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A Model of Occupational Licensing and Statistical Discrimination

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  • Peter Q. Blair
  • Bobby W. Chung

Abstract

We develop a model of statistical discrimination in occupational licensing. In the model, there is endogenous occupation selection and wage determination that depends on how costly it is to obtain the license and the productivity of the human capital that is bundled with the license. Under these assumptions, we find a unique equilibrium with sharp comparative statics for the licensing premiums. The key theoretical result in this paper is that the licensing premium is higher for workers who are members of demographic groups that face a higher cost of licensing. The intuition for this result is that the higher cost of licensing makes the license a more informative labor market signal. The predictions of the model can explain, for example, the empirical finding in the literature that occupational licenses that preclude felons close the racial wage gap among men by conferring a higher premium to black men than white men. Moreover, we show that in general the optimal cost of licensing is non-zero: an infinitely costly license screens out all workers while a cost less license is no screen at all.

Suggested Citation

  • Peter Q. Blair & Bobby W. Chung, 2020. "A Model of Occupational Licensing and Statistical Discrimination," NBER Working Papers 28227, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28227
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    Cited by:

    1. Busso, Matías & Montaño, Sebastián & Muñoz-Morales, Juan S., 2023. "Signaling Specific Skills and the Labor Market of College Graduates," IDB Publications (Working Papers) 12720, Inter-American Development Bank.
    2. Chung, Bobby W., 2022. "The costs and potential benefits of occupational licensing: A case of real estate license reform," Labour Economics, Elsevier, vol. 76(C).
    3. Bobby W. Chung, 2024. "Effects of occupational license access on undocumented immigrants evidence from the California reform," Journal of Regulatory Economics, Springer, vol. 65(1), pages 64-83, June.
    4. Slichter, David & Taveras, Elisa & Monge, Daniela, 2021. "The Skills of Rich and Poor Country Workers," MPRA Paper 106050, University Library of Munich, Germany.
    5. Deyo, Darwyyn & Plemmons, Alicia, 2022. "Have license, will travel: Measuring the effects of universal licensing recognition on mobility," Economics Letters, Elsevier, vol. 219(C).

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J7 - Labor and Demographic Economics - - Labor Discrimination
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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