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Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes

Morris M. Kleiner and Suyoun Han
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Morris M. Kleiner: Federal Reserve Bank of Minneapolis
Suyoun Han: Federal Reserve Bank of Minneapolis

No 556, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: The length of time from the implementation of an occupational licensing statute (i.e., licensing duration) may matter in influencing labor market outcomes. Adding to or raising the entry barriers are likely easier once an occupation is established and has gained influence in a political jurisdiction. States often enact grandfather clauses and ratchet up requirements that protect existing workers and increase entry costs to new entrants. We analyze the labor market influence of the duration of occupational licensing statutes for 13 major universally licensed occupations over a 75-year period. These occupations comprise the vast majority of workers in these regulated occupations in the United States. We provide among the first estimates of potential economic rents to grandfathering. We find that duration years of occupational licensure are positively associated with wages for continuing and grandfathered workers. The estimates show a positive relationship of duration with hours worked, but we find moderately negative results for participation in the labor market. The universally licensed occupations, however, exhibit heterogeneity in outcomes. Consequently, unlike some other labor market public policies, such as minimum wages or direct unemployment insurance benefits, occupational licensing would likely influence labor market outcomes when measured over a longer period of time.

Keywords: Occupational licensing; Duration and grandfathering effects on wage determination; Hours worked; Work force participation; Labor market regulation (search for similar items in EconPapers)
JEL-codes: J38 K20 L12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-lma
Date: 2017-10-23
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DOI: 10.21034/sr.556

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