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  5. The Labor Market Effects of Occupational Licensing
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The Labor Market Effects of Occupational Licensing

Paper Session

Monday, Jan. 4, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: Labor and Employment Relations Association
  • Chair: Morris Kleiner, University of Minnesota, NBER and Federal Reserve Bank of Minneapolis

Barriers to Opportunity: The Effects of Occupational Licensing on Occupational and Career Mobility

Christos Andreas Makridis
,
Arizona State University and Massachusetts Institute of Technology
Kofi Ampaabeng
,
George Mason University
Patrick McLaughlin
,
George Mason University
Steve Strosko
,
George Mason University
Theodore Figinski
,
U.S. Department of the Treasury

Abstract

This paper examines the effects of occupational licensing on occupational and career mobility. First, we introduce a new methodological approach to measuring the restrictiveness of occupational licensing across states and times using machine learning. We first manually collect over 600 state regulatory and federal regulatory documents, manually labeling them as either containing or not containing licensing text. After training and cross-validating a machine learning classifier, we apply the algorithm to all state regulatory documents to create a new database of occupational licensing restrictiveness across states and time. Second, we draw on restricted tax micro-data to study the occupational and career outcomes of observationally equivalent individuals exposed to different licensing regimes. We find preliminary evidence that these licensing requirements reduce labor market dynamism and churn.

Quality and Selection in Regulated Professions

Michele Pellizzari
,
University of Geneva
Gaetano Basso
,
Bank of Italy
Eleonora Brandimarti
,
University of Geneva
Giovanni Pica
,
University of Italian Switzerland

Abstract

Entry in many occupations is regulated with the objective to screen out the least able producers and guarantee high quality of output. Unfortunately, the available empirical evidence suggests that in most cases these objectives are not achieved. In this paper we investigate entry into the legal profession in Italy and we document that such a failure is due to the combination of the incomplete anonymity of the entry exam and the intergenerational transmission of business opportunities. We use microdata covering the universe of law school graduates from 2007 to 2013 matched with their careers and earnings up to 5 years after graduation, and exploit random variation in the assignment of the commissions grading entry exams to identify the role of family ties in the selection process. We find that connected candidates, i.e. those with relatives already active in the profession, are more likely to pass the exam and eventually earn more, especially those who performed poorly in law school. When we simulate the process of occupational choice assuming family connections did not matter, we find that strong positive selection would emerge.

Occupational Regulation and the Migrant Wage Gap

Davud Rostam Afschar
,
University of Mannheim
Maria Koumenta
,
University of London
Mario Pagliero
,
University of Turin, Collegio Carlo Alberto and CEPR

Abstract

Migrants face wage penalties vis-Ã -vis comparable natives commonly attributed to human capital depreciation, statistical discrimination and occupational mismatching. Using a representative sample of the EU labor force, we examine the relationship between occupational regulation and migrant wages. We find that licensing corrects for the wage penalty associated with migration, while certification cancels almost half of the observed effect. Using different model specifications where we vary the length of stay, reason for migrating and consider a policy shock, we show that the ease with which credentials can follow the migrant in the host country affects the magnitude of the wage effect. We perform various robustness checks that allow us to rule out explanations associated with migrant assimilation and self-selection into migration. In the final part of our analysis we show that the positive effects of licensing on migrants wages are not mirrored in their probability of being employed in licensed occupations.

The De-licensing of Occupations in the United States: An Update

Edward J. Timmons
,
Saint Francis University
Ilya Kukaev
,
Lehigh University
Robert J. Thornton
,
Lehigh University

Abstract

In this paper, we assess progress made on removing occupational licensing requirements in the US the last five years. Since the publication of our previous piece in 2015, both the Obama and Trump White Houses have highlighted the costs associated with occupational licensing and recommended individual states to move forward with reform. A number of states have also initiated comprehensive reform. Utilizing the Council on Licensure, Enforcement and Regulation (CLEAR) database and our own research, we highlight each of these cases and note increased momentum in states to revisit the merits of occupational licensing.
Discussant(s)
Janna E. Johnson
,
University of Minnessota
John Barrios
,
University of Chicago
Darwyyn Deyo
,
San Jose State University
JEL Classifications
  • J4 - Particular Labor Markets