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Occupational Licensing and Labor Market Fluidity

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Abstract

We show that occupational licensing has significant negative effects on labor market fluidity defined as cross-occupation mobility. Using a balanced panel of workers constructed from the CPS and SIPP data, we analyze the link between occupational licensing and labor market outcomes. We find that workers with a government-issued occupational license experience churn rates significantly lower than those of non-licensed workers. Specifically, licensed workers are 24% less likely to switch occupations and 3% less likely to become unemployed in the following year. Moreover, occupational licensing represents barriers to entry for both non-employed workers and employed ones. The effect is more prominent for employed workers relative to those entering from non-employment, because the opportunity cost of acquiring a license is much higher for employed individuals. Lastly, we find that average wage growth is higher for licensed workers than non-licensed workers, whether they stay in the same occupation in the next year or switch occupations. We find significant heterogeneity in the licensing effect across different occupation groups. These results hold across various data sources, time spans, and indicators of being licensed. Overall, licensing could account for almost 8% of the total decline in monthly occupational mobility over the past two decades

Suggested Citation

  • Morris M. Kleiner & Ming Xu, 2020. "Occupational Licensing and Labor Market Fluidity," Staff Report 606, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:88385
    DOI: 10.21034/sr.606
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    1. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(2 (Summer), pages 329-383.
    2. Mengjie Lyu & Tingting Zhang & Hua Ye, 2023. "Labour market impacts of occupational licensing and delicensing: New evidence from China," British Journal of Industrial Relations, London School of Economics, vol. 61(4), pages 895-921, December.
    3. Dodini, Samuel, 2023. "The spillover effects of labor regulations on the structure of earnings and employment: Evidence from occupational licensing," Journal of Public Economics, Elsevier, vol. 225(C).
    4. Dustin Chambers & Colin O’Reilly, 2022. "The economic theory of regulation and inequality," Public Choice, Springer, vol. 193(1), pages 63-78, October.
    5. Christenko, Aleksandr, 2022. "Automation and occupational mobility: A task and knowledge-based approach," Technology in Society, Elsevier, vol. 70(C).
    6. Suyoun Han & Morris M. Kleiner, 2021. "Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Wage Determination," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 60(2), pages 147-187, April.

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    More about this item

    Keywords

    Occupational licensing; Regulation; Labor markets;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • K0 - Law and Economics - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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