Transcript Trucking Industry Program - Virtual Risk Manager&#174

Impact of regulation and
deregulation, industry structure,
pay structure, and hiring
practices on road safety
International Conference on Road Safety at Work
Washington, DC
February 17, 2009
Michael H. Belzer, Ph.D.
Department of Economics
Wayne State University - Detroit
Wayne State University
Trucking Industry Benchmarking Program
© 2009 by Michael H. Belzer
Industrial Relations:
The most powerful latent safety factor
• Freight and passenger transport is a business activity
– Inappropriate to abstract the work and business process from transport
– Do not focus on the technology but rather on industrial organization
– Focusing on technology and engineering ignores economic forces —
and the competition — driving the work process
• Competitors will do whatever they must to make a profit
– Without regulatory limits, shippers will make carriers do whatever it
takes to be lowest cost providers
– Without regulatory limits, carriers will make operators do whatever it
takes to be lowest cost providers
• Risk-shifting and subcontracting to least powerful people —
the drivers — will push competition to the lowest level
possible
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© 2009 by Michael H. Belzer
Original U.S. Regulation
• “Cutthroat competition” in trucking began in the 1920s and
led to serious safety problems
– State and local authorities could not cope with growing safety
problems created by inter-state trucking
• Motor Carrier Act of 1935 limited competition and improved
safety
– Enforcement originally rested with Interstate Commerce Commission
(ICC) but shifted to U.S. Department of Transportation (DOT) in the
1960s
– Unionization grew from almost zero in the early 1930s to 60-90% in
the 1970s
– Collective bargaining brought order to a fragmented industry and
compensation to middle-class standards
– Worker protections at unionized carriers spilled over to protect nonunion workers at non-union firms and in exempt sectors
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© 2009 by Michael H. Belzer
U.S. Regulatory Liberalization
• Administrative deregulation in 1977 increased market
competition
• Motor Carrier Act of 1980 removed most existing economic
regulation of inter-state trucking
– Market entry eased; transparency ended
– MCA of 1980 favored rate discrimination
• Shippers gained bargaining power
– Collective ratemaking ended; cutthroat pricing returns
• Intra-state deregulation mandated in 1995; ICC closed
• Federal Motor Carrier Safety Administration (FMCSA) of the
DOT now is the major regulatory barrier to cutthroat competition
– Hours of work (which limits labor market competition)
– Truck and driver health and safety standards
– Motor carrier safety regulation
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© 2009 by Michael H. Belzer
Carriers Now Compete on Price
• Primary determinant of freight transport pricing is cost
• Carriers must continuously reduce cost
–
–
–
–
Shippers view freight transport as a commodity
Shippers make partial exception for high-value freight
Cost caused industry to restructure completely in 3 years
Lower trucking cost enabled increased trade and longer supply chains
• Rapid change in cost factors changed industrial organization
– Trucking rapidly segmented based on shipment size
• Truckload carriers need no consolidation terminals
• Truckload carriers need no local pickup and delivery networks
– A few common carriers survived as less-than-truckload (LTL) carriers; the rest
failed
– Non-union specialized and contract carriers boomed and became truckload (TL)
carriers
• Probably 1/4 of cost-savings came from restructuring
• Probably 3/4 of cost-savings came from lower compensation
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February 17, 2009
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© 2009 by Michael H. Belzer
Average Truckload Shipment
on One Full Truck
one shipment = 26,600 pounds
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© 2009 by Michael H. Belzer
The Same 26,600 Pounds as
21 Less-than-Truckload Shipments of
Average Weight on One Full Truck
1,267
pou n ds
1,267
pou n ds
1,267
pou n ds
1,267
pou n ds
1,267
pou n ds
1,267
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1,267
pou n ds
1,267
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1,267
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1,267
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1,267
pou n ds
1,267
pou n ds
1,267
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1,267
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1,267
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1,267
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1,267
pou nds
1,267
pou n ds
1,267
pou n ds
1,267
pou n ds
1,267
pou n ds
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February 17, 2009
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© 2009 by Michael H. Belzer
Competition led to Structural Changes
Industry Seg mentation
Propo rtion of Carriers' General Freight
Shipments that were LTL Shipments in 1977
Propo rtion of Carriers' General Freight
Shipments that were LTL Shipments in 1987
50
60
40
40
30
20
20
10
0%
35%
70%
100%
Source: American Trucking Asso
ciations 1978.The vertical axis is the
number of carriers. The horizontal axis is theratio of LTL revenueto
total revenue for each carrier.
0%
35%
70%
100%
Source: American Trucking Asso
ciations 1988.The vertical axis is the
number of carriers. The horizontal axis is theratio of LTL revenueto
total revenue for each carrier.
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February 17, 2009
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© 2009 by Michael H. Belzer
Union Density in Truck
Transportation Industry
45%
40%
35%
Union Density
30%
25%
U nion M embers hip
U nion C overage
20%
15%
10%
5%
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00
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01
20
02
20
03
20
04
20
05
20
06
0%
Year
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Truck Driver Union Density
45%
40%
35%
T ruc k drivers , heavy
Union Density
30%
T ruc k drivers , light
25%
D river Sales
20%
T ruc k D rivers
15%
D river/s ales workers and truc k
drivers
10%
5%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
0%
Year
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February 17, 2009
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© 2009 by Michael H. Belzer
UMTIP Driver Survey
• Survey conducted in 1997-1998 in Midwest truck stops, focusing on
over-the-road (OTR) drivers
• Driver average earnings $745 per week, 65 working hours/week, for
average earnings of $11.46 per straight time hour
– CPS data for same period shows 21.4% of all drivers worked more than 60
hours/week
• Mean mileage rate was 28.6¢/mile, with unionized drivers earning an
average of 38.6 ¢/mile
• Only 9.8% of OTR employee drivers unionized, and virtually no ownerdrivers are union members (not allowed to join)
• At the mean, truckers drove 113,843 miles and 25% of their working
hours were unpaid non-driving time
• Total annual working time about 3,250 hours, assuming drivers had 2.25
weeks off for vacation and holidays
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© 2009 by Michael H. Belzer
Other Features of This Labor Market
• Pervasive subcontracting and as many as 500,000 carriers
– Perhaps 300,000 owner-drivers (no accurate measures exist)
– 75% of owner-drivers leased to motor carriers
– 25% operate on their own authority (actual owner-operators)
• Common law treats all of them as independent contractors and
hence they may not organize (not true in Canada or Australia)
• Marginal cost pricing in transportation leads to cobweb
(“cutthroat”) pricing and destructive competition
– Teamster drivers earn average of about $50,000/year, mostly in LTL
– Non-union drivers average about $36,000/year, mostly in TL
– Owner-drivers on average earn one-third less; most have no health
insurance and none have pensions
– 2004 DOT regulations raised drive time to 11 hours/shift and allow
drivers to re-set their weekly clock to allow an 84-hour workweek
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February 17, 2009
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© 2009 by Michael H. Belzer
National survey of owner-operators in
2003-2004, using the
Trucking Industry Benchmarking Program
Summary of
NetP rofit&WagesFromTruckingOps
cases selected according t o
OneT ruck
421 t otal cases of which 83 are missing
Total Cases
421
Count
338
Mean
$21,266.70
Median
$17,988.50
StdDev
$37,163.10
PopStdv
$37,108.10
Min
$-14,9571.00
Max
$301,400.00
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February 17, 2009
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© 2009 by Michael H. Belzer
Three Studies Show How Pay Drives Safety
• Using driver level data from J.B. Hunt, we
determined the probability of driver crashes using
11,540 drivers and 93,000 driver-month
observations
• Using carrier level data from the National Survey
of Driver Wages, we determined the extent to
which compensation factors predict carrier crash
rates
• Using the UMTIP random survey of over-the-road
drivers, we determined that driver pay predicts
safety outcomes
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February 17, 2009
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© 2009 by Michael H. Belzer
Study 1: Effect of pay level in one firm
The Problem
• J. B. Hunt: The nation’s second largest truckload
carrier in 1995
– 96% driver turnover
– Carrier experienced driver safety and driver reliability
problems
The Solution
• Raised wages by 38% in one major move
• Closed down training schools & hired experience
• Focused on driver retention
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© 2009 by Michael H. Belzer
Higher Pay, Lower Crash Rates
14
Crashes/Mill VMT
12
10
8
6
4
2
Month
All Crashes
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February 17, 2009
Large Crashes
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
1998-01
1997-11
1997-09
1997-07
1997-05
1997-03
1997-01
1996-11
1996-09
1996-07
1996-05
1996-03
1996-01
1995-11
1995-09
0
Pay Level Findings
• At the mean, every one cent more in first observed pay leads
to 11.1% reduction in crash probability
• At the mean pay rate of 34 cents per mile, every 10% higher
first observed pay is associated with a 34% lower crash
probability (human capital?)
• A 10% pay increase is associated with a
6% lower crash probability (incentive?)
• At the mean, each year of tenure reduces crash by 16%
• Hunt drivers with 7 years of tenure have the lowest risk,
controlling for other factors
• Higher pay reduces turnover and increases age,
experience, and unmeasured characteristics
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February 17, 2009
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© 2009 by Michael H. Belzer
Experience Matters
Driver Discrete Time Proportional Crash Hazards Model with
Gaussian-Distributed Unobserved Heterogeneity –Months of Experience Subset
(N = 52,393 driver-months; n = 5,897 drivers)
Crash Event = 1
Coeff.
Age
Age2
Female
White
Nonmarried
Base pay (cents/mile)
Percent pay increase
Average miles up to given month (000s)
Monthly miles driven during month (000s)
Dispatches
Winter
Hired after pay raise
Total experience (yrs)
Total experience2
Age by time
Base pay by time
Winter by time
sigma_u
Rho
Log likelihood = -5,478.65
-0.100
0.002
-0.232
-0.471
-0.154
-0.106
0.000
0.032
-0.111
0.003
-0.213
0.491
-0.049
0.001
0.001
0.006
0.029
0.399
0.137
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February 17, 2009
Z-statistic E-form
***
***
***
***
***
**
***
**
***
***
**
**
***
**
-11.94
10.60
-1.10
-8.03
-2.78
-11.70
0.02
2.23
-7.13
0.36
-2.10
4.78
-3.03
2.41
2.48
4.70
2.36
0.90
1.00
0.79
0.62
0.86
0.90
1.00
1.03
0.89
1.00
0.81
1.63
0.05
1.00
1.00
1.01
1.03
% change in crash rate per
unit change in variable
-9.52%
0.22%
-20.69%
-37.56%
-14.31%
-10.07%
0.00%
3.24%
-10.51%
0.26%
-19.16%
63.44%
-95.1%
0.1%
0.11%
0.58%
2.98%
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Study 2:
The Effect of Compensation
Level and Method
for 102 Truckload Carriers
Data Sources:
National Survey of Driver Wages
UMTIP Survey of Carriers
SAFER System
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February 17, 2009
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© 2009 by Michael H. Belzer
Carrier Level Descriptive Statistics
VARIABLE
CRASHES
MILEAGE PAY
UNPAID TIME (hrs/mi)
RAISE
SAFETY BONUS
PRODUCTION BONUS
HEALTH INS
LIFE INS
PAID TIME OFF
GOVERNOR SPEED
MILES PER RUN
MILES PER YEAR
(MILLIONS)
FLAT BED
VAN
POWER UNITS
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February 17, 2009
MEAN
63.87
$0.286
.004
$0.007
.490
.284
$166.84
$15,505.00
$773.56
.765
905.85
127.53
STANDARD
MINIMUM MAXIMUM
DEVIATION
101.20
1
660
.026
.230
.380
.004
.870 E-4
.017
$0.005
$0.00
$0.040
.502
0= No
1= Yes
.453
0= No
1= Yes
69.803
$0
$368.30
10991.00
$0
$52,000
$302.27
$250
$2,000
.426
0= No
1= Yes
472.77
400
3,800
238.88
1.5
1,106.0
.206
.510
682.94
.406
.502
1035.8
0
0
24
1
1
7193
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Negative Binomial Regression Results
VARIABLE
ESTIMATE
-1.83 ***
Mileage Pay Rate
24.63 ***
Unpaid Time (Hrs/Mile)
-8.72 *
Raise
-0.10 ***
Safety Bonus
-0.05
Production Bonus
0.05 ***
Driver Pay Health Insurance ($100)
-0.04 ***
Value of Life Insurance ($1,000)
-0.04
Paid Time Off ($1,000)
-0.19 ***
Governor Speed
Total Compensation Effect
Log-likelihood: -454.996
Restricted Log-likelihood: -4648.659
Likelihood Ratio Statistic: -8387.326
Chi-Square Statistic
465.016
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February 17, 2009
T-STAT. ELAST
-2.68
-.52
5.68
-.10
-1.89
-.06
-3.56
-.10
-1.60
-.05
2.00
.08
-3.08
-.06
-0.61
-.03
-6.14
-.19
-.92
Significance Level: 0.000
Significance Level: 0.000
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
VARIABLE
CONSTANT
MILEAGE PAY RATE
UNPAID TIME (HRS/MILE)
RAISE
SAFETY BONUS
PRODUCTION BONUS
DRIVER PAY HEALTH INSURANCE
($100)
VALUE OF LIFE INSURANCE ($1,000)
PAID TIME OFF ($1,000)
GOVERNOR SPEED
MILES PER RUN (thousands)
FLAT BEDS
VANS
LOG MILES (millions)
POWER UNITS
2
POWER UNITS
3
POWER UNITS
4
POWER UNITS
OVERDISPERSION PARAMETER
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February 17, 2009
ESTIMATE
T-STATISTIC ELASTICITY
3.09***
12.80
-1.83***
-2.68
-.52
24.63***
5.68
-.10
-8.72*
-1.89
-.06
-0.10***
-3.56
-.10
-0.05
-1.60
-.05
0.05**
2.00
.08
-0.04***
-0.04
-0.19***
-0.03
-0.24***
-0.03
0.04***
0.04***
-1.60 E-06***
2.97 E-10***
-1.78**
0.12***
-3.08
-0.61
-6.14
-0.53
-5.37
-0.70
2.80
20.94
-8.33
4.17
-2.46
6.16
-.06
-.03
-.19
-.03
-.24
-.03
.04
.77
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Overall Compensation Effect
• For every 10% more that they compensate drivers,
carriers have a 9.2% lower crash rate
• Significant components include
– Mileage rate for drivers with 3 years experience (5.2%)
– Drivers’ anticipated annual pay raise (0.6%)
– Amount of unpaid non-driving time per mile driven
(1.0%)
– Safety bonus (1.0%)
– Amount of money driver pays for family health insurance
(0.8%)
– Amortized value of life insurance provided by carrier
(0.6%)
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February 17, 2009
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© 2009 by Michael H. Belzer
Study 3
Effect of Pay Level on Safety:
Individual Driver Level Data
Sloan Foundation Trucking Industry Program
UMTIP Truck Driver Survey
• Based on 1,000 drivers surveyed in 1997-98
• Regression results based on 247 of these
who are mileage employee drivers working
in the for-hire trucking industry
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February 17, 2009
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© 2009 by Michael H. Belzer
Mean Compensation Variables
Mileage Rate
Unpaid Time (minutes/mile)
Paid Days Off
Employer Paid Health Ins
Late Penalty
Safety Bonus
On Time Bonus
Yearly Earnings
Wayne State University
February 17, 2009
$0.295
.227
14.71
85.0%
62.8%
57.9%
26.7%
$38,848
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Workplace Variables
Crash
Yearly Miles
Weekly Hours
Non-Driving Work Hours
Night Driving Hours
Union
Large Firm
Private Carriage
Drybox
OTR
Wayne State University
February 17, 2009
13.8%
121,378
62.1
18.3%
21.2%
9.3%
68.8%
13.0%
66.4%
72.9%
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Probit Regression Estimates
(significant variables only)
Variable
Estimate
St. Err. t-statistic Elasticity
Mileage Rate
-4.85
2.44 -1.990**
Paid Days Off
-.309
.144
-2.15**
Large Firm
-.493
.261
-1.889*
Total Pay Effect
-18.7%
-6.3%
-25.0%
N = 247
Log-likelihood: -85.706
Restricted Log-likelihood: 98.967
Chi-Square Statistic: 26.522
Significance Level: .380
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February 17, 2009
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© 2009 by Michael H. Belzer
VARIABLE
INTERCEPT
YEARLY MILES
(1000)
MILEAGE RATE
UNPAID TIME
PAID DAYS
HEALTH INS
LATE PENALTY
SAFETT BONUS
ON TIME BONUS
% NON-DRIVING
% NIGNT
LARGE FIRM
DRYBOX
PRIV CARRIAGE
OTR
UNION
WEEKLY HOURS
AGE
TENURE
EXPERIENCE
HS DEGREE
WHITE
MARRIED
YEARLY
EARNINGS
Wayne State University
February 17, 2009
ESTIMATE
STANDARD
ERROR
.066
.00014
-4.852
-.425
-.031
-.077
.171
-.221
.061
-.078
.782
-.493
-.163
.033
-.388
.468
.005
- .001
.034
-.014
.561
-.125
.089
.016
**
**
*
t-STATISTIC
.549
.00581
.120
.024
2.438
.385
.144
.339
.234
.232
.264
.913
.582
.261
.259
.358
.286
.405
.006
.018
.023
.018
.371
.278
.323
.013
-1.990
-1.102
-2.148
-.228
.729
-.954
.232
-.084
1.342
-1.889
-.630
.094
-1.359
1.156
.825
-.042
1.449
-.791
1.513
-.446
.273
1.165
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Driver Survey:
Effect of Pay on Safety
At the mean pay rate, for every 10% more that
drivers earn, their probability of having a crash
is 25.0% lower
Significant components include
– For every 10% higher mileage rate that driver
earns, the probability of a crash is 18.7% lower
– For every 10% more paid days off, the probability
of a crash is 6.3% lower
Wayne State University
February 17, 2009
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Three Studies’ Overall Effects
• Mileage rate alone accounts for 4:1 safety effect at
J.B. Hunt
• Compensation alone accounts for 0.92:1 safety effect
for 102 TL carriers
• Compensation alone accounts for 2.5:1 safety effect
for surveyed drivers
• Conservative conclusion:
• Higher driver pay is strongly associated with reduced
crashes (2:1)
• At the mean, 10% higher pay leads to 20% safety
improvement
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February 17, 2009
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Further Research: Selection or Incentives?
We think most of this probably is selection
• “Selection” suggests employers hire drivers based on
unobserved human capital qualities
–
–
–
–
Employment history
Deportment
Stability
“Character”
• Research should be undertaken linking multiple Census and
Unemployment Insurance data sets, using the Longitudinal
Employer Household Dynamics (LEHD) survey to measure
unobserved human capital contributed by workers and firms
• This is the way to use economic analysis to serve safety goals
• Regulators also should experiment with benchmarking
partnerships with states and industry trucking associations
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February 17, 2009
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Human capital and incentives
may not be independent
• Better jobs go to those with best overall record.
• For beginning drivers, hiring depends on factors
other than commercial truck driving.
• Subsequent performance on the job determines
future opportunities
• Drivers are careful not to damage their record in
order to maintain their labor market position.
• Further incentives include defined-benefit
pensions, which act as performance bonds.
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February 17, 2009
Trucking Industry Benchmarking Program
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© 2009 by Michael H. Belzer
Further Resources Available by Request
Michael H. Belzer, Ph.D.
Department of Economics
Wayne State University
(313) 577-3345
[email protected]
Studies:
http://www.clas.wayne.edu/unit-faculty-detail.asp?FacultyID=595
http://myprofile.cos.com/mbelzer
Benchmarking:
http://www.ilir.umich.edu/TIBP/
Wayne State University
Trucking Industry Benchmarking Program
© 2009 by Michael H. Belzer