Analyzing the Effects of Occupational Licensing on Earnings Inequality in the United States

There is a consensus that there is an earnings premium for licensed workers relative to unlicensed workers. However, little is known about how occupational licensing affects earnings inequality. In this paper, we study dynamic, heterogeneous earnings effects of occupational licensing and draw implications for earnings inequality in the United States. First, we find that the earnings gap between workers in licensed occupations and those in unlicensed occupations with similar characteristics (“licensing premium”) increased slightly during the 1983–2019 period. Second, we find that the licensing premium for workers in high paying occupations significantly increased, which is not the case for workers in lower paying occupations. The finding is consistent with growing demands for skills over the past decades, given the more rigorous licensing requirements for high-skilled occupations. As a result, earnings inequality among workers in licensed occupations increased. Third, we document that the licensing premium for female workers and workers without a college education declined relative to male workers and college graduates. Taken together, our findings suggest that occupational licensing is associated with widening earnings inequality in the United States during the 1983–2019 period.