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The effect of occupational deregulation on wage premiums

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  • Bredtmann, Julia
  • Otten, Sebastian
  • Rammert, Timo

Abstract

We analyze the impact of occupational deregulation on the wages of licensed workers. To do so, we exploit a deregulation policy in the German craft sector that removed the master certificate as a requirement for starting a business in about half of the craft occupations. Specifically, we examine the impact of this deregulation policy on the wage premium of incumbent master craftsmen. Our results indicate that the reform led to a 3% increase in the wage premium of masters in deregulated relative to regulated occupations. This effect is primarily driven by a substantial increase in the wages of masters in deregulated occupations. We attribute this increase to heightened competition for highly skilled workers in the affected occupations, stemming from a sharp decline in the number of craftsmen pursuing a master craftsmen degree after the reform. We further show that the increase in the wage premium of master craftsmen was particularly pronounced in East Germany, which experienced a large outflow of skilled workers after reunification. This general shortage of skilled labor, exacerbated by the increased scarcity of master craftsmen, is likely to have intensified competition for their expertise.

Suggested Citation

  • Bredtmann, Julia & Otten, Sebastian & Rammert, Timo, 2024. "The effect of occupational deregulation on wage premiums," Ruhr Economic Papers 1134, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:312407
    DOI: 10.4419/96973316
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    More about this item

    Keywords

    Occupational licensing; deregulation; labor supply; wages;
    All these keywords.

    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
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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