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

86 Pages Posted: 21 Oct 2019 Last revised: 2 Feb 2022

See all articles by Morris M. Kleiner

Morris M. Kleiner

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

Evan Soltas

Massachusetts Institute of Technology (MIT) - Department of Economics

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Date Written: October 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 that 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 60 percent of the cost of mandated investment in occupation-specific human capital.

Suggested Citation

Kleiner, Morris M. and Soltas, Evan, A Welfare Analysis of Occupational Licensing in U.S. States (October 2019). NBER Working Paper No. w26383, Available at SSRN: https://ssrn.com/abstract=3472818

Morris M. Kleiner (Contact Author)

Humphrey School of Public Affairs ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Evan Soltas

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States

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