Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, January 12, 2021

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

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

By:

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.

URL:

http://d.repec.org/n?u=RePEc:zbw:iwhdps:212020&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2021/01/competition-cost-structure-and-labour-leverage-evidence-from-the-us-airline-industry.html

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