Essay on Importance of Airline Industry

In a move towards greater reliance on markets for setting prices, the telecommunications. Trucking and airline industries have been deregulated since the mid 1970s.

The elimination of these regulations serves as a natural experiment to contrast the hiring practices of firms in markets characterized by the product market dominance of regulation, with the practices of firms subjected to the more competitive forces of deregulation.

The airline industry is particularly fruitful for this examination. This industry has a wide variety of occupations, from the highly skilled technician and pilot to the low skilled and easily replaceable baggage handler. Thus an analysis of employment in this industry allows us to examine the impact of deregulation on the racial and gender composition of occupations that have a large variance in skill level and degree of substitutability.

In addition, it allows us to make inferences about the human-capital and regional characteristics that influence the employment of underrepresented groups in various occupations under opposing market structures. Regulation of the airline industry began with the passage of the Civil Aeronautics Act of 1938 (CAA). This Act grew in the era of the Depression, which viewed unbridled competition as ruinous because it leads to cutthroat pricing, bankruptcies, and unstable market structures.

The Act created a five-member board, the Civil Aeronautics Board (CAB), whose primary duties included controlling entry and exit into markets through the issuance of certificates, setting and regulating fares and the control of merger activity in the industry. The goal of the board was to stabilize the industry by preventing both price waxes and collusive behavior. The anti-competitive atmosphere in the industry that created the CAB would prevail almost 40 years until the passage of the Airline Deregulation Act of 1978 (ADA). This legislation was influenced by the theory of contestable markets. This theory asserts that under certain circumstances, the threat of competition can lead to economic outcomes consistent with perfect competition.

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