The Effects of Employee Hours-of-Service Regulations on the U.S. Airline Industry

Journal of Policy Analysis and Management, Vol. 39(4): 1043-1075.

62 Pages Posted: 16 Jan 2018 Last revised: 23 Oct 2020

See all articles by Alexander Luttmann

Alexander Luttmann

University of California, Irvine; The MITRE Corporation

Cody Nehiba

Louisiana State University; University of California, Irvine

Date Written: March 26, 2020

Abstract

Maximum employee work-hour restrictions are implemented to reduce accidents. However, because they decrease the stock of work-hours available to employers, 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 illustrate 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.

Keywords: Hours-of-Service, Labor Restrictions, Airlines, Vertical Integration, Competition

JEL Classification: D62, J22, J28, L93, R48

Suggested Citation

Luttmann, Alexander and Nehiba, Cody, The Effects of Employee Hours-of-Service Regulations on the U.S. Airline Industry (March 26, 2020). Journal of Policy Analysis and Management, Vol. 39(4): 1043-1075. , Available at SSRN: https://ssrn.com/abstract=3099918 or http://dx.doi.org/10.2139/ssrn.3099918

Alexander Luttmann (Contact Author)

University of California, Irvine ( email )

United States

The MITRE Corporation ( email )

7515 Colshire Blvd.
McLean, VA 22102
United States

Cody Nehiba

Louisiana State University ( email )

Baton Rouge, LA 70803
United States

University of California, Irvine ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

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