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Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry

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  • Wagner, Konstantin

Abstract

I study the effect of increasing competition on financial performance through labour leverage. To capture competition, I exploit variation in product market contestability in the U.S. airline industry. First, I find that increasing competitive pressure leads to increasing labour leverage, proxied by labour share. This explains the decrease in operating profitability through labour rigidities. Second, by exploiting variation in human capital specificity, I show that contestability of product markets induces labour market contestability. Whereas affected firms might experience more stress through higher wages or loss of skilled human capital, more mobile employee groups benefit from competitions through higher labour shares.

Suggested Citation

  • Wagner, Konstantin, 2020. "Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry," IWH Discussion Papers 21/2020, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:212020
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    More about this item

    Keywords

    competition; labour leverage; labour share; threat of entry;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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