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Job Market Signaling through Occupational Licensing

Author

Listed:
  • Peter Blair

    () (Clemson University)

  • Bobby Chung

    (Clemson University)

Abstract

A large literature demonstrates that occupational licensing is a labor market friction that distorts labor supply allocation and prices. We show that an occupational license serves as a job market signal, similar to education. In the presence of occupational licensing, we find evidence that firms rely less on observable characteristics such as race and gender in determining employee wages. As a result, licensed minorities and women experience smaller wage gaps than their unlicensed peers.

Suggested Citation

  • Peter Blair & Bobby Chung, 2017. "Job Market Signaling through Occupational Licensing," Working Papers 2017-50, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2017-50
    Note: MIP
    as

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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Blair_Chung_2017_licensing_gender_racial_wage_gaps.pdf
    File Function: First version, May 15, 2017
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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Blair_Chung_2017_licensing_gender_racial_wage_gaps_r1.pdf
    File Function: Second version, October 17, 2017
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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Blair_Chung_2017_licensing_gender_racial_wage_gaps_r2.pdf
    File Function: Third version, June 27, 2018
    Download Restriction: no

    References listed on IDEAS

    as
    1. Moro, Andrea & Norman, Peter, 2004. "A general equilibrium model of statistical discrimination," Journal of Economic Theory, Elsevier, vol. 114(1), pages 1-30, January.
    2. Amanda Agan & Sonja Starr, 2016. "Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment," Natural Field Experiments 00539, The Field Experiments Website.
    3. Holzer, Harry J & Raphael, Steven & Stoll, Michael A, 2006. "Perceived Criminality, Criminal Background Checks, and the Racial Hiring Practices of Employers," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 451-480, October.
    4. Suyoun Han & Morris M. Kleiner, 2016. "Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes," NBER Working Papers 22810, National Bureau of Economic Research, Inc.
    5. Anderson, D. Mark & Brown, Ryan & Charles, Kerwin Kofi & Rees, Daniel I., 2016. "The Effect of Occupational Licensing on Consumer Welfare: Early Midwifery Laws and Maternal Mortality," IZA Discussion Papers 10074, Institute for the Study of Labor (IZA).
    6. Marc T. Law & Mindy S. Marks, 2009. "Effects of Occupational Licensing Laws on Minorities: Evidence from the Progressive Era," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 351-366, May.
    7. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185.
    8. Mario Pagliero, 2010. "Licensing Exam Difficulty and Entry Salaries in the US Market for Lawyers," British Journal of Industrial Relations, London School of Economics, vol. 48(4), pages 726-739, December.
    9. Arthur H. Goldsmith & Darrick Hamilton & William Darity Jr, 2006. "Does a Foot in the Door Matter? White–Nonwhite Differences in the Wage Return to Tenure and Prior Workplace Experience," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 267-306, October.
    10. Shoag, Daniel & Veuger, Stan, 2016. "No Woman No Crime: Ban the Box, Employment, and Upskilling," Working Paper Series 16-015, Harvard University, John F. Kennedy School of Government.
    11. Kleiner, Morris M. & Gittleman, Maury & Klee, Mark, 2014. "Analyzing the Labor Market Outcomes of Occupational Licensing," Staff Report 504, Federal Reserve Bank of Minneapolis.
    12. Robert J. Thornton & Edward J. Timmons, 2013. "Licensing One of the World's Oldest Professions: Massage," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 371-388.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Boyd-Swan, Casey & Herbst, Chris M., 2017. "Racial and Ethnic Discrimination in the Labor Market for Child Care Teachers," IZA Discussion Papers 11140, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    wage inequality; statistical discrimination; occupational licensing; screening; signaling; optimal regulation;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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