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

81 Pages Posted: 22 Mar 2018 Last revised: 14 Aug 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: August 13, 2019

Abstract

We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for only 60 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 (August 13, 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

Register to save articles to
your library

Register

Paper statistics

Downloads
316
Abstract Views
1,756
rank
94,578
PlumX Metrics