Labour market impacts of occupational licensing and delicensing: New evidence from China
| Published date | 01 December 2023 |
| Author | Mengjie Lyu,Tingting Zhang,Hua Ye |
| Date | 01 December 2023 |
| DOI | http://doi.org/10.1111/bjir.12747 |
Received: 1 March 2022 Accepted: 15 April 2023
DOI: 10.1111/bj ir.12747
ORIGINAL ARTICLE
Labour market impacts of occupational
licensing and delicensing: New evidence from
China
Mengjie Lyu1,*Tingting Zhang1,*Hua Ye2
1School of Labor and Employment
Relations, University of Illinois at
Urbana-Champaign, Champaign, Illinois,
USA
2School of Sociology and Anthropology,
Sun Yat-sen University, Guangzhou,
China
Correspondence
Tingting Zhang, School of Labor and
Employment Relations, University of
Illinois at Urbana-Champaign,
Champaign, Illinois, USA.
Email: zhangt@illinois.edu
*Mengjie Lyu and Tingting Zhang equally
contributed as first authors.
Funding information
Social Sciences and Humanities Research
Council of Canada (SSHRC),
Grant/AwardNumber:
11233-202161-506564
Abstract
We examined the recent occupational regulation
changes in China and their labour market impacts.
Using data from the China Labor-Force Dynamic Sur-
vey from 2014 to 2018, we found an earning premium of
approximately 10 per cent, as well as more employment-
based benefits, for those with an occupational license
compared to those without one. Licensed workers
reported higher skill-job task match than unlicensed
workers. Our data cover the period of occupational regu-
lation reform in China, when 70 per cent of occupations
previously licensed or certified were deregulated. Over
this period, the licensing status remained associated
with positive earning and employment benefits premi-
ums, and better skill-job task match at the labour market
level. However, delicensing led to a distributional shift
in the earning dispersion, especially at the bottom of the
earning distribution; earning premiums rose sharply for
the 10th to 30th percentiles. Workers directly affected
by the licensing reform reported a significant decrease
in employment benefits and in subjective job quality
measures (i.e. skill-job task match and voice at work)
after delicensing, relative to never-licensed workers. We
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© 2023 The Authors. British Journal of Industrial Relationspublished by John Wiley & Sons Ltd.
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896 BRITISH JOURNAL OF INDUSTRIAL RELATIONS
suggest that non-wage compensation is lost in the short
term because the signal of competency is no longer
valued by employers after delicensing.
1 INTRODUCTION
Occupational licensing is ostensibly established to ensure the qualification of practitioners and
the quality of their services to protect consumers’ welfare, especially in areas where it is diffi-
cult to judge the quality of those services and where negative consequences are possible. Such
licensing has grown substantially in many countries; for example, one in four American workers
now reports holding an occupational license or certification (BLS, 2022; Kleiner & Krueger,2010),
compared to only 5 per cent about four decades ago (Kleiner & Krueger, 2013). The proliferation
of occupational licensing has recently been criticized as creating a barrier to entry into specific
segments of the labour market, thus leading to certain adverse labour market outcomes. These
include mobility restrictions (e.g. Johnson & Kleiner, 2020) and outcome inequality associated
with individual characteristics, such as race (e.g. Chung, 2020), immigrant status (e.g. Cassidy
& Dacass, 2021; Gomez et al., 2015; Koumenta et al., 2022;Tani,2021) and criminal record (Blair
et al., 2021), all of which result in decreased market efficiency and welfare loss (Kleiner & Soltas,
2019). During the global pandemic, in order to ease the labour shortage and address the public
health crisis, many countries and regions relaxed occupational licensing restrictions for health
care professionals and other workers deemed essential, triggering more questions about whether
licensing has been properly utilized. Research has documented calls for a review of the neces-
sity of occupational licensing, the revision of occupational licensing regulations, and even the
removal of licensing status for some occupations in countries, such as the United States (Thornton
& Timmons, 2015;2019; Thornton et al., 2017).
China has also been taking this topic seriously.In 2019, Chinese Premier Li Keqiang announced,
‘China will phase out all performance-based qualifications for skilled personnel and pursue an
occupational skill ranking system to train market-oriented skilled workers’.1The rationale is to
address the proliferation of occupational regulations, lift or minimize barriers to employment
and entrepreneurship, and more importantly, to let the employers, rather than administrative
ministries, decide which occupations should be evaluated and validated by regulatory authori-
ties and how the scope of practices should be defined. Even before the Premier’s announcement,
between 2013 and 2017, the Chinese government implemented an aggressive delicensing reform
and officially cut the number of occupations requiring licensure or certification by 70 per cent.
Over 200 million workers were estimated to have been affected.2Delicensing on such a massive
scale is extremely rare and, therefore, gives us the opportunity to examine the effect of such an
arguably exogenous change.
Our empirical results suggest that occupational licensing premiums remain strong in the Chi-
nese context. Using three waves of the China Labor Force Dynamic Survey (CLDS), we show
the overall earning premium of occupational licensing is approximately 10 per cent, and licensed
workers receive more employment benefits than unlicensed workers. Licensed workers also
report better skill-job task match than unlicensed workers, but they do not perceivethemselves to
have more voiceat work than their unlicensed counterparts. More importantly, despite the aggres-
sive occupational regulation reforms between 2013 and 2017, licensing status remains associated
with positive earning and benefits premiums at the labour market level. The reform impacts the
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