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Occupational Licensing and Labor Market Fluidity

Morris M. Kleiner and Ming Xu ()
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Ming Xu: https://www.econ.queensu.ca/people/faculty/ming-xu

No 606, Staff Report from Federal Reserve Bank of Minneapolis

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

Keywords: Occupational licensing; Regulation; Labor markets (search for similar items in EconPapers)
JEL-codes: H10 J01 J18 J38 J40 J44 J62 J80 J88 K0 K20 K31 (search for similar items in EconPapers)
Pages: 71
Date: 2020-07-15
New Economics Papers: this item is included in nep-lab and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:88385

DOI: 10.21034/sr.606

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