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Occupational Deregulation, Skill Scarcity, and Incumbent Wage Premia

Author

Listed:
  • Bredtmann, Julia

    (RWI – Leibniz Institute for Economic Research)

  • Otten, Sebastian

    (University of Duisburg-Essen)

  • Rammert, Timo

    (University of Duisburg-Essen)

Abstract

We examine the effect of occupational deregulation on incumbent master craft workers’ wages by exploiting a 2004 reform in the German crafts sector that removed the requirement to hold a master certificate for business entry in roughly half of all craft occupations. Using administrative, employee-level data and a triple-difference design, we find that the reform increased the wage premium of incumbent masters by 3% in deregulated relative to regulated occupations. The results are consistent with a scarcity mechanism whereby the decline in the inflow of newly certified masters increased the relative market value of incumbent masters. The wage premium increase is most pronounced in small firms and in East Germany, where pre-existing shortages of high-skilled labor amplified the scarcity effect. These findings suggest that deregulation may have unintended distributional consequences by reducing the private return to obtaining advanced occupational certification, thereby raising incumbent wage premia and widening skill-based wage gaps.

Suggested Citation

  • Bredtmann, Julia & Otten, Sebastian & Rammert, Timo, 2026. "Occupational Deregulation, Skill Scarcity, and Incumbent Wage Premia," IZA Discussion Papers 18961, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18961
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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