Input allocation efficiency in the United States railroad industry: Changing work rules and managerial flexibility

Abstract

Following regulatory reform in the late 20th century, US rail carriers have consistently negotiated less rigid work rules which may create a business environment that enhances carriers’ ability to employ an allocatively efficient mix of inputs. This study explores the possibility of movement away from railroad input market distortion found in research examining pre-regulatory reform input allocation, and movement toward allocative efficient use of inputs following regulatory reform. Shadow input costs are estimated using Class I railroad cost information from 1983 to 2015 to examine the change in input usage over time. Using labor as the benchmark of comparison, we find that the use of all inputs aligns in a more allocatively efficient way with labor now than in 1983. This comports well with the notion that significant easing of work rule restrictions facilitates a more efficient use of labor relative to non-labor inputs.