And why policy on
stranded costs defies
a traditional legal or
There are sound economic reasons why policymakers should allow electric...
Labor got on well with monopoly.
But now, if experience is any guide,
expect a stiff fight for benefits, jobs, and wages.
At this very moment, utility chief executive officers (CEOs) are planning for the future. These plans may include buying and selling assets, merging or spinning off business units, outsourcing functions, and pursuing a mix of regulated and unregulated business activities. Some of these plans or their execution will inevitably collide with union interests. John J. Barry, president of the largest utility union, the International Brotherhood of Electrical Workers (IBEW), predicts that utilities that cooperate with labor will prosper in a deregulated environment. For those that do not, he warns, the "prognosis is bleak."1
While much of the U.S. economy is nonunion, many employees in regulated industries are unionized. Indeed, unions have prospered under regulation. It discouraged new entrants and made it easier for unions to organize an industry. And by restricting or eliminating price competition, regulation excused employers from having to cut labor costs to compete (em a factor that reduced the pressure on unions at the bargaining table. As a result, unions have been able to capture a significant share of revenues at regulated companies.
Now comes deregulation. If experience in other, similar industries is any guide, unions in the utility industry will use their leverage to influence mergers, protect jobs, preserve wage levels and benefits and union coverage, and seek large severance packages for jobs that are lost. Perhaps even more significant for CEOs, unions may try to restrict utilities' ability to sell assets or to move into unregulated businesses, unless they let the unions represent the new ventures.
High Flyers Lose Clout
Before 1978, the interstate airline industry fell under comprehensive economic regulation administered by the Civil Aeronautics Board, which controlled entry and exit from markets and limited the number of carriers operating in each market. There was essentially no price competition; the industry operated as a cartel. Airline unions captured a significant amount of the airlines' cartel profits in the form of high labor costs, a product of relatively high wages and restrictive work rules. The unions achieved similar labor cost structures at the major airlines through pattern labor agreements. While airlines were able to improve productivity by introducing new technology (em such as jets and
computers (em labor costs remained relatively high as a percentage of overall costs. With little or no price competition, the airlines lacked much incentive to take a tough stance in negotiations. Strikes were extremely rare; the common wisdom held that an airline could not operate if struck.
The Airline Deregulation Act (ADA) repealed economic regulation. Carriers were free to enter and exit markets and compete on price. New low-cost, nonunion entrants entered the fray. Deregulation also prompted a spate of merger activity. Weaker carriers were absorbed by larger ones. The industry came to be dominated by three airlines: American, Delta, and United.
The new competitive pressure to reduce labor costs produced considerable labor strife. In the mid-1980s, carriers were able to negotiate temporary wage concessions to help cash flow,