Does Commuting Reduce Wage Disparities?

ZEI Working Paper B02-2003 (updated)

25 Pages Posted:

Multiple version iconThere are 2 versions of this paper

Date Written: May 2004


This paper explores the effect of rural-urban and inter-city commuting on urban and rural labor markets and on national welfare. This is done in the context of three Baltic countries (Estonia, Latvia, and Lithuania), which feature considerable disparities in earnings and employment possibilities between urban and rural areas, as well as between capital and other cities. The analysis is based on data from Labor Force Surveys 1999-2000.

The author finds that in each of the three Baltic countries • about 20 percent of employees work not in the same municipality where they live • commuters from other municipalities account for about 15 percent of all employees in the capital cities • rural markets see net outflow varying from one sixth (Latvia) to one third (Lithuania) of resident full-time employees • commuting reduces urban-rural wage and employment disparities and, congestion aside, increases national output and welfare, even if time lost to commuting is accounted for.

The latter finding is based on mild assumptions which have been verified for the Baltic countries and can be easily checked in other cases.

The wage effect of commuting has two parts: • wage levels in the capital city and in the countryside become closer to each other • wage differential between residents of the capital city and the countryside become smaller than similar differentials measured by job location.

This study offers a method of quantifying the latter effect (reduction in spatial wage differentials) by estimating two sets of earnings functions with location variables measured at workplace in one case and at residence in the other. The results indicate that: • in Estonia and Latvia commuting substantially reduces wage differentials between capital city and rural areas, as well as between capital and other cities • in Lithuania the only differential significantly reduced by commuting is the one between capital city and surrounding urban areas • wage discrimination against rural residents in urban labor markets is found only in Lithuania.

The study also explores: • individual wage gains to commuting • educational and occupational composition of commuting flows • impact of education, gender, ethnicity, and local labor market conditions on the commuting decision.

The paper finds that rural-urban commuters • are predominantly skilled in Estonia and Latvia but unskilled in Lithuania • earn more than otherwise similar stayers, and this gain is smallest in Lithuania. The author argues that the paper provides support for public policies which promote commuting.

Keywords: Keywords: commuting, wage disparities, earnings functions, Baltic countries

JEL Classification: J31, J61, P25, P52, R12, R23

Suggested Citation

Hazans, Mihails, Does Commuting Reduce Wage Disparities? (May 2004). ZEI Working Paper B02-2003 (updated), Available at SSRN: or

Mihails Hazans (Contact Author)

University of Latvia ( email )

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Riga, LV 1050
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+371 6703 4721 (Fax)


IZA ( email )

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