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Wage Determination in the U.S. Airline Industry: Union Power under Product Market Constraints

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  • Hirsch, Barry

    () (Georgia State University)

Abstract

The paper analyzes wages in the U.S. airline industry, focusing on the role of collective bargaining in a changing product market environment. Airline unions have considerable strike threat power, but are constrained by the financial health of carriers. Since airline deregulation, compensation has waxed and waned in response to the industry’s economic environment. Airline workers capture sizable rents following good times and provide concessions following lean times. Compensation at legacy carriers has been restructured; it remains to be seen if compensation will continue its long-run movement toward opportunity costs. Evidence from the CPS for 1995-2006 shows that wage premiums for airline industry workers remain, particularly for pilots, with existing premiums almost entirely a union phenomenon. Much of the gap in wage scales between major and mid-size carriers was erased in the mid-2000s concessionary cycle, but these rates remain much higher than rates at regional carriers. Compensation levels at regional carriers may approximate opportunity cost – the compensation necessary to attract and retain qualified employees throughout the industry. Because unions retain bargaining power at the major carriers, wages are likely to head upward as carriers’ financial health returns. Such wage levels may or may not be sustainable in the inevitable next downturn.

Suggested Citation

  • Hirsch, Barry, 2006. "Wage Determination in the U.S. Airline Industry: Union Power under Product Market Constraints," IZA Discussion Papers 2384, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2384
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    References listed on IDEAS

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    1. David Card, 1989. "Deregulation and Labor Earnings in the Airline Industry," Working Papers 627, Princeton University, Department of Economics, Industrial Relations Section..
    2. Christopher R. Bollinger & Barry T. Hirsch, 2006. "Match Bias from Earnings Imputation in the Current Population Survey: The Case of Imperfect Matching," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 483-520, July.
    3. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July.
    4. Gary M. Fournier & Monica E. Hartmann & Thomas Zuehlke, 2005. "Airport Substitution by Travelers: Why do we have to drive to fly?," Working Papers wp2005_09_01, Department of Economics, Florida State University.
    5. Marco Manacorda, 2004. "Can the Scala Mobile Explain the Fall and Rise of Earnings Inequality in Italy? A Semiparametric Analysis, 19771993," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 585-614, July.
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    Cited by:

    1. Severin Borenstein & Nancy L. Rose, 2007. "How Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry," NBER Working Papers 13452, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    airlines; wages; bargaining; unions; comparability; bankruptcy; wage cycles; CPS;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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