Working Paper: NBER ID: w26383
Authors: Morris M. Kleiner; Evan J. Soltas
Abstract: We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital.
Keywords: occupational licensing; labor supply; human capital; welfare analysis
JEL Codes: H0; J44; J78; K0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| occupational licensing (J44) | wages (J31) |
| occupational licensing (J44) | hours worked per worker (J29) |
| occupational licensing (J44) | employment levels (J23) |
| occupational licensing (J44) | labor supply (J20) |
| wage increases (J38) | mandated investment costs in occupation-specific human capital (J24) |
| higher willingness to pay from consumers (D11) | price increases due to licensing (D45) |
| occupational licensing (J44) | average welfare loss (D69) |
| average welfare loss (D69) | workers' burden (J32) |
| average welfare loss (D69) | consumers' burden (D12) |