How Much of Barrier to Entry is Occupational Licensing?
| Date | 01 December 2019 |
| DOI | http://doi.org/10.1111/bjir.12470 |
| Published date | 01 December 2019 |
| Author | Peter Q. Blair,Bobby W. Chung |
British Journal of Industrial Relations doi: 10.1111/bjir.12470
57:4 December 2019 0007–1080 pp. 919–943
How Much of Barrier to Entry
is Occupational Licensing?
Peter Q. Blair and Bobby W. Chung
Abstract
We exploit state variation in licensing laws to study the eect of licensing on
occupational choice using a boundary discontinuity design. Wefind that licensing
reduces equilibrium labour supply by an average of 17–27 per cent.
1. Introduction
An occupational licence is a state-issued credential thata worker must possess
in order to worklegally for pay (Friedman 1962). Over the past six decades,the
share of the US labour force subject to occupational licensing has increased
from 5 per cent to 25 per cent. Similarly, in the European Union, 22 per cent of
workersreport having an occupational licence (Koumentaand Pagliero 2018).
The primary focus of the literature on occupational licensing is estimating
the licensing premium (Gittleman et al. 2015; Kleiner and Krueger 2013;
Koumenta et al. 2014; Thornton and Timmons 2013).1The literature on the
employment eects of occupational licensing is by comparison more nascent
but no less important. In fact, Kleiner and Soltas (2018) show that the eect
of occupational licensing on employment is a sucient statisticfor the welfare
consequences of licensing. This finding makes studying the eect of licensing
on employment an important matter forpublic policy. Law and Marks (2009)
use data from the introduction of licensing in a selected group of industries
during the period from 1870 to 1960 to show that thereare no negative labour
supply eects of licensing for women and minorities. By contrast, Hall et al.
(2018) show that female participation on the Uber platform increases after
deregulation, which suggests that licensing has a negative eect on female
employment in the ride sharing industry. Likewise, Kleiner and Park (2010)
Peter Q. Blair is atthe Graduate School of Education, Harvard University,is a Faculty Research
Fellow of the National Bureau of Economic Research (NBER) and a Research Aliate of the
Human Capital and Economic Opportunity (HCEO) Network. BobbyW.Chung is at the John E.
WalkerDepartment of Economics, Clemson University and is a Research Aliate of the Human
Capital and Economic Opportunity (HCEO) Network.
C
2019 John Wiley& Sons Ltd.
920 British Journal of Industrial Relations
show that reducing the prescribing ability of nurses reduced hours worked by
3 per cent.
Wemake several contributions to the literature on the eect of occupational
licensing on employment. First, we use new licensing data to update the
evidence on the employment eect of licensing, building on the work of
Law and Marks (2009). In this respect, our article is similar to Kleiner
and Soltas (2018). Second, we use quasi-experimental variation to estimate
the eect of licensing on employment, following similar approaches used to
estimate the wage impacts of occupational licensing (Pizzola and Tabarrok
2017). Third, this article explores heterogeneity in the eect of licensing on
employment by gender and racein the twenty-first century. Fourth,we explore
heterogeneity in the equilibrium laboursupply by the attributes of the licence.
Many licences require workers to pass an exam, undergo training or pursue
continuing education. Federman et al. (2006) show that additional licensing
requirements for manicurist reduce labour supply, whereas Pagliero (2010)
shows that requirements like exams are correlated with increased wages for
workers. Some licensed occupations also preclude ex-oendersfrom obtaining
a licence (Blair and Chung 2018).
In our article, we use a new dataset that we created in prior work on
the licensing regulations in aecting ex-oenders and the licensing attributes
documented in the 2008 Survey of Income and Program Participation(SIPP).
We mergethese licensing data with the CPS from 2015 to 2017 and estimate a
model of occupational choice (Train et al. 1987). In our model, occupational
selection is driven by wages, whether the occupation is licensed, a measure of
the occupation’s desirability (that is constant across all workers) and workers’
idiosyncratic tastes for the occupation. We embed a boundary discontinuity
design in our empirical model to compare employment in occupations across
state boundary pairs where the occupation is licensed on one side of the
boundary but unlicensed on the other side of the boundary. This design is
motivated by the work of Black (1999), who developed this research design to
estimate households’ willingness to payfor quality schooling. We followBayer
et al. (2007) by embedding this boundary discontinuity design in a discrete
choice framework.
Our results suggest that the presence of occupational licensing reduces
labour supply by an average of 17–27 per cent. From our boundary
discontinuity estimates,we find that the magnitude of the labour supply eect
of licensing increases by two-thirdsrelative to ordinary least squares estimates.
Moreover, we find that the negative labour supply eects of occupational
licensing are particularly large for white workers and comparatively smaller
for black workers. Our estimates are similar to the employment eects found
by Kleiner (2006) who showed that the number of jobs in partially licensed
occupations grew 20 per cent slower than the number of jobs in unlicensed
occupations. Our estimates are also in line with the estimates in Johnson and
Kleiner (2015), who find that state-specific licensing laws reduce inter-state
mobility of workers by36 per cent, whereas national licensing has no negative
eect on inter-state mobility of workers.
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2019 John Wiley& Sons Ltd.
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