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Unions and Deregulations: Some Lessons for Utilities

Fortnightly Magazine - September 1 1996

wanted the railroads to require a purchaser of rail lines to agree to take the seller's employees, unions, and collective-bargaining agreements. In most cases, such a successor obligation would have rendered line sales uneconomic. While the unions ultimately proved unsuccessful at stopping the line-sale movement, they succeeded in making labor a central issue in many such sales and increasing transaction costs.

Electric Utilities:

Poised for a Shock

The state of labor relations in the electric utility industry at this moment parallels that of the airline, railroad, trucking, and telecommunications industries at the threshold of deregulation. Labor relations in the electric utility industry have been relatively stable in the sense that, historically, most contract negotiations have been resolved without strikes. Utilities have faced no strong impetus to compete on the basis of price and, therefore, no impetus to compete on the basis of lower costs, including labor costs. Price competition has been limited by regulation and protected markets. Increased costs from labor settlements have generally been passed on to the ratepayer. As a result, electric utility employees enjoy higher wages and benefits than employees with similar skill levels in other industries. But that comfortable and secure world is about to change.

Unions in the electric utility industry seem well aware that deregulation promotes new business strategies that will conflict with their interests. This idea is implicit in the message of IBEW's president. No one can argue with the general proposition that labor-management cooperation in facing the challenges of deregulation is a good thing. But what does a union mean by "cooperation," and on what terms? By their very nature, unions seek to raise wages and benefits above levels that would be set in a competitive market. Why else have a union? That is their modus vivendi.

Unions in other deregulated industries have also spoken of "cooperation," but were often unable or unwilling to cooperate in the ways sought by management. At the airlines, cooperative efforts only yielded short-term, temporary relief from high wage levels, unless management ceded ownership or fundamental prerogatives to the union. The Teamsters gave some wage and work-rule relief, but proved willing to let hundreds of trucking firms fail and union coverage decline rather than make deep concessions. The railroad unions resisted work-rule changes, even as railroads lost market share to trucks and sold light-density rail lines that could no longer be operated economically, rather than agree to modest productivity improvements. Railroads only realized significant work-rule changes through government-imposed resolution of labor disputes. When NYNEX and later Bell Atlantic attempted to break from pattern labor agreements to better compete in a less-regulated environment, they were hit with corporate campaigns that forced them to remain with the established pattern.

Thus, while there certainly will be instances of cooperation, unions can also be expected to confront management by objecting to deregulation initiatives, seeking to be a player in mergers, requesting government-imposed labor-protection benefits, opposing business strategies that are perceived to weaken the union, resisting significant work-rule changes in collective bargaining, and trying to organize nonunion elements of a utility's business.

The IBEW: