Institutional changes, firm size and wages in the telecommunications sector

This article evaluates the impact of institutional changes and firm size on wage determination in the local exchange sector of the United States telecommunications industry. The firms examined are all the principal local exchange carriers in the United States telecommunications industry in a regulated segment where firms operate as local monopolies. Hence, these results are salient since the sector is ubiquitous in peoples' lives and accounts for a large number of employees, though employment levels are declining. Wage determination is examined over a 14 year period, between 1988 and 2001, when several important institutional changes took place. The presence of rate of return regulation for prices, the impact of the Telecommunications Act 1996, the application of unbundled network elements-platform (UNE-P) and total element long-run incremental costs (TELRIC) rules and inter-modal competitive threats have pressurized wages downwards, while after mergers smaller firms experience higher wage levels. Absent institutional changes, the relationship between firm size and wages is negative and significant; however, the far-reaching institutional changes in the sector wash out the impact of size on wage levels.