A Welfare Analysis of Occupational Licensing in U.S. States

65 Pages Posted: 22 Mar 2018 Last revised: 31 Mar 2019

See all articles by Morris M. Kleiner

Morris M. Kleiner

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs; National Bureau of Economic Research (NBER)

Evan J. Soltas

Massachusetts Institute of Technology (MIT), Department of Economics, Students

Date Written: March 29, 2019

Abstract

We assess the welfare consequences of occupational licensing policy for workers and consumers using variation across U.S. states and occupations. In our model, licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between states, we find licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 15 percent of occupational surplus. Consumers and workers each bear about half of the incidence. Higher willingness to pay offsets only 60 percent of higher prices for consumers, and higher wages compensate workers for only 70 percent of the cost of mandated investment in occupation-specific human capital.

Keywords: Occupational Licensing, Labor Supply, Human Capital, Welfare Analysis

JEL Classification: D61, J24, J38, J44, K31

Suggested Citation

Kleiner, Morris M. and Soltas, Evan J., A Welfare Analysis of Occupational Licensing in U.S. States (March 29, 2019). Available at SSRN: https://ssrn.com/abstract=3140912 or http://dx.doi.org/10.2139/ssrn.3140912

Morris M. Kleiner

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs ( email )

and the Industrial Relations Center
Minneapolis, MN 55455
United States
612-625-2089 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Evan J. Soltas (Contact Author)

Massachusetts Institute of Technology (MIT), Department of Economics, Students ( email )

Cambridge, MA
United States

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