I’m sure you’ve heard the old adage ‘time is money’, but have you ever asked yourself just how much money your time is actually worth? This question has been of interest to economists for a long time, having been heavily researched for over 50 years. The answer to this question is very important in transit projects, as the main benefit of these projects is often saving people time.
So, what can an economist tell you about what your time is worth? To answer this we need to start with the original theory of time which suggested that time is a finite resource with two ‘goods’ you can spend it on: work and leisure. The conclusion from this theory was that the value of time is equal to what you could have earned at your job in that same amount of time, known as the opportunity cost of time. With only two ‘goods’ to spend time on, the opportunity cost of time is then equal to the wage you would have earned had you worked. Therefore, the value of both your leisure time and working time is equal to your wage rate.
This theory was eventually modified to state that time is simply an input into the ‘production of household goods’; which can be anything from furnishing your house, to cooking dinner for your family, to tidying the house. This was an important modification as it meant that the cost of anything a household consumes is actually a combination of what it cost to buy and the time it took to get it (or use it). For instance, that Starbucks coffee you had this morning is a combination of the price you paid and the time it took you to walk to and from the coffee shop to get it. This theory had two implications in the field of transportation economics. First, what a person can buy was no longer only constrained by their income but also by their amount of free time. Since time can be converted to income via work the opportunity cost of time is, again, equal to the wage rate. Think about that vacation you’ve been saying you’ve wanted to take for 2 years – now you need to consider not just if you can financially afford it but if you have the time for it. Second, this theory recognizes that the demand for travel is actually derived from the demand for goods that requires out-of-home travel. Consumers were now thought to have to consider consumption that requires travel, and that travel requires time. To purchase any IKEA product you will have to travel to IKEA to buy it (and inevitably get lost inside in the maze). You now have to consider if both the travel to IKEA and your actual IKEA purchase are worth it.
This theory was expanded upon and refined one final time by recognizing that people spend more time than they wish to in some activities. This means that there are certain activities that people would like to spend less time on but cannot. Think about the administrative tasks in your job. Don’t you wish you could spend less time on them but you can’t? In this framework you can’t simply trade one hour of work to shorten the time spent on this activity; which implies that the opportunity cost of time is no longer your lost wage. This was a ground-breaking insight into measuring the value of time and this is the theory where the contemporary estimations of its value come from. From this theory a new element of the value of time emerged: “the reassignment of time from one activity to another can be pleasurable not only because one does more of the latter, but also because one does less of the former”. Now the value of time directly depends on the type of activity being saved. So the next time you go to say ‘time is money’ you should really be saying ‘saving time is money’. And just how much money saving your time is worth depends on how ‘annoying’ the activity you’re saving time on is to you. The more annoying, the more your time is worth. Think about your commute to work – the value of your time while transferring from one subway line to another is different than the value of your time while you’re on those same subway trains! This is especially true if you get a seat, remembered you iPad, and can catch up on your favorite TV show on the train.
An important implication of this new theory is its treatment of leisure time. In this theory, the only activities that will be assigned more time than the minimum requirement are, by definition, leisure activities. This means that the value of saving a minute of leisure time is 0. In part, this is because ‘time is precious’ (or, better yet, ‘leisure time is precious’) and saving time on activities you enjoy is counterproductive. From this we can see that the value of saving time on an activity is smaller if part of the activity is spent engaging in leisure activities. For instance, the value of travel time saving on a comfortable train is theoretically smaller than in a private automobile since sitting on a comfortable train allows for you to engage in activities that you would do during your leisure time, like reading a book.
In general, the difference between the value of travel time savings and the wage rate can be thought of as being determined by:
·Costs incurred via work (commuting costs, buying coffee to stay awake, etc.)
·The (dis)pleasure derived from working
·The (dis)pleasure derived from travelling
·The chance to engage in other activities while travelling (leisure activities)
·Institutional barriers to changing the number of working hours
This is why in the Transit BCE we use different values for the value of time for different activities. Below is a summary of the value of time as a percentage of median local wages. Two things to keep in mind about these numbers:
1)They imply a different value of time in each city as they are based on a percentage of the local wage rate.
2)They simply reflect the median, or most likely, value of time. In the BCE, each of these values has a range of possible values.