around existing employment centres which provide a broader range of uses. This environment provides a range of customers for the industry. For example, the range of theatres in the Melbourne CBD and the Crown Casino complex on Southbank enjoy economies of scale from locating close to such a large pool of potential customers (in the form of employees, residents and tourists). A number of industries have been excluded from the analysis due to technical issues in estimating small area labour productivity. These industries include Agriculture, Mining, Utilities, Government Administration and the Communication industries. Table 1 Elasticities of EJD by Industry Industry Elasticities Manufacturing Construction 0.11 Wholesale Trade 0.01 Retail Trade 0.08 Accom, Cafes & Rest Transport & Storage Finance & Insurance 0.13 Property & Business Serv's 0.18 Govt Admin & Def 0.01 Education 0.05 Health & Community Serv's 0.10 Cultural & Recreational Serv's 0.29 Personal & Other Serv's 0.07 Total 0.07 Source: Rawnsley & Szafraniec The analysis revealed that the highest labour productivity SLAs are clustered around central Melbourne, the industrial zones in the south east, and the airport in the north. Much of the variation in the SLA labour productivity can be attributed to industry mix within each SLA. That is, the higher labour productivity service based industries tended to cluster around the CBD, which in itself is not clear proof of the impact of agglomeration economies. To observe agglomeration economies, then, we should be able to observe variation in labour productivity across the city for a particular industry. Table 2 presents such variation for the Property & Business Services industry. That is, a worker located in the central area of Melbourne (where there is high agglomeration) has a higher labour productivity than a worker in the same industry located on the fringe of Melbourne (where there is low agglomeration). The SLAs have been classed into Inner, Middle and Outer Regions. Figure 4 on page 13 provides some context to the location of these Regions. AITPM 2011 National Conference 5

6 Table 2 Selected SLA Property & Business Services Log Labour Productivity & EJD Rank SLA Region Property and Business Services Effective Job Density 1 Melbourne - Southbank & Docklands Inner Port Phillip - West Inner Melbourne - Inner Inner Bayside - Brighton Inner Hobsons Bay - Altona Middle Moonee Valley - Essendon Middle Monash - South-West Middle Boroondara - Camberwell South Middle Glen Eira - Caulfield Middle Gr. Dandenong Bal Middle Moreland - Coburg Inner Maroondah - Ringwood Middle Maribyrnong Middle Gr. Dandenong - Dandenong Middle Frankston - West Outer Hume - Sunbury Outer Knox - North-East Middle Cardinia - Pakenham Outer Melton Bal Outer Source: Rawnsley & Szafraniec Analysis of the Australian Bureau of Statistics (ABS) State Accounts and related city specific data sources has produced industry value added for each major capital city. The share of the economy of each city represented by agglomeration economies industries has been estimated. It has been deemed that if the elasticity of the industry is greater than the average of 0.07 then the industry is closely linked to agglomeration economies. Table 3 Agglomeration Linked Industries Share of the Economy City 30 th June th June 2008 Sydney 42.1% 49.4% Melbourne 41.1% 50.1% Brisbane 40.4% 49.7% Adelaide 41.8% 46.5% Perth 43.0% 54.1% Source: Authors calculations The industries closely linked to agglomeration economies have been growing at a much faster rate than the rest of the economy in all of the major capital cities. In most cases the share has increased from around 40% to over 50%. This provides some supportive evidence that the labour productivity patterns observed in Melbourne are most likely occurring in the other major capital cities. AITPM 2011 National Conference 6

7 3 Public transport usage The ABS releases data on the mode of transport taken to work for all geographic areas in Australia as part of the Census conducted every five years. Examining this data for Melbourne, the following trends can be observed. The proportion of workers catching public transport was highest in the City of Melbourne in 2006, with 48% choosing this mode of transport. The inner Local Government Areas (LGA) of Port Phillip, Stonnington and Yarra also had a relatively high proportion of public transport use between 12% and 16%. However, in most other LGAs the share of workers taking public transport was between 1% and 8%. Out of the 31 LGAs in Melbourne, 27 had more than 90% of workers using private cars as their primary mode of transport to work. This reflects the historical development of the public transport infrastructure around the central core of the city and outer suburbs built around private motor vehicle travel. Figure 1 Public Transport Usage Rates, Melbourne Local Government Areas, % 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: ABS Census (Journey to Work), Growth in public transport usage rates from 2001 to 2006 was strongest in the city of Port Phillip, Yarra, Whitehorse and Maribyrnong. Across most LGAs in Melbourne there was positive growth in public transport usage, at an average of 2%. The only exceptions were Greater Dandenong, Hume and the Mornington Peninsula which had negative growth in public transport usage. Additionally, growth in private vehicle usage for work trips was mostly negative across Melbourne, with the City of Melbourne experiencing an average annual decrease of 1.8% per annum. This is no doubt linked to AITPM 2011 National Conference 7

8 increased traffic congestion impacting on the City of Melbourne as the population and employment has increased. Employment growth between 1996 and 2008 in the City of Melbourne has been in excess of 120,000 jobs. This was equivalent to 29% of all employment growth in Melbourne. Outside of the City of Melbourne most of the growth was in the inner ring suburbs of Yarra, Booroondara and Port Phillip all of which have good access to public transport. The majority of these jobs were in industries which gain the greatest benefits from agglomeration economies (including Property & Business Services, Finance & Insurance, Accommodation, Cafes & Restaurants and Retail). The next section explores the industry variation in public transport usage. 4 Transport use by industry The ABS also releases data on the mode of transport taken to work by industry of employment as part of the Census. This has allowed for further analysis of which industries have the greatest public transport usage rates. The industries that have the largest proportion of public transport use as the mode of transport to work include Property & Business Services, Finance & Insurance, Communication Services and Government Administration & Defence, ranging between 21% and 36% for Melbourne as a whole. Accommodation, Cafes & Restaurants also had relatively high public transport use of 18%. An analysis of the spatial distribution of public transport usage rates by industry across Melbourne found that in the City of Melbourne (which includes the CBD) the proportion of public transport use in these particular knowledge intensive industries was even more pronounced than the Melbourne average. However, when looking at a middle ring location, such as Monash, public transport usage was very limited. The largest share was in the Accommodation, Cafes & Restaurants industry where only 7% caught public transport to work. Figure 2 and Figure 3 illustrate this vast difference between public transport usage across Melbourne. The key industries identified in section 2, in most part, that have high labour productivity and EJD elasticity also have high proportions of public transport usage. Health & Community Services is an exception which is likely due to the non-standard hours worked by many hospital health professionals which are not well serviced by public transport. AITPM 2011 National Conference 8

9 Figure 2 Public and Private Transport Usage by Industry, City of Melbourne, % 90% 80% 70% 60% 70% 56% 80% 45% 83% 79% 54% 55% 72% 50% 41% 51% 39% 60% 78% 75% 63% 50% 40% 30% 20% 10% 30% 44% 20% 55% 17% 21% 46% 45% 28% 50% 59% 49% 61% 40% 22% 25% 37% 0% Public Transport Private Vehicle Source: ABS Census (Journey to Work), 2006 Figure 3 Public and Private Transport Usage by Industry, Monash, % 90% 80% 70% 60% 50% 100% 100% 98% 98% 99% 98% 96% 93% 96% 98% 97% 96% 98% 96% 97% 97% 97% 40% 30% 20% 10% 0% 0% 0% 2% 2% 1% 2% 4% 7% 4% 2% 3% 4% 2% 4% 3% 3% 3% Public Transport Private Vehicle AITPM 2011 National Conference 9

10 Source: ABS Census (Journey to Work), 2006 It would appear that workers in these industries are choosing to locate in residential areas which have good public transport access to their jobs in the City of Melbourne (and elsewhere within the Central Core). If the patterns of the past years are repeated then there will be strong employment growth in industries driven by agglomeration economies in central Melbourne. There appears to be little reason why the trends would not continue in the future. As this employment growth continues the workers in these industries will chose (and be likely to afford) to locate along the public transport routes into the city. This will ensure a high level of ongoing demand for public transport services during peak periods. 5 Travel times for Melbourne The Victorian Integrated Survey of Travel and Activity (VISTA) was conducted in 2007 to provide a more detailed snapshot of the travel patterns of people in Melbourne, Geelong, Ballarat, Bendigo, Shepparton and Latrobe. The survey found that people travelled the furthest distance for work related trips, with a median distance travelled of 14.3km, followed by social/recreational trips. It also found that people aged 18 to 39 spend the most time travelling each day compared to all other age groups. Approximately 80 minutes in total were spent on daily travel by this age group in Metro Melbourne. This compares with 70 minutes for those aged 40 to 64, 50 minutes for those aged 65 and over. People aged 17 and below travelled on average 40 minutes each. Table 4 Selected LGA Work Journey Travel Time LGA Region Metro Melbourne N/A Bayside Middle Boroondara Middle Darebin Middle Frankston Outer Dandenong Middle Hume Outer Kingston Middle Manningham Middle Maribyrnong Middle Melbourne Inner Monash Middle Moonee Valley Middle Moreland Inner Port Phillip Inner Stonnington Inner Wyndham Outer Yarra Inner Source: VISTA 07 Survey This data suggest that there is a roughly consistent travel budget for similarly aged people across the city. That is, people implicitly allocate a particular amount of time to travel during any week. If their AITPM 2011 National Conference 10

11 travel times for a particular purpose (say travelling to work) increases then they may reduce travel (for leisure or informal education opportunities) for other purposes to maintain their travel budget. Table 5 presents the average journey to work travel time for residents of selected LGAs within Melbourne. On average most residents travel around minutes to reach their employment. However, there are significant variations in average travel time by different modes across Melbourne. This suggests that there are a range of individual choices in terms of residential and employment locations impacting on the average travel times. Some people have chosen to locate close to their employment and have short travel times while others are located a longer distance from employment. However, there are differing potential baskets of choices on offer to residents in different parts of Melbourne. Residents in inner Melbourne have a significant number of high value jobs to choose from that are easily accessible via a number of transport options (public transport, walk / bicycle and car). On the other hand, residents of outer areas who wish to access high value employment are forced to travel for long periods to access these jobs. Table 5 Selected LGA Cumulative Daily Travel Time LGA Region All methods Car driver/passenger Public transport Walking/bicycle Metro Melbourne N/A Bayside Middle Boroondara Middle Darebin Middle Frankston Outer Dandenong Middle Hume Outer Kingston Middle Manningham Middle Maribyrnong Middle Melbourne Inner Monash Middle Moonee Valley Middle Moreland Inner Port Phillip Inner Stonnington Inner Wyndham Outer Yarra Inner Source: VISTA 07 Survey While the economy of Melbourne (and other major capital cities) continues to be driven by agglomeration economies, the bulk of employment growth will continue to locate in the central core. If population growth continues to be biased towards fringe areas of our cities then there will have to be significant investment in transport infrastructure (and rolling stock) to maintain the prosperity and equality in our society. AITPM 2011 National Conference 11

12 6 Policy implications and concluding remarks The analysis presented in this paper highlights a number of key policy implications which have to be carefully understood and appreciated by all levels of government. These include: Agglomeration economies provide real advantages to businesses which generating the drivers of our long term economic prosperity. Employment will continue to grow in areas of high agglomeration which are almost exclusively located around the central cores of Australian cities. Government policy which attempts to isolate significant employment growth from access to the benefits of agglomeration economies are unlikely to succeed. As the economies of our major cities continue to expand they will attract additional population growth (both from natural increase and migration). Housing the increasing population long distances from the central cores of our cities will place excessive pressure on public transport and road networks. This can be addressed by: o Significant investment in public transport and road infrastructure. o Accommodating a greater share of future generations of Australians within the inner middle rings suburbs of our cities which have access to nearby employment hubs and existing transport links. o Provide a reliable supply of employment lands on the fringe of the central core of our cities in areas which have potential to access existing agglomeration economies. o A combination of activities listed above implemented in a coordinated manner. If the policies to manage our future employment and population growth are not successful then there exists the possibility that Australian cities will become deeply divided. This would be economically, with the central core of our cities successful linked into the global economy and the fringe dependant on industrial and population serving employment. The reduced access to opportunities (employment, education, recreational etc) for Australians living on the fringe of our cities could create a socially divided city of haves and have nots which threatens the liveability of the whole city. The successful implementation of these policies will require coordinated implementation between all level of government to work together to help unlock the private sector innovation and investment which help to shape our cities. Another key success factor will be the dialogue with the Australian community on the various costs and benefits of different policy interventions which can help shape our cities. A well informed community will be more cooperative in embracing good public policy when they are well aware of the alternatives. AITPM 2011 National Conference 12

13 7 Context Maps Figure 4 Rings Within Melbourne AITPM 2011 National Conference 13

14 8 Bibliography Australian Bureau of Statistics (2000), Australian National Accounts: Concepts, Sources and Methods, cat. no ABS, Canberra. ABS. (2008), Australian National Accounts: State Accounts, cat. no ABS, Canberra. ABS. (2008), Australian System of National Accounts, cat. no ABS, Canberra. ABS. (2008), Labour Force, Australia, Detailed, Quarterly, cat. no ABS, Canberra. ABS. (2008), Manufacturing Industry, Australia, cat. no ABS, Canberra. ABS. (2008), Regional Population Growth, Australia, cat. no ABS, Canberra. Australian Government (2007), Intergenerational Report , Commonwealth of Australia, Canberra. Baldwin, J.R., Beckstead, D., Brown, M. & Rigby, D. (2007), Urban Economies and Productivity, Economic Analysis Research Paper Series, Microeconomic Analysis Division, Statistics Canada. Graham, D.J. (2005), Wider Economic Benefits of Transport Improvement: Link Between Agglomeration and Productivity, Stage 1 Report, prepared for the Department for Transport, London. Graham, D.J. (2006), Wider Economic Benefits of Transport Improvement: Link Between Agglomeration and Productivity, Stage 2 Report, prepared for the Department for Transport, London. Graham, D.J. (2007), Agglomeration, Productivity and Transport Investment, Journal of Transport Economics and Policy, 41 (3), September 2007, pp Henderson, J. V. (1986), Efficiency of resource usage and city size, Journal of Urban Economics, 19, Henderson, J. V. (2003), Marshall s scale economies, Journal of Urban Economics, 53, Marshall, A. (1920), Principles of Economics, MacMillan, London. Organisation for Economic Cooperation & Development (2006), Competitive Cities in the Global Economy, Organisation for Economic Cooperation & Development, Paris. Rosenthal, S. & Strange, W. C. (2003), Evidence on the Nature and Sources of Agglomeration Economies, Handbook of Urban and Regional Economies, Vol. 4. Rawnsley, T & Szafraniec (2010), Agglomeration and Labour Productivity in Australian Cities, Presented to Melbourne 2010 Knowledge Cities World Summit, November Tabuchi, T. (1986), Urban agglomeration, capital augmenting technology, and labor market equilibrium, Journal of Urban Economics, 20, Trubka, R. (2009), Productivity and the Density of Economic Activity: Preliminary Estimates of Agglomeration Benefits in Australian Cities, Curtin University Sustainability Institute. AITPM 2011 National Conference 14