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Emma McInnes biking in Auckland city (Photo: ONMas)
Emma McInnes biking in Auckland city (Photo: ONMas)

NZIERJune 20, 2020

Cycling: the costs, the benefits, and the culture clash

Emma McInnes biking in Auckland city (Photo: ONMas)
Emma McInnes biking in Auckland city (Photo: ONMas)

Cycling is an unusually controversial topic. The NZIER public good team explains why the government invests in cycle lanes, and why they make some people so mad. 

Under lockdown, we saw nature healing. The air was fresh and clean, native birdsong filled our ears, and bikes returned to the roads. It’s not surprising that bike owners dusted off their wheels and tentatively re-claimed the road – cycling allowed physical distancing and exercise, and there were very few cars to pose a threat.

“In the two days leading up to alert level four, we ran out of electric bikes for people to rent for the lockdown period,” says Ryan O’Connell, owner of Wellington e-bike rental shop Switched On Bikes. “Now they’ve had a taste of the ease and convenience that biking offers, many have taken up longer-term electric bike subscriptions.” Unfortunately, our level one freedoms have led to roads once again being filled with cars and they no longer have the appealing empty feel. If only there was some way for people on bikes to travel around safely.

If only there were more cycle lanes. 

If you just had a visceral response to the words “cycle lanes”, you’re not alone – here in New Zealand, we care a lot about them. Love them or hate them, you probably have an opinion. In Wellington, hotly anticipated funds for temporary cycle lanes were pulled last minute following threatened legal action around a “misleading” consultation process. And the Island Bay cycle lane? Best to not get into that fiasco.

The point is, the way our roads and pavements are set up can have a major effect on our lives, affecting our regular journeys, the vehicles we choose, and the amount of risk we undertake. But with all these strong feelings around an expensive piece of transport infrastructure, it becomes very difficult to know who to listen to. So what tools do we have to help make an objective decision? 

Fortunately, when it comes to the major cross-region decisions, the well-established decision-making process around transport involves a really big calculation (local councils tend to have their own processes for local decisions). Essentially, the New Zealand Transport Agency (NZTA) attempts to add up all the costs and all the benefits of the project and makes sure the benefits are not only bigger than the costs, but are also bigger than the benefits of other options.

Technically, it’s called a social cost-benefit analysis, because it’s meant to capture not just the financial cost, but the social cost too – all measured in money. Obviously, putting a price tag on social value gets a little complicated, but fortunately, the NZTA has a 536-page Economic Evaluation Manual (EEM) which outlines exactly which costs and which benefits need to be included and how you count them. Don’t worry, we read it so you don’t have to.  

What are the costs? 

The cost side is pretty straightforward, because many of the costs are already measured in money. There’s the cost of the materials, the labour, the land, the maintenance, and of actually designing the thing. Costs are called “whole-of-life” costs which means you consider the costs for the whole expected lifespan of the project. 

What are the benefits? 

This is where things get interesting. The EEM’s got a massive list of benefits to include, depending on the nature of the project. Firstly, the obvious: vehicle operating cost savings, crash cost savings, and parking user cost savings. These are nice and tangible – they’re simply savings we can add up.

Then there are some that are a bit harder to measure: travel time cost savings, risk reduction benefits, vehicle emission reduction benefits, and walking and cycling health benefits. Health factors tend to dominate the benefits side for cycle lanes because cycling is really good for you. The NZTA allows for an overall benefit of $1.45 per cyclist per kilometre which is made up of $1.30 for health benefits, five cents for safety, and 10 cents for reducing road traffic. So if you start cycling six kilometres five days a week, that’s $39 worth of health benefits a week – nice! 

What about someone who inexplicably just hates cycle lanes. Do you account for their wellbeing?   

Sorry, the NZTA decided not to include that. Maybe they’re cancelled out by all the people who love to see a cycle lane.

Remember that people on bikes reduce the number of cars on the roads, so really they’re doing everyone a favour. But it isn’t missed because they don’t know how to measure it – “driver frustration reduction benefits” are actually counted when passing lanes are being weighed up, a road feature which undeniably makes driving more pleasant. In fact, they do actually manage to put a dollar amount on it.

You can have a go: take a moment to think about how much you’d be prepared to pay for a passing lane for the whole way of a regular journey you make. Go on, have a think. A dollar? Ten if you’re late? If you’re a bit freaked by that question, don’t worry – the survey which asked unsuspecting drivers in petrol stations came back with a lot of zero dollars because it’s really difficult to answer.

The researchers later went back and instead asked what time or distance they would be prepared to travel in order to have a passing lane for the whole journey – something that’s a bit easier to think about – and then put a monetary value on the extra time or distance. On that basis, the NZTA reckons it’s worth 3.5 cents per vehicle per kilometre of constructed passing lane. 

This design for the Waitemata Safe Routes, by Boffa Miskell, received warm public support when put back out to the public for consultation in late 2018. As yet, this project – originally part of the 2015 Urban Cycleways Programme – is yet to be advanced to reality. (Image: AT)

What about time frame? 

Now we know which costs and benefits to include, we need to think about when they happen. In general, people prefer benefits which happen now over benefits which happen later – you’d probably rather eat the cake now than wait until tomorrow. And these costs and benefits are all being accrued at different times. Essentially, you pick a discount rate – that is, the rate you’re willing to trade-off present benefits and costs against future ones. The NZTA uses 6% so they’re saying benefits that happen in one year’s time are worth 6% less than benefits that happen today.

The right discount rate is a pretty controversial topic among economists because there really isn’t an objective way to choose one – it takes value judgements to decide how much to value the future. The discount rate affects the whole calculation, so it’s worth checking the numbers with a range – the NZTA recommend also testing 4% and 8% to make sure the results are nice and robust.  

So I’ve got my costs, benefits, and time discounting – now what? 

The moment of truth: it’s time to do the sums. People tend to report the outcome of a cost-benefit analysis with a “benefit-cost ratio” (BCR) which is the total present value of benefits, divided by the total present value of costs. So if the BCR is bigger than one, the benefits outweigh the costs. If you’re comparing a load of different options, this ratio is helpful for getting the most cost-effective choice. 

And you’re telling me this is objective? 

As you can see, a cost-benefit analysis done well really does try to include all the costs and benefits as thoroughly as possible. The problem is, with so many separate parts to calculate, it’s possible that some of the valuations miss the mark. For example, the benefits of cycle lanes are measured per bike, but the number of bikes that use the lane once it’s introduced could be very different to the estimated amount.

There’s also the fact that cost-benefit analysis doesn’t consider who the costs and the benefits fall on. But for all its misgivings, decision makers faced with choices around which investments to fund using a limited pot of money need some sort of calculation to help make an informed choice, and the more comprehensive, the better  as long as the cost-benefit analysis doesn’t become the only source of information. 

Essentially, we all carry out a mini cost-benefit analysis in our heads every time we leave the house and decide what transport to use. We’ll account for time, weather, convenience, or just trust the decision we made last time.

You might make a very different decision to someone else, even if they’re making the same journey, because you value the costs and benefits differently. This goes to show that there’s certainly subjectivity at play, so it’s best not to leave these big, important decisions to the whims of a mathematical formula. That’s when we want a decision maker who can consider not just the costs and benefits, but the context of the decision and how people feel about it.

That’s the role of the transport minister – to take a cost-benefit analysis alongside the consultations and petitions, make a decision, and be held to account.  

This content was created in paid partnership with NZIER. Learn more about our partnerships here

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Lockdown life (Photo: Getty Images)
Lockdown life (Photo: Getty Images)

Covid-19May 26, 2020

Lockdown made us rethink how we value productivity – so let’s make the most of it

Lockdown life (Photo: Getty Images)
Lockdown life (Photo: Getty Images)

Over lockdown, school, home and the office all merged into one place, affecting how we worked and when. The NZIER public good team explains why we need to rethink how we measure productivity.

How productive was your lockdown? 

Now we’re in level two, it’s the perfect time to pause and reflect on the stuff we got done over seven weeks stuck indoors. If you found yourself with heaps more time and are also a personal growth guru, maybe you’ll fondly recollect your time learning Spanish, sweating along with Les Mills home workouts, perfecting your sourdough, and in contemplative meditation.

For those with more realistic ambitions, a productive day in lockdown may have been one when you both got to Countdown and watched the whole series of Tiger King. Then there are others who were expected to work from home while also teaching their kids and minding a toddler, who didn’t even have time to think about how productive their day was because they were too busy getting through it. The point is, productivity depends on the context, who you ask, and how you measure it. It’s similar when you think about productivity at the population level – exactly what is it we’re trying to measure?  

Why do we care about productivity at all? 

In general, economists tend to use a specific definition of productivity – a person, factory or country becomes more productive if fewer inputs (like work hours, or farmland, or laptops) are needed to make the same outputs (like jumpers, or milk, or quarterly reports). Defined like this, productivity is much more interested in our efficiency gains than overall output. Intuitively, improving productivity is generally good for improving quality of life. For example, for those who could afford them, in the 1950s washing machines were a game changer for freeing up people’s (mostly women’s) time, replacing the time-consuming “boiling the copper”.

There’s also a sustainability argument for productivity: if we can create the same amount of stuff with fewer inputs, there’s less need to take resources out of the ground. Productivity doesn’t cover everything we care about, like the gap between the richest and the poorest, but it is closely linked to our wellbeing and income, making it worth keeping an eye on. 

How do we measure it? 

Having a sense of how productivity is changing helps make informed decisions about the future. There are two parts that need measuring here: the inputs and the outputs. On the output side, traditionally everything that contributes to GDP gets included – essentially all goods and services that involve money changing hands.

We don’t just include the physical, factory production-line stuff, we also include any services involving money, like legal fees or GP consultations. On the input side, we want to be able to adjust our GDP for hours worked, since GDP growth driven by longer work hours is a totally different story. In order to account for hours worked, first we need to know how many hours people are actually working, and one of the simplest ways to find out is to just ask people.

In New Zealand, we use a survey that goes out to a representative sample four times a year, and includes questions about how much time people in the house spend doing paid work. When we divide our GDP by reported hours worked, our productivity isn’t great compared to other OECD countries. GDP is growing, but so are our work hours, so we’re not getting much more productive. The government has recognised it as a persistent problem in New Zealand for a long time, and we’ve had our own Productivity Commission since 2011, which has focused on improving the ratio of GDP to inputs.

The problem is, measuring productivity in this way misses a big chunk of the story on both the output and the input sides, since many spend time doing unpaid, but definitely productive, work. It’s always been there, but has been thrust into the spotlight during the lockdown, with some people taking on new or extra caring responsibilities as schools shut down while also being expected by employers to work regular hours from home.

Caring roles, like childcare, are hugely beneficial to productivity. To put it crudely, future workers are much more productive themselves if they’re brought up in a healthy, happy environment. But they’re also socially important. Without parents doing parenting, we simply wouldn’t function as a society.

There are endless other unpaid but wholly productive activities that go uncounted besides care: baking a lockdown banana bread, participating in pōwhiri, teaching your grandparents to use an iPad. In fact, unpaid work gets counted as productive as soon as you pay for it – for example, a parent doing unpaid childcare goes under the radar, but a parent paying for childcare is counted. 

Work-from-home parents became work-from-home teacher aides, too

Why should we value unpaid work? 

This discrepancy between measured productivity (paid) and real productivity (paid plus unpaid) causes problems, because people who do unpaid work are doing undeniably productive tasks, but without them included in measurements, the contributions and productivity of the market economy – that’s the stuff we buy and sell – become the policy focus.

It’s also a problem because unpaid work falls largely on the shoulders of women. One recent report notes that since lockdown, female academics have sent much less research to journals for publication, while men have sent more, and this is largely due to the multitude of unpaid demands on women’s time.

Further, not counting unpaid work disproportionately overlooks wāhine Māori and Pasifika women; the Ministry of Women notes that wāhine Māori tend to have greater responsibilities for childcare and looking after the sick and elderly, so Māori contributions to productivity are even less likely to be counted.  

So, what do we do about it? 

Several economists have been pointing out the need for valuing unpaid work for decades, including Marilyn Waring, author of If Women Counted (1988); Prue Hyman, author of Women and Economics (1994); and more recently Victoria Bateman in The Sex Factor (2019), which made NZIER’s recommended summer reading list last year.

One option is to price up the unpaid labour and put a dollar amount on it. Statistics NZ carries out a time use survey, which helps us capture both paid and unpaid hours worked. In 2009/10 it found that men and women both spend about 6.75 hours a day on productive activities on average, but men were paid for 63% of their time and women were paid for 35%. We could estimate a dollar amount for unpaid hours, by using the equivalent hourly rate if someone was employed for the task, or by using the average wage.

Analysis by Statistics NZ finds that estimates using the average wage approach valued unpaid work at $40 billion, or 39% of GDP, in 1999. 

However, this approach has problems too. Many economists point out it’s probably not good enough to just incorporate unpaid work into our existing way of measuring productivity, because those very measurements don’t recognise the necessity of unpaid work, which allows buying and selling to happen in the first place. In fact, in her book Who Cooked Adam Smith’s Dinner?, Katrine Marçal argues that Adam Smith, who is often credited as the founder of western economic thinking, was only able to develop and publish his theories about productivity because his mother did all his cooking, cleaning and housekeeping.

Whether you secretly enjoyed a slower pace of living, or had the busiest seven weeks of your life, most of us would expect a new normal coming out of lockdown; perhaps with different priorities and perceptions of “productive”.

On a policy level, it’s a good time to recognise what values our productivity measures should capture. If we want to recognise the value of unpaid work, it’s good to start by including unpaid hours as an input, and the services they provide as an output. But if we recognise that unpaid work is the foundation on which the measurable market is built, allowing people to go to work, create stuff and earn a living, it becomes difficult to put a monetary value on it at all. A good first step is to get a better idea of how New Zealanders use time, which comes from ramping up the time use survey with more frequency; there have been only two since 1999. From there, it’s up to policy makers to decide how the value of our time is best accounted for in a meaningful way.

And who knows, maybe they’ll agree that extraordinary productive contributions, like social cohesion and inspiration, come from watching Tiger King after all.

But wait there's more!