Wage Determination in Local Public Utilities

Abstract

In any industry, regulated or not, workers consider certain factors in bargaining for higher wages. The most important of these are productivity, effect of higher wages on employment, ability of the industry to pay higher wages, and increases in the cost of living. Management will generally subscribe to these as legitimate bargaining criteria. Although used in both competitive and regulated industries, these factors bear somewhat differently on the collective bargaining framework in the two. Thus, even if we are somehow able to impute productivity gains to the several factors of production in terms of higher wages, profits, or interest, there is always pressure to reduce rates in the public utilities.1 But, this pressure is not economic, for there is no competition to force rates down. Productivity gains will be passed on to the consumers (in terms of lower rates) more by Commission order than by voluntary action of utility management. The effect of higher wages on employment in a given firm or industry is not clear-cut. According to the marginal productivity theory of wages, an employer will hire units of labor until the wage paid to the last unit employed is just equal to the value of the product imputable to that last unit (or where wage equals marginal value product). Other things being equal then, a wage increase will result in unemployment or a higher level of employment could be attained only by cutting wages. Ross points out that the effect of wage increases on the level of employment is not automatically predictable because the four links which relate wages to employment are loosely connected.2 The relationships between wages and labor costs, labor costs and total costs, total costs and selling prices, selling prices and employment are tenuous and not entirely consistent or predictable. Added to these qualifications are the facts that the demand for the services of many utilities are relatively inelastic (to a rate increase) and that public policy is aimed at sustaining the life of a utility, even under conditions which might have driven a nonregulated firm out of business.3 This insures rela-