Certifiably Employable?: The Effects of Occupational Regulation on Unemployment Duration

Abstract

Occupational regulation is a labor market institution that has received a growing amount of attention by researchers. Existing research has explored the effects of occupational regulation on wages and employment. To the best of our knowledge, no existing study has estimated the effect of occupational regulation on unemployment duration. We derive a random search model to explain differences in individual unemployment duration resulting from heterogeneous effects from licenses and certificates. Our model predicts that an occupational credential with a stronger signaling or human capital effect results in a shorter individual unemployment duration. To estimate the effect of occupational regulation, we use data from the Survey of Income and Program Participation (SIPP) for 2013-2019. Using survival model and correcting for selection bias with two step Heckman procedure, we find that individual unemployment duration decreases on average by 3 to 9 days if an individual has a license. In contrast, business certification reduces individual unemployment duration by 24 to 27 days. Results are robust to propensity score matching approach. Our results suggest that certificates issued by businesses contain stronger signals and human capital improvements than government issued licenses.

Keywords: Unemployment duration, occupational regulation, search, occupational licensing, certification

JEL Classification: J64, E24