Liberalizing Passenger Rail: The Effect of Competition on Local Unemployment

Competitive passenger rail can help workers access new or better jobs. This paper studies the wider economic impacts on local unemployment of the liberalized passenger rail between Ostrava, the third-biggest city in the Czech Republic, and Prague, its capital. The local impacts are estimated at the LAU 1 level (administrative districts) using the difference-in-differences method. The liberalization motivated the entry of two new private providers. The resulting competition in ticket prices, the number of connections, and service quality had a strong beneficial effect on labor market connectivity. It significantly reduced unemployment in the districts along the line compared with the control districts. The effect weakens with the level of urbanization of the treated district. It could partly transmit through higher firm entry and lower firm exit in the local market, as well as better skill matching on the back of higher inward and outward migration.