4 - Labor Costs in Regulated Industries: Policy Options

Abstract

This chapter discusses the workings of the adversary process in regulatory proceedings and the politics of the regulatory process. It describes the specific standard adopted by the PSC as to what wage levels are to be considered just and reasonable. It is concluded with a discussion of some alternatives that state utility commissions face in the area of labor costs, including an ignore the problem strategy, commission reviews and statistical studies of the type I conducted, formal comparability surveys, and the establishment of incentives for management to keep costs down. One way for commissions to reduce the probability that strike activity would increase is to base their variants of tax-based incomes policies on wage cost increases that are adjusted for productivity growth. Such a policy would allow for explicit or implicit productivity bargaining between utilities and the unions representing their employees. However, the relevant productivity concept is total factor productivity, not labor productivity per se. Alternatively, commissions could base their plans on all input costs, as the executive incentive compensation plans are based.