Occupational Licensing and Labour Market Fluidity

70 Pages Posted: 17 Aug 2019 Last revised: 22 Jul 2020

See all articles by Morris M. Kleiner

Morris M. Kleiner

Humphrey School of Public Affairs; National Bureau of Economic Research (NBER)

Ming Xu

Queen's University

Date Written: July 15, 2020

Abstract

We show that occupational licensing has significant negative effects on labor market fluidity defined as cross-occupation mobility. Using a balanced panel of workers constructed from the CPS and SIPP data, we analyze the link between occupational licensing and labor market outcomes. We find that workers with a government-issued occupational license experience churn rates significantly lower than those of non-licensed workers. Specifically, licensed workers are 24% less likely to switch occupations and 3\% less likely to become unemployed in the following year. Moreover, occupational licensing represents barriers to entry for both non-employed workers and employed ones. The effect is more prominent for employed workers relative to those entering from non-employment, because the opportunity cost of acquiring a license is much higher for employed individuals. Lastly, we find that average wage growth is higher for licensed workers than non-licensed workers, whether they stay in the same occupation in the next year or switch occupations. We find significant heterogeneity in the licensing effect across different occupation groups. These results hold across various data sources, time spans, and indicators of being licensed. Overall, licensing could account for almost 8% of the total decline in monthly occupational mobility over the past two decades.

Suggested Citation

Kleiner, Morris M. and Xu, Ming, Occupational Licensing and Labour Market Fluidity (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3437136 or http://dx.doi.org/10.2139/ssrn.3437136

Morris M. Kleiner

Humphrey School of Public Affairs ( email )

Minneapolis, MN 55455
United States
612-625-2089 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ming Xu (Contact Author)

Queen's University ( email )

Kingston, Ontario K7L 3N6
Canada

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