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The Effects of Employee Hours‐of‐Service Regulations on the U.S. Airline Industry
Author(s) -
Luttmann Alexander,
Nehiba Cody
Publication year - 2020
Publication title -
journal of policy analysis and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.898
H-Index - 84
eISSN - 1520-6688
pISSN - 0276-8739
DOI - 10.1002/pam.22243
Subject(s) - full service , business , competition (biology) , work (physics) , subsidiary , service (business) , low cost carrier , stock (firearms) , labour economics , economics , finance , marketing , commerce , engineering , mechanical engineering , ecology , multinational corporation , biology
Abstract Maximum employee work‐hour restrictions are implemented to reduce accidents. However, because they decrease the stock of work hours available to employers in the short run, they may also have detrimental effects. A quasi‐experiment suggests that pilot hours‐of‐service reforms, which decreased the number of flights and hours a pilot may work, reduced consumer choice and increased fares in the airline industry. We find that regional and low‐cost carriers reduced scheduled flight frequency, while less constrained legacy carriers (and potentially their wholly owned subsidiaries) were unaffected. Further, we find evidence that market concentration increased on many routes, implying that fare increases may be due to a decrease in competition. These findings suggest a situation where a policy implemented to correct one market failure, airlines not internalizing the full social costs of accidents by allowing dangerously fatigued pilots to fly, exacerbated another market failure by decreasing competition.