Regulatory Reform and Labor Outcomes in the U.S. Electricity Sector: Although Employment Reductions Have Been Associated with Deregulation of the U.S. Electricity Sector, Reductions in Earnings Have Not; in Fact, Premium and Real Weekly Earnings for Electricity-Sector Employees Have Risen

By Niederjohn, M. Scott | Monthly Labor Review, May 2003 | Go to article overview

Regulatory Reform and Labor Outcomes in the U.S. Electricity Sector: Although Employment Reductions Have Been Associated with Deregulation of the U.S. Electricity Sector, Reductions in Earnings Have Not; in Fact, Premium and Real Weekly Earnings for Electricity-Sector Employees Have Risen


Niederjohn, M. Scott, Monthly Labor Review


The last 10 years have seen many States aggressively pursuing the restructuring of their electric utilities. These reforms were motivated by a number of Federal Energy Regulatory Commission (FERC) orders that encouraged competitive markets for wholesale electric power. (1) While the effects of these reforms on the product market (and competition) have been widely studied, there is a dearth of research examining the effect of regulatory reform on the U.S. electricity sector's labor market, which employs more than 300,000 highly skilled workers. This heavily unionized workforce operates and maintains the country's critical electrical infrastructure that both families and businesses rely on for their daily activities.

This study explains the effect of electricity deregulation on this sector's workforce by addressing several factors. After initially reviewing the recent history of the U.S. electricity sector's regulatory movement, the study briefly reviews some of the theoretical background on regulatory reform. Then, data is analyzed on employment, earnings, and unionization in the U.S. electricity sector--before and during the regulatory reform movement, which is still underway. These results are compared with similar results for other previously restructured industries.

The data for the electricity sector reveal employment reductions that are associated with regulatory reform. The findings also indicate that earnings have not been negatively affected by this restructuring, unlike other sectors examined. In fact, when compared with the earnings of similar workers, the industry earning premiums for electricity-sector employees have actually increased, while the level of unionization in this sector has drifted down. These results are particularly significant, as this is the first deregulated industry to show such contrasting earnings and employment patterns.

Deregulation and competition

The electricity sector has historically been involved in the generation, transmission, and distribution of electricity. Generation involves the production of electricity at power plants. Transmission involves the delivery of electricity to distribution facilities over a system of high voltage power lines. Once the power arrives at the distribution center, it is "stepped down" to a voltage that can be distributed. The distribution system is then responsible for delivering power from the transmission system to homes and businesses using a network of wires and transformers.

Historically, the electric utility sector consisted of vertically integrated firms that were involved in the generation, transmission, and distribution of electricity. This internal firm structure was viewed as an efficient approach toward providing electricity service to customers. State governments, though, restricted state-wide entry into this sector and extended these state monopolies with a legal right (and obligation) to distribute electricity to the customers in their geographic area at prices typically set by State public service commissions. While the transmission and distribution components of electricity production are still considered natural monopolies (although transmission is subject to some limited regulatory reform), many have recently begun to recognize that the generation sector may benefit from a more competitive environment--through competition between generators. This enhanced competition is meant to create a business environment that promotes lower electricity prices and more efficient means of generation. In essence, consumers and businesses will be able to choose from a variety of competitive electricity suppliers. This separation of related services is similar to the regulatory reform models applied to other network industries, such as natural gas and telecommunications, in the past.

Current status of restructuring

The effort to restructure the U.S. electricity sector and develop markets for wholesale electric power has slowed significantly.

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Regulatory Reform and Labor Outcomes in the U.S. Electricity Sector: Although Employment Reductions Have Been Associated with Deregulation of the U.S. Electricity Sector, Reductions in Earnings Have Not; in Fact, Premium and Real Weekly Earnings for Electricity-Sector Employees Have Risen
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