Railroad Deregulation and Union Labor Earnings

Abstract

Federal economic regulation of the U.S. railroad industry began with passage of the Interstate Commerce Act in 1887, establishing the Interstate Commerce Commission (ICC) as the regulatory authority over industry rates, entry, services and finances. The Act protected railroads from intramodal competition in an era of severe railroad excess capacity. In the 1920s, intermodal competition intensified as the transportation of high-value, high-rate traffic (e g, manufactured goods) began to shift from the railroad to the trucking industry. The shift in traffic continued over the ensuing decades, accompanied by declining rail market shares and subnormal rates of return on investment.¹

ArticleNote

In 1944, U.S. railroads were responsible for 68.6 percent of the total U.S. freight ton-mile volume. Their share declined to 56.2, 44.1, 39.8, and 37.5 percent in 1950, 1960, 1970, and 1980, respectively, stabilizing at 37.4 percent in 1990 (Association of American Railroads, 1994). In 1947, railroads’ rate of return on net investment (i.e., the ratio of net railway operating income to average net investment in transportation property) was 3.44 percent, falling to 2.13, 1.73, and 1.20 percent in 1960, 1970, and 1975 (Association of American Railroads, 1994).