Restructuring, ownership and efficiency in the electricity industry

The first chapter 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. 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.;As documented in Chapter 1, merchant power plants have lower overall payroll costs than plants owned by utilities. Employment at merchant power plants is characterized by reduced staffing levels but higher average payroll per employee. A hypothesis set forth in that paper is that merchant generators employ fewer workers at the lower end of the wage distribution, resulting in a higher average payroll per employee. The second chapter of this paper examines whether employment at nonutility power plants, that is, those that are either divested or native merchant power plants, is skewed towards more skilled labor. This chapter also considers the extent to which the difference in employment levels is the result of a reduction in superfluous or redundant employment, as suggested by the broadening of union job titles during the 1990s. Additionally, the second chapter examines the wage trend in the industry, which is not observable using aggregate establishment payroll data. I find that in the electricity industry, after controlling for person-level characteristics, employee wages are statistically equivalent in states with a high degree of restructuring activity as in traditionally regulated states. When the person-level controls are dropped, wages are significantly higher in states with a more competitive industry structure. This supports the hypothesis that employment has been reduced disproportionately among the lower-skilled employees in the industry.;Chapters 1 and 2 document the experience of labor in the electricity industry in the post-regulatory restructuring era. Chapter 1 finds evidence that employment has been reduced significantly at electricity generation plants that are owned by nonutilities ("merchants"). That chapter also finds that the nonutility average wage is higher than the utility average wage. Chapter 2 further finds that the average wage is increasing in the industry not because individual employees, adjusting for worker characteristics, are better-compensated to an equal degree, but rather because nonutility-owned plants are using employees with a different set of attributes. Chapter 3 of this analysis considers the shift in the wage distribution, identifying how different types of employees have fared under restructuring, which provides insight into which employees most benefit from restructuring in this industry. Chapters 1 and 2 hypothesize that low-skill employees in this industry were most affected by regulatory restructuring, which eroded the regulatory rents that accrued to this group in the form of employment stabilization. I graph the wage distribution in the electricity industry, breaking the data into different groups to judge how the distribution has changed for each. This yields a visual indication of the impact of changes in the industry wage distribution. Next, using the Oaxaca-Blinder technique, I decompose the wage difference of high- and low-merchant states into a piece that is explained by a shift in worker attributes plus the difference in the valuation that is placed on these attributes. I also look at between-group and within-group changes, concluding that the relative wages of higher-skill workers are increasing in excess of the wages of other workers.