Deregulation and Labor Earnings in the Airline Industry

Abstract

This paper uses a variety of data sources to track the earnings of airline industry employees over the past two decades and assess the changes that have occurred since deregulation in 1978. Individual microdata from Census files as well as collective bargaining contract information are used to follow wages for pilots, flight attendants, mechanics, and workers as a whole. Perhaps surprisingly, I find that the real earnings of airline workers have declined only modestly in the past 10 years. Comparisons with other groups of workers suggest that these declines have been about the same or only slightly larger than those observed for most other workers in the economy. Furthermore, within the airline industry, the declines in earnings have been similar for all three groups of skilled workers. If the deregulated industry can be taken as a competitive benchmark, these findings suggest that the regulatory rents earned by airline workers prior to deregulation were relatively small. This view fails to explain the wide inter-firm variation in earnings that has emerged in the post-deregulation period, however. An alternative interpretation is that rents continue to exist at many airline firms, and that these rents continue to be shared by employees at the successful airlines.