Before 1978, the Civil Aeronautics Board (CAB) regulated airline traffic in the

Question

Before 1978, the Civil Aeronautics Board (CAB) regulated airline traffic in the United States. The CAB regulated the fares that airlines could charge for trips between destinations and which destinations an airline could service. The Airline Deregulation Act of 1978 introduced competitive forces into the marketplace by allowing airlines to choose their own routes and set their own fares. Since 1978, the unionization rate of airline employees has dropped substantially (much more than comparable industries in the U.S.). Why?

Labor Economics Question

ECN 451

Thank you

Explanation / Answer

With the Airline Deregulation Act, firms are more into competition and thus they resort to price wars in order to gain market share. With more and more price wars, companies operational profits comes down drastically which forces them to cut costs. As wages are the major cost in airline industry, there is a decrease in unionization rate of airline employees.

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