Bank of Israel Research Department The Effect of Public Transit on Employment in Israel's Arab Society* Arnon Barak 2 Discussion Paper 2019.03 March 2019 _________________ Bank of Israel: www.boi.org.il 1 Arnon Barak, Bank of Israel, Research Department. Email: [email protected] Tel. 972-2-6552659 * Thanks to Nitsa Kasir, Naomi Hausman, Adi Brender, Eyal Argov, Shay Tsur, Noam Zussman, Ari Kutai, Alon Eizenberg, Sharon Malki, Sivan Hendel and participants of the Research Department seminar at the Bank of Israel for their helpful comments. Appreciation is extended to Noa Aviram and Sarit Levy of the Ministry of Transport and Road Safety for their collaboration, and special thanks to Eran Ravid and Dan Rader from “Adalya” for generating the public transportation data. Additional thanks are extended to Central Bureau of Statistics employees—Gilat Galmidi, Orly Furman, and Yifat Klopstock for preparing the database, and to David Gordon for the ongoing assistance in working in the Research Room. Finally, thanks to Research Assistants Gal Amedi and Adam Rosenthal for dedicated and meticulous data processing. Any views expressed in the Discussion Paper Series are those of the authors and do not necessarily reflect those of the Bank of Israel :2118 – 891 #“ – -– º “ Research Department, Bank of Israel. POB 780, 91007 Jerusalem, Israel The Effect of Public Transit on Employment in Israel’s Arab Society Arnon Barak Abstract The Arab population is characterized by low employment rates, particularly among women, due to cultural characteristics and structural barriers. A common argument is that one of these barriers is the lack of transit access to places of employment, due to the low level of public transit service in the Arab localities. This study examines that argument by looking at the reform in public transit that affected many Arab localities between 2010 and 2015 to varying degrees and at various times. In order to identify the reform’s effect on employment, we use, for the first time in Israel, administrative data regarding trips on bus lines in the Arab localities, and distinguish between people who benefited from access to a private vehicle and those who did not, assuming that the employment decisions of the latter are more sensitive to the level of service. The results of the study show that public transit has a weak effect on employment rates among the Arab population. In particular, we did not find that the reform led women to join the labor force. However, it did help some working women continue to work—educated women aged 30–50 with no access to a private vehicle, a group that comprises about 8 percent of all working-age Arab women (20-64). If 10 bus trips per day are added to the locality—similar to the average increase in recent years—the chance that such a woman will remain employed increases by about 0.5 percent. We also found that the improvement in service helps older men (aged 40–64) with no access to a private vehicle to integrate into the labor market, and that in this case, the effect is even slightly greater—about 0.7 percent. This group comprises about 8 percent of all Arab working-age men (20–64). The findings of the study support the argument that in order to increase employment rates among the Arab population, other barriers must be removed, and public transit is, at the very most, a complementary factor in this regard. Improving public transit helps women and men who have overcome structural and cultural barriers and are on the verge of employment. Beyond that, it is reasonable to assume that the reform improved the quality of life in the Arab community in other ways. The number of passengers increased significantly, which shows that the population used public transit for various needs and benefited from its expansion, since it reduces the cost of travel in terms of time and money. The study was conducted with limited available data, and relates only to the additional service between 2010 and 2015. Since it is not likely that the additional service is immediately fully reflected in employment, some of the ramifications of the improved service, which has expanded significantly in the years since then, may not be reflected in this study. “ – º º– º … “º “ – º º– “º “ º – – – “ “ –“ — º… “ – — “ “ ,—º – , “ – º º… º ,º… “ “ ““– “ º— – º º º …º — º “– º . … º º “ “ º . – º — “– º º– “º — ºº “–—º “– — “ 2015 2010 — – – — º — “– º º– “ º–– — º “ , –— º— – ,—“— º… “º º––º “ —º “ “º .— “— º— º º“º— — , – º — … — “ … º © “ –“ “—– – º — º… “º “º— ºº !“ , º— º º“º — – – . “–—º “– º… º… “º – — “– º º– “º — º— º —º “ –º “ “ º … º . º º — — “–º º º º––º— ,– .“ – º 8% - ºº— º , – – º— “ “— — " !—º “ º —º º " — … “ … 10 … –— * (64 20 ) º º “ – º —º .0.5% - º “… – —“ º— — …º " “– º — º º º– ,º º — “—º – – º— –… (64"40) – – … “–— –—º .(64"20) º º – º – º 8%- ºº º 0.,%- ) –“ º + º —ºº … –…º — “ – º º– º… “º – — “ “ º — º “ –º – — … .–— -º — – –“º “—— “– º º– “º ,– º––º— º – … , ! – .º… “ +… “ –“º º …º – “º— – º ““ — …º –… - “– “ “ – º º– º “ “ º–— “ “ º“º — ,º“ –º º“º — – “– º º– “ º—“—º º… º . +… º …º — . 2015 "2010 — “–—º “…“ …“ º “º “ !– –º !º— ,“–—º –— — “—ºº — “ , º… “ “ “ “…“º – … º .º – , — — ““ — –“º 1. Introduction Improvements in the quality of transportation, including an improved match between public transit and users’ needs, potentially reduces the cost of traveling to work and expands the relevant opportunities and choices of employers and employees, particularly employees with low earning potential who cannot afford to purchase a private vehicle. 1 Consequently, public transit may contribute to achievement of an important socio-economic goal defined by the Israeli government, which is to increase employment rates in minority sectors, and specifically among Arab women. 2 Improving the quality of public transit service may contribute to employment rates by resolving spatial mismatches between the locations of low-income earners and relevant employment opportunities. Kain (1968), the first to discuss this phenomenon, argued that the high unemployment rate of African-Americans in Chicago and Detroit was not the result of discrimination but mainly due to the distance between job-seekers’ inner-city homes and the centers of employment that had relocated to the suburbs. Over time, it has become clearer that isolation from suitable employment opportunities is due to lack of accessibility and not necessarily due to geographic distance, because suitable transportation can frequently overcome the effects of distance (Tyndall, 2017). This understanding prompted developments in the literature focusing on transit mismatch. Numerous studies have indeed shown that an increase in vehicle ownership rates among low- income individuals may overcome transit mismatches and improve these individual’s position in the labor market (e.g., Baum, 2009; Gautier & Zenou, 2010). Others found that investment in roads has a similar effect (Duranton & Turner, 2012; Gibbons et al., 2016). With respect to Israel, Frish and Tsur (2010) used a gravitation model to examine how increased investments in infrastructure between 1993 and 2003 affected commuting and wages, and found that men’s wages increased by 10%-14% in 2002-2004. Several studies in the US found a positive association between public transit access and the probability of employment (Sanchez, 1999; Yi, 2006), especially for unskilled workers (Kawabata, 2002) and women (Ong & Houston, 2002) who are not vehicle owners. No evidence of such effect, however, was found in studies that examined whether proximity to high-quality public transit increases the probability that US welfare recipients will become employed (Cervero et al., 2002; Sanchez et al., 2004). All these studies share the limitation that, being based on cross-sectional data, they describe correlations rather than causal effects. The identification problem stems from the fact that in all these studies, the variable that represents public transit access depends on individuals’ place of residence. Since this feature is clearly not the result of random selection, it is impossible to identify a causal relationship based on differences in the quality of public transit. To do so, we need longitudinal data, which make it 1 Low-income individuals have a greater tendency to use public transportation (Suhoy & Sofer, 2019). 2 Based on Employment Targets for 2010-2020 (Government Resolution 1994). possible to track both individuals and changes in the quality of public transit, which are presumed to be exogenous to individual characteristics. Holzer, et al. (2003) overcame this limitation using the difference in differences (DID) technique based on a natural experiment following the expansion of the heavy rail system in San Francisco. These researchers found that after the new train line was completed, companies adjacent to the new rail line hired more employees of Hispanic descent who lived in inner-city communities (a group that tends to use public transit). Nonetheless, even in this case, the presumption of exogeneity is questionable: It is reasonable to assume that firms that relocated in proximity to the new line chose to do so out of consideration for the accessibility by the potential labor force. A similar approach was adopted by Nielsen and Rotger (2015) who examined the behaviors of households rather than of firms. They found that the opening of a new train station in Copenhagen led to a change in commuting patterns and an increase in income among the population living in proximity to the station, due to improved access to remote places of employment that offered higher wages. Even in this case, however, concerns regarding exogeneity remain: We cannot rule out the possibility that the rail line was not planned randomly and that it was located where planners believed that demand for commuting existed.