Occupational Deregulation, Skill Scarcity, and Incumbent Wage Premia

Julia Bredtmann (), Sebastian Otten () and Timo Rammert ()
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Julia Bredtmann: RWI – Leibniz Institute for Economic Research
Sebastian Otten: University of Duisburg-Essen
Timo Rammert: University of Duisburg-Essen

No 18961, IZA Discussion Papers from IZA Network @ LISER

Abstract: We examine the effect of occupational deregulation on incumbent master craft workers’ wages by exploiting a 2004 reform in the German crafts sector that removed the requirement to hold a master certificate for business entry in roughly half of all craft occupations. Using administrative, employee-level data and a triple-difference design, we find that the reform increased the wage premium of incumbent masters by 3% in deregulated relative to regulated occupations. The results are consistent with a scarcity mechanism whereby the decline in the inflow of newly certified masters increased the relative market value of incumbent masters. The wage premium increase is most pronounced in small firms and in East Germany, where pre-existing shortages of high-skilled labor amplified the scarcity effect. These findings suggest that deregulation may have unintended distributional consequences by reducing the private return to obtaining advanced occupational certification, thereby raising incumbent wage premia and widening skill-based wage gaps.

Keywords: occupational licensing; deregulation; skill investment; skill scarcity; wage premium (search for similar items in EconPapers)
JEL-codes: J24 J31 J48 L51 (search for similar items in EconPapers)
Date: 2026-09
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