Commuting, congestion tolls and the structure of the labour market: Optimal congestion pricing in a wage bargaining model

Abstract

In this paper we study optimal congestion pricing in a wage bargaining model. We first show that, compared to a competitive labour market environment, wage bargaining may lead to substantially different optimal transport taxes. Second, bargaining implies that exogenous increases in congestion levels and in transport taxes raise negotiated wages and reduce employment levels; the strength of these effects depends on the union's attitude towards transport issues. Third, we show that the optimal uniform transport tax positively depends on the impact of congestion on negotiated wages, and negatively on the wage effects of the congestion tax itself. Using a standard specification for union preferences, the optimal transport tax exceeds the marginal external congestion cost to the extent that transport flows include demand by people who have no employment. Finally, if taxes can be differentiated according to trip purpose, the tax structure implies shifting the tax burden away from the employed.