Book Reviews

Regulatory Reform and Labor Markets Edited by James Peoples Boston: Kluwer Academic Publishers, 1998, 390 pp.

Regulatory Reform and Labor Markets presents empirical analyses of the impacts of deregula- tion on the labor markets in the trucking, railroad, airline, and telecommunications industries. The editor's introduction explains that this work is designed to address two underlying ques- tions. First, does empirical analysis of the impact of deregulation on wages provide clues about the nature and vigor of market forces under both regulation and deregulation? Second, does the competitive framework provide a solid starting point for analysis of regulatory reform's impacts on labor markets?

After an introductory chapter and a chapter providing background information about reg- ulation of transportation and telecommunications, the next four chapters analyze how deregu- lation affected wages of trucking, railroad, airline, and telecommunications workers. An additional chapter on deregulation and discrimination and a concluding chapter by Peoples com- plete the book. Each chapter is followed by a thoughtful commentary that helps place the chap- ter's empirical results in a more complete context by adding additional empirical analyses of questions related to the chapter material or discussing additional institutional information rele- vant to interpreting the chapter's econometric results.

Interpretation of the econometric results is shaped by the view articulated in the airline industry chapter that traditional industry regulation generated rents, which were shared by labor and other stakeholder groups. The extent to which rents were generated and shared with labor depends on industry characteristics, union strength and strategies, regulatory price-setting strate- gies, supply elasticities, and potential inter-industry competition. Deregulation is expected to eliminate this source of rent for labor, assuming the deregulated firms operate in competitive mar- kets, with minimal continuing regulatory constraints. Analysis of deregulation's impacts on labor markets therefore focuses on measuring the wage decreases triggered by deregulation, which also provides indirect measures of the extent of rent-sharing under the former regulated system.

Using this framework, the chapter authors conclude that the impacts of deregulation on labor markets differ substantially among industries, apparently in response to specific industry characteristics. Deregulation led to sizeable wage cuts for common-carrier truck drivers. Rail- road workers experienced smaller wage cuts after deregulation accompanied by larger cuts in industry employment. Airline workers experienced only modest deregulation-induced wage cuts, suggesting that labor did not receive sizeable rents under regulation (or, perhaps, deregulated airline markets are not sufficiently competitive to eliminate rents). During the period of regula- tion, nonunion airline workers shared the rents, perhaps in response to the union threat-effect (although this did not occur in all industries studied). In telecommunications, the evidence does not support the null hypothesis that deregulation led to lower wages for all telecommunications workers or for unionized telecommunications workers. It appears, however, that increased prod- uct market competition is reducing wages.

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The authors propose plausible explanations for the differences in post-deregulation wage changes in these four industries: differences in entry barriers, profitability under regulation, geo- graphic scope of bargaining units, and political support for labor union goals. Taken together, however, the book's econometric results highlight the importance of Card's statement (Peoples, p. 185), "There is no general theory of the relation between product market regulation and labor earnings." Evidence presented in this book suggests that the preliminary hypothesis is simplis- tic. Since regulation is fundamentally a political process, it clearly produces rents. Labor may not share in these rents, however, if unions lack sufficient bargaining power to extract rent from employers or if the rents accrue to entities outside the regulated firms. If, for example, railroad regulation prevents railroads from discontinuing service on unprofitable lines, the rents accrue to customers enjoying cross-subsidized rail service on low-traffic routes, and labor may not be able to obtain a share of those rents. Without a theoretical understanding of the links between regulation, rent generation, rent sharing, and deregulated rents, interpretation of the careful econo- metric work seems piecemeal. While most suggestions for further research mentioned in the book focused on further empirical work, the results presented in the book also seem to lay a founda- tion for strengthening the theoretical framework. The wealth of empirical and institutional detail presented underscores the point, however, that the relationship between regulation and rents is multi-dimensional. Peoples notes in the concluding chapter, for example, the industry-specific nature of deregulation's impacts: improving financial stability for railroads, inducing a shift to price competition among airlines, facilitating competition among telecommunications equipment manufacturers and long-distance providers, and permitting competitive efficiency in trucking with gains passed on to consumers.

Regulatoo' Reform and Labor notes, in passing, that union goals and strategies may help shape the impact of deregulation on labor markets, but does not analyze this issue directly. The econometric work focuses on the impact of deregulation on wages. The telecommunications chapter begins by stating explicitly that the chapter will focus on the impact of deregulation on wages because the impact on employment has been explored in previous work (Peoples, p. 250). This separation between analyses of employment and wages may be problematic, however, if unions with some degree of monopoly power make trade-offs between the two goals of wages and jobs. Talley and Schwarz-Miller (Peoples, p. 130) allude to such trade-offs when they sug- gest that unions accepted the elimination of 50 percent of Class I railroad jobs in order to retain high wages. If, then, railroad workers experienced larger employment cuts and smaller pay cuts than common-carrier truck drivers, should we interpret these impacts as exogenous to the labor market or endogenous? Peoples touches on the impact of deregulation on union goals on the last page of the book, with a brief comment on union adaptation to the deregulated environment, but in-depth analysis of unions' strategic responses to deregulation is left for future work.

Peoples succeeded in editing an interesting and substantive book that presents a wealth of econometric and descriptive information about the impact of regulation and deregulation on labor markets. In addition to historic interest, this topic has implications for current policy since the deregulation process is ongoing. States are deregulating utilities; telecommunications pol- icy is still evolving; and the basic scenario in which government policy creates rents that may be shared among labor and other groups is still widespread,

Jeanne Wendel University of Nevada, Reno