A Welfare Analysis of Occupational Licensing in U.S. States
65 Pages Posted: 22 Mar 2018 Last revised: 31 Mar 2019
Date Written: March 29, 2019
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
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