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  • How Much of A Barrier To Entry Is Occupational Licensing?

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    An occupational license is a state‐​issued credential that a worker must possess to legally work for pay. In the past six decades, instances of occupational licensing in the United States have increased from a coverage of around 5 percent of the U.S. labor force to a present‐​day coverage of close to 25 percent of the U.S. labor force. Similarly, in the European Union, 22 percent of workers report having an occupational license.

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    How Much of a Barrier to Entry Is Occupational Licensing?

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    An occupational license is a state‐​issued credential that a worker must possess to legally work for pay. In the past six decades, instances of occupational licensing in the United States have increased from a coverage of around 5 percent of the U.S. labor force to a present‐​day coverage of close to 25 percent of the U.S. labor force. Similarly, in the European Union, 22 percent of workers report having an occupational license.

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    21 views2 pages

    How Much of A Barrier To Entry Is Occupational Licensing?

    Uploaded by

    Cato Institute
    An occupational license is a state‐​issued credential that a worker must possess to legally work for pay. In the past six decades, instances of occupational licensing in the United States have increased from a coverage of around 5 percent of the U.S. labor force to a present‐​day coverage of close to 25 percent of the U.S. labor force. Similarly, in the European Union, 22 percent of workers report having an occupational license.

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    Research Briefs

    IN ECONOMIC POLICY

    May 1, 2019 | Number 161

    How Much of a Barrier to Entry Is


    Occupational Licensing?

    A
    By Peter Q. Blair, Harvard University, and Bobby W. Chung, Clemson University
    n occupational license is a state-issued cre- by gender and race, and explore heterogeneity in the equilib-
    dential that a worker must possess to legally rium labor supply by the attributes of the license.
    work for pay. In the past six decades, instanc- We estimate a model of occupational choice using a new
    es of occupational licensing in the United data set that we assembled, which contains more than 16,000
    States have increased from a coverage of licensing restrictions faced by ex-offenders and which we
    around 5 percent of the U.S. labor force to a present-day cov- merged with the recent extracts of the Current Population
    erage of close to 25 percent of the U.S. labor force. Similarly, Survey and the Survey of Income and Program Participation.
    in the European Union, 22 percent of workers report having The variety of licensing data allows us to account for occu-
    an occupational license. pational licenses with human capital requirements or restric-
    The primary focus of the literature on occupational li- tions on ex-offenders.
    censing is estimating the licensing premium. The literature Our results suggest that occupational licensing reduces la-
    on the employment effects of occupational licensing is, by bor supply by an average of 17–27 percent. From our bound-
    comparison, more nascent but no less important. We make ary discontinuity estimates, we find that the magnitude of the
    several contributions to the literature on the employment labor-supply effect of licensing increases by two-thirds relative
    effects of occupational licensing: we update the evidence on to ordinary least squares estimates. Moreover, we find that the
    the equilibrium labor supply effects of licensing, use quasi- negative labor-supply effects of occupational licensing are par-
    experimental variation to estimate the employment effects of ticularly large for white workers and comparatively small for
    licensing, explore heterogeneity in the response to licensing black workers. Our estimates are similar to the employment

    Editor, Jeffrey Miron, Harvard University and Cato Institute


    2

    effects reported by economist Morris Kleiner, who has shown can be found on the NBER Working Paper Series: https://
    that partially licensed occupations grow at a rate of 20 percent www.nber.org/people/peter_blair.
    less than unlicensed occupations. Our estimates are also in line
    with the estimates by Janna Johnson and Kleiner, who found
    that state-specific licensing laws reduce interstate mobility of NOTE:
    workers by 36 percent, whereas national licensing has no nega- This research brief is based on Peter Q. Blair and Bobby W.
    tive effect on interstate mobility of workers. Chung, “How Much of a Barrier to Entry Is Occupational Licens-
    A full version of this paper and our related work on the ef- ing?,” NBER Working Paper no. 25262, November 2018, http://
    fect of occupational licensing on racial and gender wage gaps www.nber.org/papers/w25262.

    The views expressed in this paper are those of the author(s) and should not be attributed to the Cato Institute, its
    trustees, its Sponsors, or any other person or organization. Nothing in this paper should be construed as an attempt to
    aid or hinder the passage of any bill before Congress. Copyright © 2019 Cato Institute. This work by Cato Institute is
    licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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