Americans who came of age and learned to drive during the oil crises of the 1970s still logged significantly fewer miles on the road in the year 2000, according to new research from economists at the U.S. Federal Reserve and University of Pennsylvania.
The paper, forthcoming in the American Economic Journal: Applied Economics, adds to researchers' understanding of how temporary changes in prices can influence consumer behavior far into the future. The article could influence conversations about the coronavirus pandemic and the ongoing economic recovery, which have caused prices of certain assets, including oil, to fluctuate wildly.
"Early-life experiences from long ago can have long-run consequences," said co-author Chris Severen, a senior economist at the Federal Reserve Bank of Philadelphia.
In the 1970s, the U.S. experienced prolonged shortages of oil triggered by political crises in the Middle East, including the 1973 embargo by OPEC that caused oil prices to nearly quadruple from $2.90 per barrel to $11.65. A slightly less-severe shock also roiled oil markets in 1979 when the Iranian Revolution interrupted oil production.
These price shocks, manifested in far higher prices at the pump, meant that American teenagers became far more conscious of their gasoline consumption than people who came of age before or after the crises — and retained that thriftiness for decades.
Drivers who experienced a doubling of real gasoline prices between the ages of 15 and 17 drove 3.4% to 8.2% fewer miles as adults, Severen and his co-author, Arthur A. van Benthem of the University of Pennsylvania's Wharton School, found. This translates to an average of about 900 to 1,100 fewer miles per year.
"That's a pretty big effect for something that happened 20 or 30 years ago," Severen said.
In addition, Americans who learned to drive during the crises were also 0.3% to 0.4% less likely to drive to work and 0.2% to 0.3% more likely to use public transit, the researchers found. They were also less likely to purchase gas-guzzling pickup trucks, SUVs and minivans.
"The gas price environment someone experienced around age 16 matters a lot more than gas prices one year ago, at least for determining driving behavior," Severen said. "Moreover, there seems to be a pretty sharp window that really matters: The gas price movement during the first year or two of being able to drive is important. This finding really suggests that it is the initial experience of gas prices when starting to drive that has a formative impact on preferences."
The effects could not be explained by recessions, income, race, family size or urban or rural status, the researchers found.
Severen and van Benthem based their findings largely on an analysis of U.S. Census Bureau data from 1980 to 2017, with an emphasis on questions in the 1980, 1990 and 2000 censuses that logged household driving habits.
The proportion of Americans who drive to work has been generally stable since the 1980s, Severen said. But in 2017, he had the idea to see if the steady share in aggregate was hiding more interesting trends.
"I downloaded census data and started cutting it different ways," he said. "An immediate item that popped out was that there are not-small differences between birth cohorts; the biggest differences were for cohorts born in the mid-1960s. Well, that led naturally to: How are these cohorts different from those before and after? I looked at different potential explanations, and oil crises seemed like a strong contender."
The co-authors published a draft of the article as a National Bureau of Economic Research working paper in 2019, then updated it significantly in 2020 for publication in the American Economic Association journal.
Severen said future research could look at how price shocks in the housing market affect longer-term consumer habits. The idea could be particularly relevant following the pandemic and its eventual economic recovery; over the past year, housing prices have surged to record levels.
"I'd be very interested in knowing how exposure to different house price regimes impact what kind of housing people would most like to buy and where they would like to live," he said.
The paper, "Formative experiences and the price of gasoline," forthcoming in the American Economic Journal: Applied Economics, was authored by Christopher Severen, Federal Reserve Bank of Philadelphia; and Arthur A. van Benthem, University of Pennsylvania.