The High Cost of Commuting to Work

As I was commuting to work this morning, I thought – How much does it cost me to drive to work? Not the gas, the car, and the taxes I pay for the road, but how much does the lost opportunity cost me? If you took Economics in College, you likely learned about opportunity cost.

In economics, opportunity cost, or economic cost, is the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative, i.e. the second best alternative. – Wikipedia

In this post, I am only going to look at opportunity cost, not environmental cost, not social cost, nor other externalities. What does it cost you in lost opportunity to commute to work based on what you know today?

My first example is a couple I know that purchased a house in a location that requires them to commute 1.5 hours to work each way. So they commute 3 hours every workday.

The opportunity cost based on the above definition is the dollar value amount they produce per hour when producing goods and services (this is the economic value of an hour of their time). Since they are skilled technology workers we will set that at $100 per hour for the couple. Since they are both knowledge workers, they don’t need to be in any specific location to be productive, all they need are the tools to be productive, computers, software, and network connections. Based on this information I came up with formulas for the cost of commuting.

Example:
(Commute time * Productivity per hour) * Days Commuting per year
(3 * 100) * 230 = 69K

Based on similar formulas I calculated the following numbers:

  • Yearly opportunity cost – $69,000
  • Lifetime (30 years) opportunity Cost – $2,070,000
  • 8-hour work days spent commuting per year – 86.25
  • Lifetime (30 years) work days commuting – 2587.5
  • Number of work years spent commuting – 11.25

That’s right! They will spend the equivalent of 11.25 work years driving to and from work. I defined a work year as 230 8-hour days.

Using the same formulas these are my numbers based on my 1.25 hour daily commute time.

  • Yearly opportunity cost – $28,750
  • Lifetime (30 years) opportunity Cost – $862,500
  • 8-hour work days spent commuting per year – 36
  • Lifetime (30 years) work days commuting – 1078
  • Number of work years spent commuting – 4.67

Makes working from home look attractive doesn’t it?

14 thoughts on “The High Cost of Commuting to Work”

  1. In my humble opinion, we don’t commute to work to work with work. We commute to work to work with people. And you can’t do that from home. I’d much rather be in a large, friendly environment, where I can turn to the guy in the next cubicle and ask for his help than be alone at home, calling people’s answering machines when I need help or even just someone to go to lunch with. There is more to life than opportunity cost. There is life itself.

  2. Undoubtedly the cost would still be pretty high, but you should reduce the numbers a bit for adjustment to present value, because $100 30 years from now won’t be worth as much as $100 today, even with no inflation (since you could invest the $100 today and get interest over a 30 year period and have substantially more than $100 30 years from now). For example, assuming interest rates of 5% per year, your opportunity cost in the 30th year would be only about $6,652. Your opportunity cost in the 15th year would be only $13,892. So the overall 30-year cost is probably substantially less than $862,500, although still quite a bit.

  3. I think looking at the oppurtunity cost, one should be wise enough to know that staying in a job for 30 years would probably indicate you like, or at least need, this job. So looking for a closer house would be a good option instead of complaining about $2M in commute costs.

  4. I have had many different experiences commuting to work (train, bike, long drives (1 and 1/2 hours), and working from home).

    I prefer a mixture of working from home and being with other people in an office environment. I agree with Anpadh that working from home may not always work and I enjoy interacting face-to-face with other people.

    I am currently driving 1 and 1/2 hours to work each way (3 days a week) right now because of life changes. I have been doing this for about 10 months, but I am trying my best to be creative and enjoy the commute as much as possible. http://www.commutingisfun.com

    I am trying to be as positive and upbeat about my commuting situation until we are able to change the circumstances. We only have a limited number of hours on this planet and we should try to use them as productively as possible.

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