MARKET POWER AND LABOR MARKET DISCRIMINATION: THE CASE OF THE AIRLINE INDUSTRY

Abstract

Becker’s theory of discrimination dictates that only firms in monopolistic product markets can afford to engage in discriminatory behavior. This study tests whether or not the airline industry’s drastic consolidation over the last two decades has exacerbated racial and gender wage disparities. Using panel data from the IPUMS-CPS from 1990-2018, I employ fixed individual effects estimation with interactions of market concentration and race, and market concentration and gender. Regressions are also replicated with the measure of market concentration instrumented by dummy variables for industry consolidation moments. I find strong evidence that increased market concentration does significantly exacerbate the gender wage disparity across the industry. This effect is notably pronounced for managers. Findings regarding the racial wage disparity are generally insignificant and therefore inconclusive. The evidence also suggests the existence of a critical concentration ratio of 70% and indicates that the U.S. Department of Justice’s guidelines for post-merger market concentration are strongly predictive of worsening gender wage disparities. Overall, this study finds support for Becker’s theory when applied to gender discrimination and suggests that gender discrimination is a problematic effect of an increasingly consolidated industry.