Working Paper: CEPR ID: DP15674
Authors: Gaetano Basso; Eleonora Brandimarti; Michele Pellizzari; Giovanni Pica
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. Variation generated by the random assignment of the entry exam grading commissions allows us 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 on ability would emerge.
Keywords: occupational regulation; licensing; intergenerational mobility
JEL Codes: J24; J44; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Family connections (J12) | Likelihood of passing the entry exam (C12) |
| Likelihood of passing the entry exam (C12) | Earnings (J31) |
| Family connections (J12) | Earnings (J31) |
| Family connections (J12) | Selection process into legal profession (K40) |
| Connected candidates (Y80) | Likelihood of passing the entry exam (C12) |
| Family connections (J12) | Distortion of selection process (D79) |