NCPA - National Center for Policy Analysis


March 23, 2006

In Chicago, traffic is a major problem, especially for buses -- wreaking havoc on their scheduled services. However, there are many shortcuts available in the city that bus drivers just don't use, and that is the real problem, says Austan Goolsbee, an economic professor at the University of Chicago Graduate School of Business.

Many believe that the problem is that drivers are not paid enough to strategize, but Chicago bus drivers are the seventh-highest paid in the nation; full-timers earn more than $23 an hour. So, the problem may have more to do with how they are paid; at least that's the implication of a new study of Chilean bus drivers, says Goolsbee.

For example:

  • Companies in Chile pay bus drivers one of two ways: either by the hour or by the passenger; paying by the passenger leads to significantly shorter delays.
  • Give them incentives, and drivers start acting like regular people do; they take shortcuts when the traffic is bad, they take shorter meal breaks and bathroom breaks and they want to get on the road and pick up more passengers as quickly as they can.
  • Incentives also create new markets; in Chile, people known as sapos (frogs) literally hop on and off the buses that arrive, gathering information on how many people are traveling and telling the driver how many people were on the previous bus and how many minutes ago it sat at the station.
  • Drivers pay the sapos for the information because it helps them improve their performance.

However, not everything about incentive pay is perfect; when bus drivers start moving from place to place more quickly, they get in more accidents; yet when given the choice, people overwhelmingly choose the bus companies that get them where they're going on time, says Goolsbee.

Source: Austan Goolsbee, "Where the Buses Run on Time," Slate Magazine, March 16, 2006; based upon: Ryan M. Johnson, David H. Reiley and Juan Carlos Munoz, "The War for the Fare: How Driver Compensation Affects Bus System Performance," National Bureau of Economic Research, November 2005.

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