The Labor Effects of Deregulation Revisited: Evidence from US Class 1 Railroads, 1981 to 2001

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 09.06.2005, 12:15 - 13:30


Presentation by 

Guido Friebel (Goethe University Frankfurt)


The deregulation of product markets is often accompanied by fears of downsizing and decreasing wages. In order to properly account for labor e.ects of deregulation, one needs data sets that account for workers and firm heterogeneity. These matched worker/firm data are scarce. We here investigate a comprehensive data set on US railroads after deregulation. It contains detailed finance and output information and, most importantly, employment and wage information for six different skill groups. Estimating a "right-to-manage model", we identify the effect of product market strategies and mergers on employment and earnings of workers. Our regression shows that railroads have not only downsized but that there has also been significant restructuring in the composition of human resources over the post-deregulation period. Part of this can be explained by changes in output mix, in particular a substantial increase in the share of intermodal type of tra.c. This re-orientation of product market strategies appears to have benefited the majority of employees in terms of compensation. We identify the transport group (lowskilled blue collar workers) as the main loser in the concentration process following deregulation, both in absolute terms of employment and their share in employee composition. The model has a very good fit, except for high-skilled white collars and executives, which indicates other types of employment and compensation mechanisms, for instance incentive contracts.

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