Almost everywhere in the world, employers provide parking spaces to their employees at low cost or even for free – but why? Is this efficient – and if not, what can be done? These are the questions addressed in a new paper by Stefan Tscharaktschiew and Felix Reimann from the Institute of Economics and Transport at the Faculty of Transport Sciences "Friedrich List" at Technische Universität Dresden.

Parking and wages

The paper models the wage as a bargaining outcome between firms and employees. Firms provide parking spaces because they have an economic incentive to do so (or because they are required to do so by law, as is often the case in the US). They can then lower wages for those who receive a parking space as a non-taxed or less-taxed fringe benefit.

Influences on employer-paid parking

It turns out that the free market outcome does not necessarily lead to the social optimum. There are various effects that can make employer-provided parking inefficient: e.g. road congestion, under-taxation of the fringe-benefit parking in the income tax code, or land-use regulation in the form of minimum parking requirements. On the other side, there are counteracting forces: subsidized on-street parking, cruising-for-parking and crowding in public transit. The latter imply that employer-provided parking is not necessarily inefficient – at least not when the inefficiencies of alternatives are even greater. Usually, the adverse effects of employer-provided parking dominate, implying that employer-provided parking is excessive.

Cash-out policy

In cases where workplace is excessive, a cash-out policy is often proposed, meaning that companies offer their employees cash if they do not use the company´s parking lots. This policy is formalized in the study and simulated under realistic assumptions. It is shown that cash-out leads to less parking only under very specific conditions. While an optimal cash-out payment is theoretically possible, it would have to take into account not only the direct cost of parking to firms, but also all the other externalities and distortions mentioned above. At the same time, the cash-out should not be taxed at the same rate as labor income, otherwise its effect will completely evaporate.

Perspectives

A comprehensive transport policy should therefore take on an integrated approach to employer-paid parking. It should account for all effects, including the less obvious ones, such as congestion in public transport as an alternative to the car and the treatment of parking in the income tax case. Hence, it should always orientate on local particularities.