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Restructuring, Ownership and Efficiency: The Case of Labor in Electricity Generation

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  • Jennifer K. Shanefelter

    (Economic Analysis Group, Antitrust Division, Department of Justice)

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    Abstract

    This analysis considers improvements in productive efficiency that can result from a movement from a regulated framework to one that allows for market-based incentives for industry participants. Specifically, I look at the case of restructuring in the electricity generation industry. As numerous industries and economies have undergone this sort of transition to varying degrees, it is instructive to assess the performance of market-based incentives relative to what was observed under tighter regulation. Using data from the electricity industry, this analysis considers the total effect of restructuring on one input to the production process – labor – as reflected in employment levels, payroll per employee and aggregate establishment payroll. Using concurrent payroll and employment data from non-utility (“merchant”) and utility generators in both restructured and nonrestructured states, I estimate the effect of market liberalization, comprising both new entry and state-level legislation, on employment and payroll in this industry. I find that merchant owners of divested generation assets employ significantly fewer people, but that the payroll per employee is not significantly different from what workers at utility-owned plants are paid. As a result, the new merchant owners of these plants have significantly lower aggregate payroll expenses. Decomposing the effect into a merchant effect and a divestiture effect, I find that merchant ownership is the primary driver of these results.

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    File URL: http://www.justice.gov/atr/public/eag/240245.pdf
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    Bibliographic Info

    Paper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200812.

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    Length: 48 pages
    Date of creation: Dec 2008
    Date of revision:
    Handle: RePEc:doj:eagpap:200812

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    Postal: Department of Justice Antitrust Division 450 Fifth Street NW Washington, DC 20530
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    Web page: http://www.justice.gov/atr/
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    Related research

    Keywords: Energy; Electricity; Restructuring; Regulation; Labor;

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    References

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    1. David Card, 1989. "Deregulation and Labor Earnings in the Airline Industry," Working Papers 627, Princeton University, Department of Economics, Industrial Relations Section..
    2. José E. Galdón-Sánchez & James A. Schmitz Jr., 2002. "Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's," American Economic Review, American Economic Association, vol. 92(4), pages 1222-1235, September.
    3. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    4. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
    5. Rose, Nancy L, 1987. "Labor Rent Sharing and Regulation: Evidence from the Trucking Industry," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1146-78, December.
    6. Bailey, Elizabeth E, 1986. "Price and Productivity Change Following Deregulation: The U.S. Experience," Economic Journal, Royal Economic Society, vol. 96(381), pages 1-17, March.
    7. David Card, 1986. "The Impact of Deregulation on the Employment and Wages of Airline Mechanics," NBER Working Papers 1847, National Bureau of Economic Research, Inc.
    8. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    9. Wallace Hendricks, 1975. "The Effect of Regulation on Collective Bargaining in Electric Utilities," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 451-465, Autumn.
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